2014
ANNUAL
REPORT
Anika Therapeutics, Inc.
2015 Letter to Shareholders
Dear Shareholders:
Anika’s 2014 was a year of operational and strategic achievements, highlighted by the U.S. approval and commercial launch
of Monovisc®, clinical and regulatory progress on Cingal®, and early product development advances in restorative and
regenerative medicine.
We delivered strong financial results for the year. Consolidated total revenue increased 41 percent from 2013 to a record $106
million in 2014, largely as a result of milestone payments related to bringing Monovisc to market in the U.S. Additionally,
Anika’s profitability improved substantially year-over-year, reflecting the combined impact of higher revenue and continued
operational efficiency improvements. Despite increased R&D spending, which was primarily related to our Cingal Phase III
clinical study, operating income for 2014 nearly doubled from last year to $61 million, and net income grew 81 percent to
$2.51 per diluted share, up from $1.39 in 2013. Our cash and investments position was strengthened by $44 million in 2014,
driven by robust cash flow from operations and our U.S. Monovisc milestone payment achievements.
Our Orthobiologics franchise continued to be Anika’s primary growth driver in 2014. Orthovisc®, our flagship
viscosupplementation product, is not only the market leader in the U.S. multi-injection segment, but it is also the country’s
number two brand in the overall market. Our Monovisc product is the first single-injection, FDA-approved,
viscosupplementation product made with hyaluronic acid (HA) derived from a non-animal source, and it provides patients
with the highest HA-dose available and demonstrates an excellent safety profile. Monovisc worldwide product revenue for
2014 was up 258 percent from 2013, reflecting the success of the product’s commercial launch in the United States and its
continued growth in most of our international markets.
We made important strides in 2014 toward expanding our global viscosupplementation market share. We continue to
implement our three-part strategy to achieve this objective, and we successfully completed part one with the
commercialization of Monovisc in the United States in April 2014. The second leg of our strategy focuses on the international
growth of our viscosupplementation franchise. Working towards implementing our plan, we commercially launched or made
significant progress towards launching Orthovisc and Monovisc in certain countries in Asia, South America, and the Middle
East. The third prong of our strategic initiative focuses on bringing new viscosupplementation products to the market, with
Cingal as our key product in late stage development. Cingal is a single-injection treatment for osteoarthritis that combines the
convenience of a single-injection and the long-term efficacy of Monovisc with the short-term pain relief benefits of a
commonly used steroid. Cingal is designed to provide patients and clinicians with an innovative treatment intended to deliver
significant benefits over therapies currently available in the market.
In 2015, our primary viscosupplementation franchise commercial goal is to continue to build the Monovisc brand.
Immediately following the product’s commercial launch, Monovisc received a strong positive clinical customer response
related to the product’s design, safety and ease of use. Such enthusiastic early feedback from the market reinforces our belief
that our goals can be reached. With strong market momentum and its unique J-Code assignment, which became effective
January 1, 2015, Monovisc is positioned for a significant sales volume increase in 2015.
On the product development front, we completed the biostatistics analysis of our multi-national Cingal Phase III clinical study
during the fourth quarter of 2014 as planned, and the product met its primary and secondary endpoints in a clinically and
statistically significant fashion. As a result, we submitted our CE Mark application for Cingal in Europe, and, in the first
quarter of 2015, we submitted our Pre-Market Application to the U.S. Food and Drug Administration ahead of schedule.
Submitting these applications was a key achievement for Anika, and we believe that receiving these marketing approvals for
Cingal will strongly position us for the future from a competitive standpoint. With regulatory reviews underway, we are
turning our attention to commercializing and generating revenue from Cingal within the next 18 months.
Concurrent with the execution of our viscosupplementation growth strategy, we also made progress in 2014 on our
Orthobiologics franchise development strategy of advancing on the continuum of care from palliative therapies to
regenerative therapies. This progress was highlighted by work on a number of very early stage development opportunities in
soft tissue repair and regeneration, as well as disease prevention, with the aim of generating products that go beyond
viscosupplementation. These development programs are based on the HYAFF® technology that we obtained through the
acquisition of our Italian subsidiary, Anika Therapeutics S.r.l.
Our lead product in this area is Hyalofast® – a biodegradable 3D scaffold that is CE-marked for the entrapment of
mesenchymal stem cells and is utilized for cartilage regeneration and as an adjunct in microfracture surgery. Hyalofast allows
patients to naturally regenerate hyaline-like cartilage through a minimally invasive, cost-effective procedure. We completed a
Hyalofast pre-submission package for the FDA in June 2014, and we received feedback in September. Our current plan is to
commence a Phase III clinical trial for Hyalofast during the second half of 2015.
Looking at our product pipeline from a longer-term perspective, we continue to develop patentable technologies and receive
patents based primarily on our HYAFF technology, including five patents that were granted to us in 2014. One of these patents
focuses on meniscus repair and regeneration, while another targets a spinal anti-adhesion application. This second patent
supports our HyalospineTM product, which received CE Mark approval in early 2015.
Our development pipeline is the strongest it has been in many years. We have two new products – Cingal and Hyalofast –
advancing toward commercialization, and we have increased our focus on regenerative medicine that has the potential to
dramatically expand our market opportunities. While we remain focused on working to advance our pipeline, we also continue
to add the organizational and operational capabilities we need to expand beyond viscosupplementation and to deliver on our
growth potential.
In summary, Anika’s prospects have never been brighter as we begin 2015. From a revenue perspective, the unusually large
Monovisc milestone events in 2014 will not recur in 2015. But with the unique J-Code taking effect in January, as well as the
strong market momentum generated in 2014, Monovisc is poised for significant product revenue growth in 2015. With a
robust product pipeline and significant financial strength, we believe that Anika is well-positioned to report another year of
superior operational accomplishment and strong financial performance in 2015. We look forward to achieving our key
business milestones, and keeping you apprised of our progress. Thank you for your continued trust and support.
Sincerely,
Charles H. Sherwood, Ph.D.
President and Chief Executive Officer
April 23, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:95)
(cid:134)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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 (cid:134) No (cid:95)
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 (cid:134) No (cid:95)
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 (cid:95) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:95) No (cid:134)
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. (cid:95)
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 (cid:134)
Accelerated filer (cid:95)
Non-accelerated filer (cid:134)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No (cid:95)
The aggregate market value of voting and non-voting equity held by non-affiliates of the Registrant as of June 30, 2014, the last day of the Registrant’s most recently
completed second fiscal quarter, was $682,060,021 based on the close price per share of common stock of $46.33 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 9,
2015, there were issued and outstanding 14,546,275 shares 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, 2014. Portions of
such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
Documents Incorporated By Reference
ANIKA THERAPEUTICS, INC.
TABLE OF CONTENTS
Cautionary Note Regarding Forward-Looking Statements
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(cid:3)
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Page
3
5
13
23
23
23
23
24
26
27
41
42
65
65
65
66
66
66
66
66
66
70
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
References in this Annual Report on Form 10-K to “we,” “us,” “our,” “our company,” and other similar references refer to Anika
Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.
ANIKA, ANIKA THERAPEUTICS, ANIKAVISC, CINGAL, HYAFF, HYDRELLE, HYVISC, INCERT, MONOVISC, and
ORTHOVISC are our registered trademarks, and HYALOSS, OPTIVISC, and SHELLGEL are our trademarks. This Annual Report on
Form 10-K also contains registered marks, trademarks, and trade names that are the property of other companies and licensed to us.
- 2 -
FORM 10-K
ANIKA THERAPEUTICS, INC.
For Fiscal Year Ended December 31, 2014
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
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:
(cid:120) Our future sales and product revenue, including geographic expansions, possible retroactive price adjustments, and
expectations of unit volumes or other offsets to price reductions;
(cid:120) Our manufacturing capacity, efficiency gains, and work-in-process manufacturing operations;
(cid:120)
(cid:120)
The timing, scope, and rate of patient enrollment for clinical trials;
The development of possible line extensions and new products;
(cid:120) Our ability to achieve and/or maintain compliance with laws and regulations;
(cid:120)
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;
(cid:120) Our intention to seek patent protection for our products and processes, and to protect our intellectual property;
(cid:120) Our ability to effectively compete against current and future competitors;
(cid:120) 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;
(cid:120)
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;
(cid:120) Our current strategy, including our corporate objectives, research and development activities, and collaboration activities;
(cid:120) Our expectations regarding our joint health products, including existing products and expectations regarding new products,
expanded uses of existing products, new distribution partnerships, and revenue growth;
(cid:120) 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;
(cid:120) Our expectations regarding next generation osteoarthritis/joint health product development, clinical trials, regulatory
approvals, and commercial launches;
(cid:120) Our expectations regarding revenue from ophthalmic products, including our ability to commercialize ANIKAVISC and
ANIKAVISC PLUS, and our expectations regarding such commercialization and the potential profits generated thereby;
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(cid:120) Our ability to license our aesthetics product to new distribution partners domestically and outside the United States;
(cid:120) Our ability, and the ability of our distribution partners, to market our aesthetics dermatology product and our expectations
regarding the distribution and sales of ELEVESS and the timing thereof;
(cid:120) Our expectations regarding dermal, surgical, and veterinary sales;
(cid:120) Our expectations regarding product gross margin;
(cid:120) Our expectations regarding CINGAL, including the expense associated therewith, and our ability to obtain regulatory
approvals for this product;
(cid:120) Our expectations for changes in operating expenses, including research and development and selling, general, and
administrative expenses;
(cid:120)
The rate at which we use cash, the amounts used and generated by operations, and our expectations regarding the adequacy and
usage of such cash;
(cid:120) Our expectation for capital expenditures spending and future amounts of interest income and expense;
(cid:120)
Possible negotiations or re-negotiations with existing or new distribution or collaboration partners;
(cid:120) Our ability to manage the operations of Anika Therapeutics S.r.l. (“Anika S.r.l.”), our wholly owned Italian subsidiary, as a
company generating continued profits;
(cid:120)
The strength of the economies in which we operate or will operate, as well as the political stability of any of those geographic
areas;
(cid:120) Our ability to effectively prioritize the many research and development projects underway;
(cid:120) Our ability to obtain U.S. approval for orthopedic and other product franchises of Anika S.r.l., including the timing and
potential success of such efforts, and to expand sales of these products in the United States, including the impact such efforts
may have on our revenue; and
(cid:120) Our ability to successfully manage the transfer of manufacturing responsibilities related to Anika S.r.l.’s HYAFF products
from the current contract manufacturer to Anika’s Bedford facility, and our ability to achieve planned results from this transfer.
Furthermore, 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.
Forward-looking statements 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.
- 4 -
ITEM 1. BUSINESS
Overview
PART I
We develop, manufacture, and commercialize 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.
Our wholly-owned subsidiary, Anika S.r.l., has over 20 products currently commercialized, primarily in Europe. These products
are also all made from HA, 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.
Our 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
X
Anika S.r.l.
X
X
X
X
X
X
X
X
In December 2012, we announced a strategic shift which involved the closure of our 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 became effective January 1, 2013. In 2013, we completed a restructuring
plan which included a reduction-in-force of 12 people and provided for severance payments, disposals of related supplies, equipment, and
other assets. This plan was intended to improve the efficiency and financial performance of our Italian operations by reducing costs and
focusing on products and technology with strong commercial potential. In connection with the plan, we 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 related to the abandonment of the HYALOGRAFT C autograft in-process research and
development (“IPR&D”) project.
The following sections provide more specific information about 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 pain relief from 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.
- 5 -
Our joint health products include ORTHOVISC, ORTHOVISC mini, and MONOVISC. ORTHOVISC is available in the United
States, Canada, and other international markets for the treatment of osteoarthritis of the knee, and in Europe and certain international
markets for the treatment of osteoarthritis in all joints. In the U.S. market, ORTHOVISC is the lead product in the multi-injection segment,
and the number two viscosupplementation product overall. ORTHOVISC mini is available in Europe, and it is designed for the treatment
of osteoarthritis in small joints. MONOVISC is our single injection osteoarthritis treatment indicated for all joints in Europe and certain
international markets, and for the knee in the United States, Turkey, and Canada. ORTHOVISC has been marketed by us internationally
since 1996. ORTHOVISC mini and MONOVISC are our joint health viscosupplementation products which became available in certain
international markets in the second quarter of 2008. Our most recent U.S. product approval was received from the FDA in February 2014
for MONOVISC, and the related commercial introduction in the United States occurred in April 2014.
In the United States, ORTHOVISC is indicated for the treatment of pain caused by osteoarthritis of the knee in patients who have
failed to respond adequately to conservative, non-pharmacologic therapy and to simple analgesics, such as acetaminophen. ORTHOVISC
is a sterile, clear, viscous 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 United States on March 1, 2004, and it is marketed by DePuy Synthes Mitek Sports
Medicine (“Mitek”) under the terms of a ten-year licensing, distribution, supply, and marketing agreement which was entered into in
December 2003 and was extended for an additional 5 years in November 2012 (the “Mitek ORTHOVISC Agreement”). 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 key markets. See the sections captioned
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Overview” and “Risk Factors.”
In the United States, MONOVISC is also 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.
MONOVISC is a sterile, clear, viscous solution of partially cross-linked sodium hyaluronate in a phosphate buffered saline solution. A
treatment of MONOVISC is comprised of one injection of the product delivered directly into the affected joint. MONOVISC became
available for sale in the United States in April 2014, and it is also marketed by Mitek under the terms of a fifteen-year licensing,
distribution, supply, and marketing agreement, which was entered into on December 21, 2011 (the “Mitek MONOVISC Agreement”).
Outside of the United States, we have a number of distribution relationships servicing international markets including Canada, Europe,
Latin America, Asia, and certain other international countries. We continue to seek to establish distribution relationships in other key
markets. 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, South America, and Asia. They include HYALOFAST, a biodegradable support for human bone marrow mesenchymal stem cells
used for cartilage regeneration and as an adjunct for microfracture surgery; HYALONECT, a woven gauze used as a graft wrap; and
HYALOSS MATRIX, 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, with the potential for use in flexor tendon adhesion prevention and for use in the
shoulder for prevention of adhesive capsulitis with additional clinical data. These products are commercialized through a network of
distributors, primarily in Europe, the Middle East, and Korea.
Dermal
Our dermal products consist of advanced wound care products, based on the HYAFF technology, and aesthetic dermal fillers,
based on our proprietary chemically modified cross-linked HA technology, BCDI. Products utilizing our HYAFF technology are used 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 to aid healing, and scaffolds used as skin substitutes. Leading products include HYALOMATRIX
and HYALOFILL, for the treatment of complex wounds such as burns and ulcers. The dermal products are commercialized through a
network of distributors, primarily in Europe, Latin America, and the Middle East. Several of the products are also cleared for sale in the
United States including HYALOMATRIX, HYALOFILL, HYALOGRAN, and HYALOMATRIX 3D. In 2012, we entered into a
distribution agreement for sales of advanced wound care products in nine South American countries, including Argentina, Brazil, Mexico,
and Chile. In July 2014, we entered into an agreement with Medline Industries, Inc. to commercialize HYALOMATRIX in the United
States on an exclusive basis through 2019.
Our aesthetic dermatology product is a dermal filler based on our proprietary chemically modified, cross-linked HA, and it is
commercialized in Europe, Canada, the United States, and Korea. Internationally, this product is marketed under the ELEVESS name. In
the United States, the trade name is HYDRELLE, although the product is not currently marketed in the United States.
- 6 -
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 it is not approved for sale in the United
States. HYALOSPINE, a product designed to prevent post-surgical adhesions following spinal surgery, was CE Mark approved in January
2015 for sale in Europe. 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 United States. We
co-own 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 ENT products.
Ophthalmic
Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. The ophthalmic products we
manufacture include STAARVISC-II, OPTIVISC (formerly ShellGel), ANIKAVISC, and NUVISC. 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 they function to maintain the shape
of the eye, thereby facilitating ophthalmic surgical procedures.
We 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 three year contract for us to continue to supply these products to
B&L as a second supplier with committed annual volumes through year-end 2014, and the contract was not renewed upon expiration.
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 and in selected countries in the Middle East.
See Note 15 “Revenue by Product Group, by Significant Customer and by Geographic Region; Geographic Information” to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion regarding our segments and
geographic sales.
See also the section captioned “Risk Factors—Risks Related to Our Business and Industry—We experience quarterly sales
volume variation, which makes our future results difficult to predict and makes period-to-period comparisons potentially not meaningful”
for a discussion regarding the effect that quarterly sales volume variation could have on our business and financial performance.
See also the section captioned “Risk Factors —Risks Related to Our Business and Industry—A significant portion of 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” for a discussion regarding our dependence on large-volume customers and the effects that the loss of any such
customer could have on our business and financial performance.
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Research and Development of Potential Products
Our 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 for
our existing and new products. Our development focus includes products for tissue protection, repair, and regeneration. For the years
ended December 31, 2014, 2013 and 2012, these expenses were $8.1 million, $7.1 million, and $5.4 million, respectively. We anticipate
that our research and development efforts, including pre-clinical studies and clinical trials, will increase significantly in the near future over
historical levels.
Our second single-injection osteoarthritis product, which is currently under development, is CINGAL, a product based on our
hyaluronic acid material with an added active therapeutic molecule designed to provide broad pain relief for a longer period of time.
During the second quarter of 2013, we commenced a multinational phase III clinical trial to obtain the clinical data necessary for a CE
Mark submission and approval, and to support other product registrations including in the United States. We completed the clinical study
and the associated statistical analysis in the fourth quarter of 2014. We submitted our CE Mark application in December 2014 and a
pre-market approval application (“PMA”) with the FDA in February 2015.
The technologies obtained through our acquisition of Anika S.r.l. have enhanced our research and development capabilities and
our pipeline of product candidates. Anika S.r.l. has research and development programs for new products including HYALOFAST, an
innovative hyaluronic acid matrix for human bone marrow mesenchymal stem cells used to regenerate soft tissue. HYALOFAST received
CE Mark approval in September 2009, and it is currently commercially available in Europe and certain international countries. During the
second quarter of 2014, we submitted a proposed investigational device protocol to the FDA. Our current plan is to begin a phase III
clinical trial in 2015. HYALOSPINE is an adhesion prevention gel for use after spinal surgery. We completed a pilot clinical study in 2012,
submitted the CE Mark application in September 2013, and received the CE Mark approval in January 2015.
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.
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, and 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. In the United States, we own
28 patents, co-own 2 patents, license 25 patents, and have 2 patent applications currently pending. These U.S. patents have expiration dates
through 2030. Internationally, we own 218 patents, co-own 9 patents, license 133 patents, and have 11 patent applications currently
pending. Outside of the United States, we own, co-own, license, or have filed for patents in 38 jurisdictions. Our international patents have
expiration dates through 2032. Many of these patents, including all licensed patents, belong to the Anika S.r.l. patent estate, which is
extensive and partly intertwined with its former parent company, Fidia Farmaceutici S.p.A., through a patent licensing agreement that
provides Anika S.r.l. with access to certain of Fidia’s patents to the extent required to support Anika S.r.l.’s 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
interests and when the cost of seeking such protection is not inordinate relative to the potential benefits.
In 2014, we were granted 5 new patents in the United States and Canada. The patents covered regenerative technologies and
products and our HYALOSPINE product, among others. 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.
We 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—Risks Related to Our Intellectual Property.”
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We have granted Mitek an exclusive and non-transferable royalty bearing license to develop, commercialize, and sell
ORTHOVISC and MONOVISC, in the United States pursuant to the Mitek ORTHOVISC Agreement and the Mitek MONOVISC
Agreement. These agreements include a license to manufacture, and have manufactured, such products in the event that we are unable to
supply Mitek with ORTHOVISC or MONOVISC in accordance with the terms of the relevant agreement. We have also granted Mitek the
exclusive, royalty free right to use the trademarks ORTHOVISC and MONOVISC in connection with the marketing, distribution, and sale
of the licensed products within the United States.
Government Regulation
U.S. Regulation
Our research (including clinical research), development, manufacture, and marketing of products are subject to regulation by
numerous governmental authorities in the United States 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 connected 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, refusal 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, which include, 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, which include, among other requirements,
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 a PMA from the FDA.
OPTIVISC (formerly SHELLGEL), STAARVISC, ANIKAVISC, and NUVISC are approved as Class III medical devices in the
United States for intraocular ophthalmic surgical procedures used in humans. ORTHOVISC and MONOVISC are approved as Class III
medical devices in the United States for treatment of pain resulting from osteoarthritis of the knee in humans. HYDRELLE is approved as
a Class III medical device in the United States for treatment of facial wrinkles and folds, such as nasolabial folds. HYVISC is approved as
an animal drug for intra-articular injection in horse joints to treat degenerative joint disease associated with synovitis. Most HA products
for human use are regulated as medical devices. We believe that our INCERT product, should we decide to seek U.S. approval to market,
will have to meet the regulatory requirements for Class III devices and will require clinical trials and a PMA submission.
Our subsidiary, Anika S.r.l., has four advanced wound care products cleared in the United States through premarket notification
(510(k)) as unclassified devices: HYALOMATRIX, HYALOFILL-F/R, LASERSKIN/HYALOMATRIX KC, and
HYALOSAFE/JALOSKIN. Anika S.r.l. also has two 510(k) Class I exempt advanced wound care products in the United States:
HYALOGRAN and HYALOMATRIX 3D. Anika S.r.l also has a 510(k)-cleared Class II ENT product, HYALOMATRIX CO. All other
Anika S.r.l. ENT products are 510(k) cleared as Class II devices, and were submitted for FDA approval by Medtronic. Not all of our
510(k)-cleared products are currently being marketed in the United States. 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.
Unless a new device is exempted from premarket notification, its manufacturer must obtain marketing clearance from the FDA
through 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 will accept submissions
related to our products, or that once accepted, review of our submissions will result in product approval on a timely basis, if at all. The
PMA approval process is lengthy and expensive, and it 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.
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Human clinical trials in the United States for significant risk devices must be conducted under Good Clinical Practice (“GCP”)
regulations through an 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 in the future approval of the product. In addition, the IDE approval process can 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) data generated suggesting that: the risks to clinical subjects are not outweighed by the anticipated benefits to
the clinical subjects or 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 PMA applicant must submit other information relevant to the safety and
efficacy of the device, including, among other things, the results of non-clinical tests, a full description of the device and its components, a
full description of the methods, facilities and controls used for manufacturing, and proposed labeling of the product. 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 to any
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 New Drug Application
(“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 the product, and proposed labeling of the product. 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, or the
use of a different facility for manufacturing the product, 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, labeling and promotion. The FDC
Act requires medical product manufacturers to comply with QSR for medical devices and cGMP regulations for pharmaceuticals. The
FDA enforces these requirements through periodic inspections of manufacturing facilities. To ensure full compliance with the
requirements set forth in the GMP/QSR regulations, manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance. Other federal, state and local agencies may inspect manufacturing
facilities as well.
Another 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. Reporting obligations are also triggered when a medical device malfunctions, and such
malfunction, if it were to recur, would be likely to cause or contribute to a death or serious injury. Reporting of these events is mandatory,
and any report could adversely affect our ability to continue to market our products in the United States and in other countries.
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 United States 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.
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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, manufacturing standards and requirements, packing
requirements, labeling requirements, import restrictions, tariff regulations, duties, and tax requirements. ORTHOVISC and MONOVISC
are approved for sale and are marketed in Canada, Europe, Turkey, parts of the Middle East, and Asia. In the European Union (“EU”),
ORTHOVISC and MONOVISC are sold under the CE Mark authorization, a certification required under EU medical device regulations.
The CE Mark for ORTHOVISC, achieved in 1996, allows the product to be marketed without further approvals in most of the EU
nations as well as other countries that recognize EU device regulations. ORTHOVISC mini, our treatment for osteoarthritis that targets
small joints, is available in Europe under a CE Mark authorization received in 2008. MONOVISC achieved CE Mark approval in 2007. In
August 2004, we received a CE Design Examination Certificate, which entitles us to affix a CE Mark to INCERT as a barrier to adhesion
formation following surgery. In May 2005, we received a CE Design Examination Certificate, which entitles us to affix a CE Mark to
OPTIVISC (formerly SHELLGEL) as an ophthalmic viscoelastic surgical device. We also received a CE Mark for ANIKAVISC Plus in
October 2011 and CE Mark approval for ELEVESS during the second quarter of 2007.
In addition, we have received approval for several of our products in Latin America, Korea, Turkey, the Middle East, including
Israel, the United Arab Emirates, and Saudi Arabia, and several markets in Asia, including the Philippines and Malaysia.
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 its
products in Taiwan, Egypt, South Korea, Malaysia, Singapore, Mexico, Argentina, Chile, Peru, Venezuela, Israel, Saudi Arabia, 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 processes than we
have. We also compete with academic institutions, government agencies, and other research organizations, which may be involved in the
research and 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.
We compete with other market participants primarily on the efficacy of our products, our products’ reputation for safety, our
focus solely on HA-based products, and the breadth of our HA-based product portfolio. Other factors that impact competition in our
industry are the timing and scope of regulatory approvals, the availability of raw material and finished product 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 the HA development and commercialization markets include:
(cid:120)
The quality and breadth of our continued development of our technology portfolio;
(cid:120) Our ability to complete successful clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our
competitors;
(cid:120)
The successful execution of our commercial strategies;
(cid:120) Our ability to recruit and retain skilled employees; and
(cid:120)
The availability of 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.
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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 United States or in certain foreign countries. All of our products face substantial competition. There
exist major worldwide competing products, made from HA and other materials, for use in orthopedics, surgical adhesion prevention,
advanced wound care, ENT, cosmetic dermatology, and ophthalmic surgery. There is a risk that we will be unable to compete effectively
against our current or future competitors. Additionally, legislation and regulation aimed at curbing rising healthcare costs has resulted in a
consolidation trend in the healthcare industry to create larger companies, including hospitals, with greater market power. In turn, this has
led to greater and more intense competition in the provision of products and services to market participants. Important market makers, like
group purchasing organizations, have increased their negotiating leverage, and if these market makers demand significant prices
concessions or if we are excluded as a supplier by these market makers, our net sales could be adversely impacted. See also the sections
captioned “Risk Factors— Risks Related to Our Business and Industry— Substantial competition could materially affect our financial
performance” and “Risk Factors —Risks Related to Our Business and Industry —Our business may be adversely affected in consolidation
in the healthcare industry leads to demand for price concessions or if we are excluded from being a supplier by a group purchasing
organization or similar entity” for additional discussion of the impact competition could have on our business and financial results.
Employees
As of December 31, 2014, we had 105 employees, 21 of whom were located outside the United States. We consider our relations
with our employees to be good. None of our U.S. employees are represented by labor unions, but 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 entails an inherent risk of allegations of product liability, and we
cannot assure 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 that if material claims arise in the future, our insurance will be adequate to cover all situations. Moreover, we cannot assure
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. 20549.
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 vary significantly in the future depending on a
number of factors. You should consider carefully the risks and uncertainties described below, in addition to the other information
contained in this Annual Report on Form 10-K, before deciding whether to purchase our common stock. If any of the following risks
actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In
that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
Failure to obtain, or any delay in obtaining, 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.
Several of our current products, including CINGAL and HYALOFAST, and any future products we may develop, will require
clinical trials to determine their safety and efficacy for United States and international marketing approval by regulatory bodies, including
the FDA. 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 accept submissions related to our new products, and, even if
submissions are accepted, there can be no guarantee that the FDA will grant approval for our new products, including CINGAL or other
line extensions, on a timely basis, if at all. In addition to regulations enforced by the FDA, we are subject to other existing and future
federal, state, local, and foreign regulations applicable to product approval, which may vary significantly across jurisdictions. Additional
approval of existing products may be required when changes to such products may affect the safety and effectiveness, including for 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. Failure to obtain regulatory approvals of our products, including any
changes to existing products, could have an adverse material impact on our business, financial condition, and results of operations.
Even if granted, FDA and international regulatory approvals may be subject to significant, unanticipated delays throughout the
regulatory approval process. Internally, we make assumptions regarding product approval timelines, both in the United States and
internationally, in our business planning, and any delay in approval could materially affect our competitive position in the relevant product
market and our projections related to future business results.
We cannot be certain that product approvals, both in the United States and internationally, will not include significant limitations
on the product indications, and other claims sought for use, under which the products may be marketed. The relevant approval or clearance
may also include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements. Any of these
factors could significantly impact our competitive position in relation to such products and could have a negative impact on the sales of
such products.
Once obtained, we cannot guarantee that FDA or international product approvals will not be withdrawn or that relevant agencies will
not require other corrective action, and any withdrawal or corrective action could materially affect our business and financial results.
Once obtained, marketing approval can be withdrawn by the FDA or comparable foreign regulatory agencies for a number of
reasons, including the failure to comply with ongoing regulatory requirements or the occurrence of unforeseen problems following initial
approval. Regulatory authorities could also limit or prevent the manufacture or distribution of our products. Any regulatory limitations on
the use of our products or any withdrawal or suspension of approval or rescission of approval by the FDA or a comparable foreign
regulatory agency could have a material adverse effect on our business, financial condition, and results of operations.
Our operations and products are subject to extensive regulation, compliance with which is costly and time consuming, and our failure
to comply may result in substantial penalties, including recalls of our products.
The FDA and foreign regulatory bodies impose extensive regulations applicable to our operations and products, including
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 maintain
compliance required for FDA, CE marking, or other foreign regulatory approvals for any or all of our operations and products or that we
will be able to produce our products in a timely and profitable manner while complying with applicable requirements.
Failure to comply with applicable regulatory requirements could result in substantial penalties, including warning letters, fines,
injunctions, civil penalties, seizure of products, total or partial suspension of production, refusal to grant pre-market clearance or
pre-market approval for devices or drugs, withdrawal of approvals, and criminal prosecution. Additionally, regulatory authorities have the
power to require the recall of our products. It also might be necessary for us, in applicable circumstances, to initiate a voluntary recall per
regulatory requirements of one or several of our products. The imposition of any of the foregoing penalties, whether voluntarily or
involuntary, could have a material negative impact on our business, financial condition, and results of operations.
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Any changes in FDA or international regulations related to product approval, including those that apply retroactively, could adversely
affect our competitive position and materially affect our business and financial results.
FDA and foreign regulations depend heavily on administrative interpretation, and we cannot assure you that future interpretations
made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us. Additionally, any changes,
whether in interpretation or substance, in existing regulations or policies, or any future adoption of new regulations or policies by relevant
regulatory bodies, could prevent or delay approval of our products. In the event our future, or current, products, including HA generally,
are classified, or re-classified, as human drugs, combination products, or biologics by the FDA or an applicable international regulatory
body, the applicable review process related to such products is typically substantially longer and substantially more expensive than the
review process to which they are currently subject as medical devices, which could materially impact our competitive position, business,
and financial results.
Substantial competition could materially affect our financial performance.
We compete with many companies, including 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, government agencies, and other research organizations that may be involved in research, development, and
commercialization of products similar to our own. 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 United States 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 United States 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.
We may rely on third parties to support certain aspects of our clinical trials. If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval or commercialize our products and our
business could be substantially harmed.
We have hired experienced clinical development and regulatory staff, and we have also retained the services of knowledgeable
external service providers, including consultants and clinical research organizations, to develop and supervise our clinical trials and
regulatory processes. Despite our internal investment in staffing, we will remain dependent upon these third party contract research
organizations to carry out portions of our clinical and preclinical research studies for the foreseeable future. As a result, we have had and
will have less control over the conduct of the clinical trials, the timing and completion of the trials, the required reporting of adverse events,
and the management of data developed through the trials than would be the case if we were relying entirely on our own staff. Outside
parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their
willingness or ability to conduct our trials. Failure by these third parties to comply with regulatory requirements or to meet timing
expectations may require us to repeat clinical or preclinical trials, which would delay the regulatory approval process, or require substantial
unexpected expenditures.
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. One partner, DePuy Synthes Mitek Sports Medicine (“Mitek”), accounted for 72% of our product
revenue in fiscal year 2014. We cannot assure you that our partners, including Mitek, will not seek to renegotiate their current agreements
on terms less favorable to us or terminate such agreements. A failure to renew these partnerships on terms satisfactory to us, or at all, could
result in a material adverse effect on our operating results.
We continue to seek to establish long-term distribution relationships in regions and countries not covered by existing agreements,
and 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. 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. The failure to establish strategic partnerships for the marketing and distribution of
our products on acceptable terms and within our planned timeframes could have a material adverse effect on our business, financial
condition, and results of operations.
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We must achieve market acceptance of our products in order to be successful in the future.
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 or viable
commercial strategies 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.
Our manufacturing processes involve inherent risks, and disruption could materially adversely affect our business, financial condition
and results of operations.
The operation of biomedical manufacturing plants involves many risks, including the risks of breakdown, failure, or substandard
performance of equipment, the occurrence of natural and other disasters, and the need to comply with the requirements of directives of
government agencies, including the FDA. In addition, we rely on a single supplier for certain key raw materials and a small number of
suppliers for a number of other materials required for the manufacturing and delivery of our HA products. Although we believe that
alternative sources for many of these and other components and raw materials that we use in our manufacturing processes are available, we
cannot be certain that the supply of key raw materials, specifically HA, will continue be available at current levels or will be sufficient to
meet our future needs. Any supply interruption could harm our ability to manufacture our products until a new source of supply is
identified and qualified. We also rely on a single supplier for certain finished products, and if such manufacturer fails to meet production or
delivery schedules, it could have an adverse impact on our ability to sell such products. 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.
We use raw materials derived from animal sources to produce certain of our products, and there is no guarantee that we will be able to
continue to utilize this source of material in the future.
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 a qualified vendor, who controls for contamination and
has 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 and beyond.
Our financial performance depends on the continued sales growth and increasing 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, 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:
(cid:120) Develop and maintain the necessary manufacturing capabilities;
(cid:120) Obtain the assistance of additional marketing partners or develop appropriate alternative sales strategies;
(cid:120) Attract, retain and integrate required key personnel; and
(cid:120)
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.
- 15 -
We engage in acquisitions as a part of our growth strategy, which exposes us to a variety of risks that could adversely affect our
business operations.
Our business strategy includes the acquisition of businesses, technologies, services, or products that we believe are a strategic fit
with our business. We may fund these acquisitions by utilizing our cash, incurring debt, issuing additional shares of our common stock, or
by other means. Completed acquisitions may expose us to a number of risks and expenses, including unanticipated liabilities, amortization
expenses related to intangible assets with definite lives, or risks associated with entering new markets with which we have limited
experience or where commercial alliances with experienced partners or existing sales channels are not available. Whether or not
completed, acquisitions may result in diversion of management resources otherwise available for ongoing development of our business and
significant expenditures.
We may not be able to realize the expected benefits of any completed acquisitions, including synergies and cost savings from the
integration of acquired businesses or assets with our existing operations and technologies, as rapidly as expected, or at all. In addition, the
integration and 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. Moreover, we may lose key clients or employees of acquired businesses as a result of the change in ownership to us.
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 In-Process Research and Development,
which could adversely affect our operating results. The failure to achieve the expected benefits of any acquisition may harm our business,
financial condition, and results of operations.
We may not fully realize the intended benefits of our restructuring plan.
On December 28, 2012, we announced a strategic shift involving the closure of our 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 became effective January 1, 2013. The restructuring plan adopted included a reduction-in-force of 12 people, and the disposal of
related supplies, equipment and other assets. We completed the restructuring plan within the first six months of 2013. The restructuring
plan was intended to improve the efficiency and financial performance of our Italian operations by reducing costs and focusing on products
and technology with strong commercial potential. There is no guarantee that the restructuring plan will produce the expected future
savings.
We may face circumstances in the future that will result in impairment charges, including, but not limited to, goodwill impairment and
IPR&D charges.
As of December 31, 2014, we had long-lived assets, including goodwill, of $55 million. 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 or future outlook, we may be required to record an impairment charge on such assets.
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.
Customer, vendor and employee uncertainty about the effects of any acquisitions could harm us.
We and the customers of any companies we acquire may, in response to the consummation of any acquisitions, delay or defer
purchasing decisions. Any delay or deferral in purchasing decisions by customers could adversely affect our business. Similarly,
employees of acquired companies may experience uncertainty about their future role until or after we execute our strategies with regard to
employees of acquired companies. This may adversely affect our ability to attract and retain key management, sales, marketing, and
technical personnel following an acquisition.
The acquisitions we have made or may make in the future may make us the subject of lawsuits from either an acquired company’s
stockholders, an acquired company’s previous stockholders or our current stockholders.
We may be the subject of lawsuits from either an acquired company’s stockholders, an acquired company’s previous
stockholders, or our current stockholders. These lawsuits could result from the actions of the acquisition target prior to the date of the
acquisition, from the acquisition transaction itself, or from actions after the acquisition. Defending potential lawsuits could cost us
significant expense and distract 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.
- 16 -
Attractive acquisition opportunities may not be available to us in the future.
We will consider the acquisition of other businesses. However, we may not locate suitable acquisition targets or have the
opportunity to make acquisitions of such targets 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 United States and other foreign 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 generally depend upon the distributors of our products to
secure reimbursement and reimbursement approvals. Reimbursement by third party payers, both in the United States and internationally,
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, or the applicable foreign regulatory agency, has granted marketing approval.
Also, the U.S. Congress, certain state legislatures, and certain foreign governments and regulatory agencies 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 United States, 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 continuing coverage for MONOVISC and ORTHOVISC in the United States, and any change of classification by the Centers for
Medicare and Medicaid Services for ORTHOVISC and MONOVISC, could have a material adverse effect on our business, financial
condition, and results of operations.
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, cash equivalents, and investments of $106.9 million at December 31, 2014. Our future capital requirements and the
adequacy of available funds will depend, however, on numerous factors, including:
(cid:120) Market acceptance of our existing and future products;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The success and sales of our products under various distributor agreements, including the ability of our partners to achieve
third party reimbursement for our products;
The successful commercialization of products in development;
Progress in our product development efforts;
The magnitude and scope of such product development efforts;
(cid:120) Any potential acquisitions of products, technologies, or businesses;
(cid:120)
(cid:120)
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;
- 17 -
(cid:120)(cid:3) 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; and
The cost of maintaining adequate inventory levels to meet current and future product demand.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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, through strategic alliances with corporate
partners and others or through other sources. The terms of any future equity financings may be dilutive to our investors 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 at the time we
seek financing. 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 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
product liability 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, and 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, and 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 technical and highly skilled managerial and manufacturing personnel. We face significant competition for such
personnel from competitive 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, 2014, 2013, and 2012, 13%, 23%, and 19%, 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:
(cid:120)
The impact of recessions and other economic conditions in economies, including Europe in particular, outside the United
States;
- 18 -
(cid:120)(cid:3)
Instability of foreign economic, political, and labor conditions;
(cid:120) Unfavorable labor regulations applicable to our European operations, such as severance and the unenforceability of
non-competition agreements in the European Union;
(cid:120)
The impact of strikes, work stoppages, work slowdowns, grievances, complaints, claims of unfair labor practices, or
other collective bargaining disputes;
(cid:120) Difficulties in complying with restrictions imposed by regulatory or market requirements, tariffs, or other trade barriers
or by U.S. export laws;
(cid:120)
(cid:120)
(cid:120)
Imposition of government controls limiting the volume of international sales;
Longer accounts receivable payment cycles;
Potentially adverse tax consequences, including, if required or applicable, difficulties transferring funds generated in
non-U.S. jurisdictions to the United States in a tax efficient manner;
(cid:120) Difficulties in protecting intellectual property, especially in international jurisdictions;
(cid:120) Difficulties in managing international operations; and
(cid:120)
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 7% of our business during fiscal year 2014 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.
A significant portion of 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, 2014, five customers accounted
for 85% of product revenue, with Mitek alone accounting for 72% of product revenue. We expect to continue to be dependent on a small
number of large customers, especially Mitek, for the majority of our revenues for the foreseeable future. The failure of these customers to
purchase our products in the amounts they historically have or in amounts that we expect 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 agreements, 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, or develop alternative commercial strategies, 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,
it could seriously harm our business, financial condition, and results of operations.
- 19 -
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. While
we have not previously experienced a material information security breach caused by illegal hacking, computer viruses, or acts of
vandalism or terrorism, we may in the future be subject to such a breach. 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 exposure to litigation, any of which could harm our business and
operating results.
The impact of U.S. healthcare reform legislation on us remains uncertain but could be significant.
In 2010, federal legislation to reform the U.S. healthcare system was enacted into law in the Patient Protection and Affordable
Care Act. The legislation is intended to expand access to health insurance coverage, improve quality, and reduce costs over time. We
expect the new law will impact certain aspects of our business. However, it remains unclear how the new law will impact patient access to
new technologies or reimbursement rates under the Medicare program as such access or rates pertain to us. Many of the details of the new
law will be included in new and revised regulations, the totality of which have not yet been promulgated, and will require additional
guidance to be provided by the Department of Health and Human Services, Department of Labor, and Department of the Treasury. We are
completing our assessment of the new law on our business. The legislation could have a material adverse effect on our business, cash
flows, financial condition, and results of operations.
Our business may be adversely affected if consolidation in the healthcare industry leads to demand for price concessions or if we are
excluded from being a supplier by a group purchasing organization or similar entity.
Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms have been launched by
legislators, regulators, and third-party payers to curb these costs. As a result, there has been a consolidation trend in the healthcare industry
to create larger companies, including hospitals, with greater market power. As the healthcare industry consolidates, competition to provide
products and services to industry participants has become and may continue to become more intense. This may result in greater pricing
pressures and the exclusion of certain suppliers from important markets as group purchasing organizations, independent delivery networks,
and large single accounts continue to use their market power to consolidate purchasing decisions. If a group purchasing organization
excludes us from being one of their suppliers, our net sales could be adversely impacted. We expect that market demand, government
regulation, third-party reimbursement policies, and societal pressures will continue to change the worldwide healthcare industry, which
may exert further downward pressure on the prices of our products.
We experience quarterly sales volume variation, which makes our future results difficult to predict and makes period-to-period
comparisons potentially not meaningful.
We experience quarterly fluctuations in our products sales as a result of multiple factors, many of which are outside of our control.
These quarterly fluctuations create uncertainty as to the volume of sales that we may achieve in a given period. As a result, comparing our
operating results on a period-to-period basis might not be meaningful. You should not rely on our past results as an indication of our future
performance. Our operating results could be disproportionately affected by a reduction in revenue because a proportionately smaller
amount of our expenses varies with our revenue. As a result, our quarterly operating results are difficult to predict, even in the near term.
- 20 -
Risks Related to Our Intellectual Property
We may be unable to adequately protect our intellectual property rights, which could have a material impact on our business and
future financial results.
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 and trademarks, to protect trade secrets, to obtain licenses to technology owned
by third parties when necessary, and to conduct our business without infringing on the proprietary rights of others. The patent positions of
pharmaceutical, medical product, 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, that 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
U.S. Patent and Trademark Office to determine priority of invention, which could result in the failure to obtain, or the loss of, patent
protection for the inventions and the loss of any right to use the inventions. Even if the eventual outcome is favorable to us, such
interference proceedings could result in substantial cost to us, including, but not limited to, the diversion of management’s attention away
from our other 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, 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 in order
to continue production of the products. 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.
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.
There can be no assurance that we will not infringe upon the intellectual property rights of others, which could have a significant
impact on our business and financial results.
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. The cost of defending infringement suits is typically large, and there is no guarantee that any future defense would be successful. In
addition, infringement could lead to substantial damages payouts or our inability to produce or market certain of our current or future
products. As a result, any such infringement may have a material adverse effect on our business, financial condition, and results of
operations.
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Risks Related to Ownership of Our Common Stock
Our stock price may be 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,
government 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.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they
adversely change their recommendations regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that securities or industry analysts may publish
about us, our business, our market, or our competitors. No person is under any obligation to publish research or reports on us, and any
person publishing research or reports on us may discontinue doing so at any time without notice. If adequate research coverage is not
maintained on our company or if any of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about
our business or provide relatively more favorable recommendations about our competitors, our stock price would likely decline. If any
analysts who cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or trading volume to decline.
We do not intend to pay dividends on our common stock in the foreseeable future.
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. Accordingly, investors are not
likely to receive any dividends on their common stock in the foreseeable future, and their ability to achieve a return on their investment will
therefore depend on appreciation in the price of our common stock.
Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of our company.
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, and 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 adopted a ten-year 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 becomes an interested stockholder. All of these provisions, policies, and plans are reviewed
periodically by our Board of Directors. 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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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 then current term. The first three renewal options each extend the term an additional five
years with the final renewal option extending the term six years.
We also lease, as part of the acquisition of Anika S.r.l., approximately 28,000 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 years. For the year ended
December 31, 2014, we had aggregate facility lease expenses of approximately $1,401,000. We believe that the capacity of each of the
properties we currently occupy is sufficient to satisfy our current needs, as well as our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
On July 7, 2010, Genzyme Corporation filed a complaint against our company in the U.S. District Court for the District of
Massachusetts seeking unspecified damages and equitable relief. The complaint alleged that we infringed U.S. Patent No. 5,143,724 by
manufacturing MONOVISC in the United States for sale outside the United States and would infringe U.S. Patent Nos. 5,143,724 and
5,399,351 if we manufactured and sold MONOVISC in the United States. On March 7, 2014, we filed a joint motion with Genzyme to lift
the stay in Genzyme’s lawsuit against us and to dismiss with prejudice all of Genzyme’s claims. On March 10, 2014, the District Court
granted the motion to dismiss all of Genzyme’s claims against us with prejudice and the case was terminated.
In 2011, MEROGEL INJECTABLE was voluntarily withdrawn from the market due to a labeling error on the product’s
packaging. We settled the matter related to this dispute with the product’s distributor, Medtronic, in August 2012. This labeling error
related to conduct that initially occurred prior to our acquisition of Anika S.r.l. from Fidia Farmaceutici S.p.A. (“Fidia”) and, as a result, we
made claims against Fidia for indemnification for Anika’s losses related to this issue. Fidia maintained that it did not have liability for this
matter, and it asserted a counterclaim against us 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 reached an agreement with Fidia in October 2013 to settle this matter without admission of liability by
either party in return for a payment made by Fidia to us. As a result of the settlement, the arbitration with Fidia pending before the London
Court of International Arbitration has been withdrawn, and the shares previously held in escrow have been released.
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.
- 23 -
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 they may not
necessarily represent actual transactions.
Year Ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
52.49
51.40
50.89
43.24
High
14.58
18.07
27.80
38.68
$
$
Low
28.79
35.62
35.39
34.16
Low
10.00
12.26
17.02
23.26
At December 31, 2014, the closing price per share of our common stock was $40.74 as reported on the NASDAQ Global Select
Market, and there were 151 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.
- 24 -
Performance Graph
Set forth below is a graph comparing the total returns of our company, the NASDAQ Composite Index, and the NASDAQ Biotechnology
Index. The graph assumes $100 is invested on December 31, 2009 in our common stock and each of the indices. Past performance is not
indicative of future results.
Anika Therapeutics, Inc.
NASDAQ Composite Index
NASDAQ Biotechnology Index
Dec-09
$ 100.00
$ 100.00
$ 100.00
Dec-10
$
87.42
$ 116.91
$ 115.01
Dec-11
$ 128.44
$ 114.81
$ 128.59
Dec-12
$ 130.28
$ 133.07
$ 169.61
Dec-13
$ 500.13
$ 184.06
$ 280.89
Dec-14
$ 533.94
$ 208.71
$ 376.68
- 25 -
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 the section captioned “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, 2014 and 2013 and the Statement of
Operations Data for each of the three years ended December 31, 2014, 2013, and 2012 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,
2012, 2011, and 2010, and the Statement of Operations Data for each of the two years in the period ended December 31, 2011 and 2010
have been derived from 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)
$
$
$
2014
2013
2012
2011
2010
Years ended December 31,
75,474
30,121
105,595
20,930
54,544
72%
44,148
38,319
2.51
15,269
$
$
$
$
71,774
3,307
75,081
22,765
49,009
68%
42,474
20,575
1.39
14,826
$
$
68,010
3,348
71,358
28,989
39,021
57%
51,643
11,757
0.82
14,345
$
$
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
Balance Sheet Data
(In thousands)
Years ended December 31,
2014
2013
2012
2011
2010
$
106,906
133,052
193,996
-
104,904
178,097
$
63,333
85,309
156,042
-
66,584
135,634
$
44,067
62,932
142,069
9,600
46,010
108,925
$
35,777
49,600
132,844
11,200
34,252
94,763
28,202
36,952
128,937
12,800
25,786
85,190
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
Cash, cash equivalents and investments
Working capital
Total assets
Long term debt
Retained earnings
Stockholders' equity
- 26 -
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following section 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 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 the sections captioned “Business” and “Risk Factors.” The following discussion should also be read in
conjunction with the consolidated financial statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Management Overview
We develop, manufacture, and commercialize 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. We offer
therapeutic products in the following areas:
Orthobiologics
Dermal
Advanced wound care
Aesthetic dermatology
Surgical
Anti-adhesion
Ear, nose and throat care (“ENT”)
Ophthalmic
Veterinary
Anika
X
Anika S.r.l.
X
X
X
X
X
X
X
X
Orthobiologics
Our orthobiologics business contributed 82% to our product revenue for the year ended December 31, 2014. Our orthobiologics
products consist of joint health and orthopedic products. Joint health products include ORTHOVISC, ORTHOVISC mini, and
MONOVISC. ORTHOVISC, the lead product in this franchise, is available in the United States, Canada, and some international markets
for the treatment of osteoarthritis of the knee, and in Europe and other international markets for the treatment of osteoarthritis in all joints,
and it has been marketed by us internationally since 1996 through various distribution agreements. 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 certain international markets, and for the knee in the United States, Turkey, and Canada.
ORTHOVISC mini and MONOVISC both became available in certain international markets during the second quarter of 2008. Our most
recent product approval was received in February 2014 for MONOVISC when it was approved by the FDA for sale in the United States.
The related commercial introduction of MONOVISC in the United States occurred in April 2014.
We currently offer several orthopedic products used in connection with regenerative medicine. The products currently available
in Europe and certain international markets include HYALOFAST, a biodegradable support for human bone marrow mesenchymal stem
cells used for cartilage regeneration and as an adjunct for microfracture surgery; HYALONECT, a woven gauze used as a bone 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 that, with additional clinical data, may demonstrate potential for flexor tendon adhesion prevention
and for the treatment of adhesive capsulitis prevention in the shoulder. These products are commercialized through a network of
distributors, primarily in Europe, the Middle East, and Korea. We believe that the U.S. market offers excellent expansion potential to
increase revenue for these products, and this will continue to be a focus area for us moving forward.
Our strategy is to continue to add new products, to expand the indications for usage of both our current and any new products, and
to expand our commercial reach. The orthobiologics area has been our fastest growing area, growing from 58% of our product revenue in
2010 to 82% of our product revenue in 2014. We continue to seek new distribution partnerships around the world, in concert with entering
new markets with other appropriate sales strategies, and we expect total orthobiologics product sales to increase in 2015 compared to 2014
based on sales from existing and new partners.
- 27 -
Dermal
Our dermal products contributed 2% to our product revenue for the year ended December 31, 2014 and consist of advanced
wound care products, which are based on the HYAFF technology, and aesthetic dermal fillers. Anika S.r.l. offers 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 as skin substitutes. Leading products include HYALOMATRIX and HYALOFILL for the
treatment of complex wounds, such as burns and ulcers, and 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, Latin America, and the Middle East. Several of the
products are also cleared for sale in the United States including HYALOMATRIX, HYALOFILL, HYALOGRAN, and HYALOMATRIX
3D. In 2012, we entered into a distribution agreement for sales of advanced wound care products in nine South American countries,
including Argentina, Brazil, Mexico, and Chile. In July 2014, we entered into a new agreement with Medline Industries, Inc. to
commercialize HYALOMATRIX in the United States on an exclusive basis through 2019.
Our initial aesthetic dermatology product is a dermal filler based on our proprietary, chemically modified, cross-linked HA, and it
is approved in Europe, Canada, the United States, South Korea, and certain countries in South America. Internationally, this product is
marketed under the ELEVESS trade name. In the United States, the trade name is HYDRELLE, although the product is not currently
marketed in the United States.
Surgical
Our surgical group consists of products used to prevent surgical adhesions and to treat ENT disorders. For the year ended
December 31, 2014, sales of surgical products contributed 8% 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 it is not approved in the United States. INCERT, approved for sale in
Europe, Turkey, and Malaysia, is a chemically modified, cross-linked HA product used for the prevention of post-surgical spinal
adhesions. There are no plans at this time to distribute INCERT in the United States. We co-own 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 HA, a
biocompatible agent that creates a moist wound-healing environment. Anika S.r.l. is partnered with Medtronic for the worldwide
distribution of these products.
In 2011, MEROGEL INJECTABLE was voluntarily withdrawn from the market due to a labeling error on the product’s
packaging. We settled the matter related to this dispute with Medtronic in August 2012. This labeling error related to conduct that initially
occurred prior to our acquisition of Anika S.r.l. from Fidia and, as a result, we made claims against Fidia for indemnification for our losses
related to this issue. Fidia maintained that it did not have liability for this matter, and asserted a counterclaim against us 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 reached an agreement
with Fidia in October 2013 to settle this matter without admission of liability by either party in return for a payment made by Fidia to us. As
a result of the settlement, the arbitration with Fidia pending before the London Court of International Arbitration was withdrawn, and the
shares previously held in escrow were released.
Ophthalmic
Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. For the year ended December 31, 2014,
sales of ophthalmic products contributed 4% of our product revenue. We previously manufactured the AMVISC product line for B&L
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 three year contract for us to continue to supply
these products to B&L as a second supplier with committed annual volumes for 2012, and with lower committed volumes in 2013 and
2014. Operating margins under the B&L agreement were low, and B&L accounted for 3% of product revenue for the year ended 2014. Our
contractual arrangement with B&L expired on December 31, 2014, and it was not renewed. Given that the ophthalmic franchise is not part
of our core business, and that it has been steadily diminishing for the past few years, we do not expect this event to have a material impact
on our results going forward.
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, 2014. We continue to look at other veterinary applications and opportunities to expand geographic territories.
- 28 -
Research and Development
Our research and development efforts in 2014 primarily consisted of the development of new medical applications for our
HA-based technology, the management of clinical trials for certain product candidates, including CINGAL and HYALOFAST, 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 related to our existing and new products. Our development focus includes products for
tissue protection, healing, and repair. Our investment in research and development has been important over the years, and it has varied
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 in relation to clinical trials, in the future. With the acquisition of Anika S.r.l.,
we enhanced our research and development capabilities, our technology base and our pipeline of product candidates. Anika S.r.l. has
research and development programs underway for new products including HYALOFAST, an innovative product for cartilage tissue repair,
HYALOBONE, a bone void filler and other early stage regenerative medicine development programs.
In February 2014, we received FDA approval for MONOVISC, and Mitek began selling the product in the United States in the
second quarter of 2014. MONOVISC is the first FDA-approved, single-injection treatment for osteoarthritis that uses non-animal sourced
HA. It is also our first osteoarthritis product based on our proprietary, cross-linked HA technology. We received CE Mark approval for
MONOVISC in October 2007, and we began selling in Europe through our distribution network during the second quarter of 2008.
Our second single-injection osteoarthritis product under development is CINGAL, which is based on our HA material with an
added active therapeutic molecule designed to provide broad pain relief over a longer period of time. During the second quarter of 2013, we
commenced a phase III clinical trial to obtain the needed clinical data for a CE Mark submission and approval and to support other product
registrations, including in the United States. We completed the CINGAL clinical trial during the fourth quarter of 2014. In December 2014,
we submitted an application for CE Mark approval of the product, and we submitted a PMA to the FDA for U.S. marketing approval in
February 2015. We are also currently conducting a reinjection study related to CINGAL with patients who participated in the initial
clinical trial.
Restructuring Plan
On December 28, 2012 we announced the closure of our 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 became effective January 1,
2013. The restructuring plan primarily involved a workforce reduction, the disposal of related supplies and equipment, and the termination
of the HYALOGRAFT C autograft IPR&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 was related to
the noncash disposal of assets. The remaining $0.9 million related to cash payments that occurred in 2013, primarily for employee
termination costs. The restructuring plan was completed in 2013, with a $286,843 benefit to the statement of operations for the year ended
December 31, 2013, based on actual expenses and payment settlements.
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 included elsewhere in this Annual Report on Form 10-K, which consolidated financial statements 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
the 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 are discussed throughout this section captioned
“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 to the
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
- 29 -
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 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.
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.
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.
Our policy is to write-down inventory when conditions exist that suggest inventory may be in excess of anticipated demand or is
obsolete based upon assumptions about future demand for our products and market conditions. We regularly evaluate our 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.
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
Revenue from product sales is 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, we evaluate both the
contractual terms and conditions of our distribution and supply agreements as well as our business practices.
Product revenue also includes royalties. Royalty revenue is based on our distributors’ sales and is 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 quarterly unaudited or annual audited financial statements.
- 30 -
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. We adopted Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition, in
January 2011, which amends ASC 605-25, Multiple Element Arrangements 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 we complete our performance obligations.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives.
Equipment and software are typically amortized over two to ten 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. Maintenance and repairs are
charged to expense when incurred, while 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 as income or loss.
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 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 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, the risk free rate of return on an investment, the 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, 2014 indicated that the fair value of our reporting unit exceeded the carrying value of the reporting unit. Our
goodwill balance relates entirely to the 2009 acquisition of Anika S.r.l. and has been assigned to the Anika S.r.l. reporting unit.
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, estimates of the timing of and expected costs to complete the in-process projects, projections
related to regulatory approvals timelines, estimated future cash flows from product sales resulting from completed projects and in-process
projects, and estimates of appropriate discount rates. Our annual assessment for impairment of IPR&D indicated that the fair value of our
IPR&D as of November 30, 2014 exceeded their respective carrying values.
Through December 31, 2014 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. We continue 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.
- 31 -
Long-Lived Assets
Long-lived assets primarily include property and equipment, and intangible assets with finite lives. Our intangible assets are
comprised of purchased developed technologies, distributor relationships, patents, and trade names. These intangible assets are carried at
cost, net of accumulated amortization. Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range
from approximately 5 to 16 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.
Restructuring and Impairment 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.
Stock-Based Compensation
We measure the compensation cost of award recipients’ 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. For performance based awards with financial achievement targets, we recognize expense using
the graded vesting methodology based on the number of shares expected to vest. Compensation expense associated with these performance
based awards is adjusted to reflect subsequent changes in the estimated outcome of performance-related conditions until the date the results
are determined. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related
share-based compensation expense that will be recorded in the period of the change. If the performance targets are not achieved, no
compensation cost is recognized and any previously recognized compensation cost is reversed. See Note 12 to the consolidated financial
statements included elsewhere in this Annual Report on Form 10-K 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 16 to such consolidated financial
statements for details related 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.
- 32 -
Results of Operations
Year ended December 31, 2014 compared to year ended December 31, 2013
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 credits
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
$
$
$
2014
75,473,998
30,120,841
105,594,839
20,930,318
8,144,152
15,073,485
-
44,147,955
61,446,884
58,137
61,505,021
23,185,542
38,319,479
54,543,680
72%
$
$
$
Years Ended December 31,
Inc/(Dec)
2013
71,773,730
3,307,424
75,081,154
$
3,700,268
26,813,417
30,513,685
22,765,404
7,059,875
12,936,001
(286,843)
42,474,437
32,606,717
(127,186)
32,479,531
11,905,010
20,574,521
49,008,326
68%
$
$
(1,835,086)
1,084,277
2,137,484
286,843
1,673,518
28,840,167
185,323
29,025,490
11,280,532
17,744,958
5,535,354
Inc/(Dec)
5%
811%
41%
(8%)
15%
17%
-
4%
88%
(146%)
89%
95%
86%
11%
Total revenue. Total revenue for the year ended December 31, 2014 increased by $30,513,685 to $105,594,839. The increase in
product and total revenue was primarily due to the U.S. MONOVISC commercial launch in April 2014 and milestone revenue from our
U.S. distributor for MONOVISC, resulting from the product’s FDA approval, patent litigation resolution, and commercial launch in 2014.
Product revenue by product line. Product revenue for the year ended December 31, 2014 was $75,473,998, an increase of
$3,700,268 or 5%, compared to the prior year.
Orthobiologics
Dermal
Surgical
Ophthalmic
Veterinary
2014
61,956,870
1,334,295
5,854,876
3,153,435
3,174,522
75,473,998
$
$
$
$
2013
55,956,068
1,816,602
5,445,715
4,656,560
3,898,785
71,773,730
$
$
6,000,802
(482,307)
409,161
(1,503,125)
(724,263)
3,700,268
Years Ended December 31,
Inc/(Dec)
Inc/(Dec)
11%
(27%)
8%
(32%)
(19%)
5%
Revenue from our orthobiologics franchises increased $6,000,802, or 11%, in 2014 compared to 2013. The improvement in
orthobiologics product revenue was due primarily to increases in domestic MONOVISC and ORTHOVISC revenue. This increase reflects
MONOVISC U.S. product launch in April 2014 and Mitek’s continued market penetration. International viscosupplementation product
revenue in 2014 decreased 23% compared to 2013. The decrease in international revenue was driven primarily by decreased sales of
ORTHOVISC in 2014, as compared to 2013, resulting from increased price competition. We expect orthobiologics revenue to grow in
2015, led by increased MONOVISC revenue in the United States, as well as overall revenue growth from our viscosupplementation
products both domestically and internationally.
Dermal revenue decreased $482,307, or 27%, in 2014 compared to 2013. The decrease was primarily due to Anika S.r.l.’s
advanced wound care products revenue, which totaled $1,241,453 in 2014, as compared to $1,647,396 in 2013. This decrease was driven
by order timing and lower revenue in Argentina as a result of the country’s recent financial crisis. We expect advanced wound care revenue
to increase in 2015 compared to 2014 primarily as a result of geographic expansion, particularly in the U.S. market.
- 33 -
Sales of our surgical products increased $409,161, or 8%, in 2014 as compared to 2013. The increase was primarily due to the
addition of line extension products in Korea to utilize an expanded treatment indication. Our Surgical franchise consists primarily of Anika
S.r.l.’s anti-adhesion and ENT products. Our anti-adhesion products include INCERT and HYALOBARRIER. Our leading ENT product
is MEROGEL. Anika S.r.l. is partnered with Medtronic for worldwide distribution of these ENT products. We expect surgical product
revenue to increase in 2015 compared to 2014 due to continued growth in the European and Asian markets.
Revenue from ophthalmic products in 2014 decreased $1,503,125, or 32%, compared to revenue for these products in 2013. The
decrease was primarily attributable to the reduced contractual minimum purchase commitment in the latest B&L supply agreement, which
expired as expected at the end of 2014. As a result, we expect that ophthalmic product revenue will decrease in 2015 as compared to
2014. Operating margins under the B&L agreement were low, and given that the ophthalmic franchise is not part of our core business, and
that it has been steadily diminishing for the past few years, we do not expect this event to have a material impact on our results going
forward.
Veterinary revenue decreased $724,263, or 19%, in 2014 as compared to 2013. The decrease was primarily due to order timing by
our distributors. Sales of HYVISC are made to a single customer under an exclusive agreement which expires December 31, 2016. We
expect veterinary revenue to increase in 2015 as compared to 2014, due to increased demand for the product in the United States.
Licensing, milestone and contract revenue. Licensing, milestone, and contract revenue for the year ended December 31, 2014
was $30,120,841, compared to $3,307,424 for 2013. Licensing and milestone included a $17,500,000 milestone payment resulting from
the resolution of the patent litigation with Genzyme and the FDA approval of MONOVISC, and it also included the recognition of
approximately $2,200,000 remaining in the unamortized upfront payment previously received in December 2011. These payments were
related to our development obligations under the Mitek MONOVISC Agreement. The FDA’s approval of our MONOVISC product during
the quarter ended March 31, 2014 completed the delivery of our development obligations under the Mitek MONOVISC Agreement, and
resulted in the immediate recognition of the $17,500,000 milestone payment, as well as the full recognition of prior deferred revenue in the
first quarter of 2014. During the second quarter of 2014, a $5,000,000 milestone payment associated with the first commercial sale of
MONOVISC in the United States was earned, received, and recognized as revenue. We also received a unique J-Code from the Centers for
Medicare and Medicaid Services (“CMS”) for MONOVISC during the fourth quarter of 2014 and, as a result, we collected a milestone
payment of $5,000,000, which was fully earned and recognized as revenue. For the year ended December 31, 2014, we recognized a total
of $29.7 million in milestone revenue related to MONOVISC.
Product gross profit and margin. Product gross profit for the year ended December 31, 2014 was $54,543,680, or 72% of
product revenue, compared with $49,008,326, or 68% of product revenue, for the year ended December 31, 2013. The increase in product
gross profit was primarily due to improved manufacturing efficiencies, as well as improvements in the overall product sales mix compared
to the prior year, with increased sales of our higher-margin orthobiologics products as a percentage of our total product sales.
Research and development. Research and development expenses for the year ended December 31, 2014 increased by
$1,084,277, or 15%, as compared to the prior year, mainly due to the progression of certain clinical trials. Research and development
expense as a percentage of total revenue was 8% and 9% for the years ended 2014 and 2013, respectively. We expect research and
development expenses will increase in 2015 and thereafter compared to 2014 with our continued efforts related to CINGAL and
HYALOFAST, our development efforts for tissue regenerating products, line extension products, new products, and early-stage
development projects.
Selling, general, and administrative. Selling, general, and administrative expenses for the year ended December 31, 2014
increased by $2,137,484, or 17%, as compared to 2013. This increase was primarily due to a legal dispute settlement payment received in
2013, increases in external professional fees, and increased headcount related expenses in 2014. We expect selling, general, and
administrative expenses for 2015 will increase to reflect the support required to grow our business both domestically and internationally.
Restructuring credits. On December 28, 2012, we announced a strategic shift involving the closure of our tissue engineering
facility in Abano Terme, Italy due to the inability to meet strict regulatory standards, established by the EMA, which became effective
January 1, 2013. As a result of the plan, we recorded restructuring and associated impairment charges in the fourth quarter 2012 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 related to cash payments that occurred in 2013, primarily for
employee termination costs. The restructuring plan was completed in 2013, with a $286,843 benefit to the statement of operations for the
year ended December 31, 2013, based on actual expenses and payment settlements.
Interest income (expense), net. Net interest income was $58,137 for the year ended December 31, 2014, as compared to interest
expense of $127,186 in the same period ended 2013. On November 29, 2013, we terminated our credit agreement entered into on January
31, 2008 with lenders for which Bank of America, N.A. served as administrative agent. In connection with the termination, we pre-paid in
full the entire outstanding debt balance of $8,400,000, and we did not incur any pre-payment penalties. This termination resulted in the
change from net interest expense in 2013 to net interest income in 2014. Interest income is primarily from our short-term investment
holdings.
- 34 -
Income taxes. Provisions for income taxes were $23,185,542 and $11,905,010 for the years ended December 31, 2014 and 2013,
respectively. The increase in the effective tax rate in 2014 of 1.0%, as compared to 2013, is primarily due to a decreased benefit from
domestic production activities.
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
Years ended December 31,
2013
2014
35.0%
4.9%
0.1%
(0.1%)
(0.7%)
0.2%
(1.7%)
37.7%
35.0%
4.8%
(0.2%)
(0.1%)
(0.5%)
0.1%
(2.4%)
36.7%
As of December 31, 2014, we had net operating losses (“NOL”) for income tax purposes in Italy of $8,334,628 with no expiration
date.
In connection with the preparation of the financial statements, we performed an analysis to ascertain if it was more likely than not
that we would be able to utilize, in future periods, the net deferred tax assets associated with our NOL carry-forward. We have concluded
that the positive evidence outweighs the negative evidence and, thus, that the 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, 2014 or
2013.
The 2011 through 2014 tax years remain subject to examination by the Internal Revenue Service (“IRS”) and other taxing
authorities for U.S. federal and state purposes. The 2010 through 2014 tax years remain subject to examination by the applicable
governmental authorities in Italy.
Net income. For the year ended December 31, 2014, net income was $38,319,479, or $2.51 per diluted share, compared to
$20,574,521, or $1.39 per diluted share, for the same period in the prior year. The primary drivers for this increase in net income were an
increase in gross profit due to increased milestone and licensing revenue, a more favorable product mix, and the improved manufacturing
efficiencies at our Bedford, Massachusetts manufacturing facility.
- 35 -
Year ended December 31, 2013 compared to year ended December 31, 2012
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 (credits) 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
$
$
$
2013
71,773,730
3,307,424
75,081,154
$
22,765,404
7,059,875
12,936,001
(286,843)
42,474,437
32,606,717
(127,186)
32,479,531
11,905,010
20,574,521
49,008,326
68%
$
$
Years Ended December 31,
Inc/(Dec)
2012
68,010,169
3,348,336
71,358,505
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
57%
$
$
$
3,763,561
(40,912)
3,722,649
(6,223,217)
1,671,839
(1,792,661)
(2,824,831)
(9,168,870)
12,891,519
60,591
12,952,110
4,135,049
8,817,061
9,986,778
Inc/(Dec)
6%
(1%)
5%
(21%)
31%
(12%)
-
(18%)
65%
(32%)
66%
53%
75%
26%
Total revenue. Total revenue for the year ended December 31, 2013 increased by $3,722,649 to $75,081,154. The increase in
total revenue was primarily due to increased orthobiologics product revenue in 2013 as compared to 2012.
Product revenue by product line. Product revenue for the year ended December 31, 2013 was $71,773,730, an increase of
$3,763,561, or 6%, compared to the prior year.
Orthobiologics
Dermal
Surgical
Ophthalmic
Veterinary
2013
55,956,068
1,816,602
5,445,715
4,656,560
3,898,785
71,773,730
$
$
$
$
2012
49,954,112
1,384,403
5,022,456
8,784,011
2,865,187
68,010,169
$
$
6,001,956
432,199
423,259
(4,127,451)
1,033,598
3,763,561
Years Ended December 31,
Inc/(Dec)
Inc/(Dec)
12%
31%
8%
(47%)
36%
6%
Revenue from orthobiologics increased $6,001,956, or 12%, in 2013 compared to 2012. The improvement in orthobiologics
product revenue was due primarily to increases in domestic and international ORTHOVISC sales. Our U.S. ORTHOVISC product
revenue for 2013 increased 9% compared to 2012. This increase reflected Mitek’s continued market penetration. International
viscosupplementation product revenue in 2013 increased 34% compared to 2012. The increase in international revenue was driven
primarily by growth from existing partners, as well as geographic expansion.
Dermal revenue increased $432,199, or 31%, in 2013 compared to 2012. The increase was primarily due to Anika S.r.l.’s
advanced wound care products revenue which totaled $1,647,396 in 2013, as compared to $976,388 in 2012. This increase was driven by
expansion of advanced wound care revenue from existing distributors, as well as product launches in South America.
Sales of our surgical products increased $423,259, or 8%, as compared to 2012. 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.
- 36 -
Revenue from ophthalmic products in 2013 decreased $4,127,451, or 47%, compared to revenue for these products in 2012. The
decrease was primarily attributable to B&L’s plan to shift manufacturing to an alternative supplier. B&L accounted for 5% of product
revenue for the year ended 2013. Operating margins under the expired B&L agreements were relatively low.
Veterinary revenue increased $1,033,598, or 36%, in 2013 as compared to 2012. Sales of HYVISC are made to a single customer
under an exclusive agreement.
Licensing, milestone and contract revenue. Licensing, milestone, and contract revenue for the year ended December 31, 2013
was $3,307,424, compared to $3,348,336 for 2012. Licensing and milestone revenue included the ratable recognition of $27,000,000 in
up-front and milestone payments related to the Mitek ORTHOVISC Agreement. These amounts were being recognized in income ratably
over the ten-year initial term of the agreement, or $2,700,000 per year. The year 2013 was the last year for the recognition of these
milestone payments related to ORTHOVISC under the initial term of the agreement. In November 2012, Mitek exercised its option and
extended the Mitek ORTHOVISC Agreement for an additional five years through December 2018.
In December 2011, we entered into a fifteen-year licensing and supply agreement with Mitek, Inc. to market MONOVISC in the
United States. We received an initial payment of $2,500,000 in December 2011, which is also being recognized ratably over the
development obligation period . We received a PMA from the FDA for MONOVISC in February 2014, and were entitled to receive
additional payments from Mitek, following achievement of the PMA and commercial launch of 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, 2013 was $49,008,326, or 68% of
product revenue, compared with $39,021,548, or 57% of product revenue, for the year ended December 31, 2012. The increase in product
gross profit was primarily due to the elimination of duplicate manufacturing facility costs for a full year in 2013, improved manufacturing
efficiencies, as well as improvements in overall product sales mix, compared to the prior year, with increased sales of our higher-margin
orthobiologics products as a percent of our total product sales being the primary driver.
Research and development. Research and development expenses for the year ended December 31, 2013 increased by
$1,671,839, or 31%, as compared to the prior year, due to the timing of the start of certain clinical trials. Research and development as a
percentage of revenue was 9% and 8% for the years ended 2013 and 2012, respectively.
Selling, general, and administrative. Selling, general, and administrative expenses for the year ended December 31, 2013
decreased by $1,792,661, or 12%, as compared to 2012. This decrease was primarily due to a legal dispute settlement payment received in
2013, as well as on-going cost saving initiatives.
Restructuring charges. On December 28, 2012 we announced a strategic shift involving the closure of our tissue engineering
facility in Abano Terme, Italy due to the inability to meet strict regulatory standards, established by the EMA, which became effective
January 1, 2013. As a result of the plan, we recorded restructuring and associated impairment charges in the fourth quarter 2012 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 related to cash payments anticipated to occur in 2013,
primarily for employee termination costs. The restructuring plan was completed in 2013, with a $286,843 benefit to the statement of
operations for the year ended December 31, 2013, based on actual expenses and payment settlements.
Interest income (expense), net. Net interest expense was $127,186 for the year ended December 31, 2013, as compared to
$187,777 in the same period ended 2012. The decrease was the result of the lower balance on our outstanding variable interest rate debt
during 2013. On November 29, 2013, we terminated our credit agreement entered into on January 31, 2008 with lenders for which Bank of
America, N.A. served as administrative agent. In connection with the termination, we pre-paid in full the outstanding debt balance of
$8,400,000, and we did not incur any pre-payment penalties.
- 37 -
Income taxes. Provisions for income taxes were $11,905,010 and $7,769,961 for the years ended December 31, 2013 and 2012,
respectively. The decrease in the effective tax rate in 2013 of 3.1%, as compared to 2012, was primarily due to increased R&D tax credits,
increased deductible stock option expenses resulting from increased exercise activity, and a favorable foreign tax rate differential.
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
Years ended December 31,
2012
2013
35.0%
4.8%
(0.2%)
(0.1%)
(0.5%)
0.1%
(2.4%)
36.7%
35.0%
6.4%
0.9%
(0.2%)
(1.2%)
2.5%
(3.6%)
39.8%
As of December 31, 2013, we had NOL for federal income tax purposes in Italy of $9,353,750 with no expiration date.
In connection with the preparation of the financial statements, we performed an analysis to ascertain if it was more likely than not
that we would be able to utilize, in future periods, the net deferred tax assets associated with our NOL carry-forward. We concluded that the
positive evidence outweighs the negative evidence and, thus, that the deferred tax asset not otherwise subject to a valuation allowance were
realizable on a “more likely than not” basis. As such, we did not record a valuation allowance at either December 31, 2013 or 2012.
Net income. For the year ended December 31, 2013, net income was $20,574,521, or $1.39 per diluted share, compared to
$11,757,460, or $0.82 per diluted share, for the same period last year. The primary drivers for this increase in net income were an increase
in product gross profit due to improvements in operating efficiencies and streamlining of manufacturing operations with the consolidation
into one facility, a more favorable product mix, and lower general and administrative expenses.
Concentration of Risk
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, 2014, five customers accounted
for 85% of product revenue, with Mitek alone accounting for 72% of product revenue. We expect to continue to be dependent on a small
number of large customers, especially Mitek, for the majority of our revenues for the foreseeable future. The failure of these customers to
purchase our products in the amounts they historically have or in amounts that we expect 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 agreements, 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, it could seriously harm our business, financial
condition, and results of operations.
See Note 15, Revenue by Product Group, by Significant Customer and by Geographic region; Geographic Information , to the
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding significant customers.
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, investments and debt, have met our cash requirements. Cash, cash equivalents and investments totaled $106.9
million and $63.3 million, and working capital totaled $133.1 million and $85.3 million, at December 31, 2014 and December 31, 2013,
respectively. We believe that we have adequate financial resources to support our business for at least the next twelve months.
- 38 -
Cash provided by operating activities was $39,978,375, $25,165,001 and $10,548,677 for 2014, 2013, and 2012, respectively.
Cash provided by operating activities increased by $14,813,374 in 2014, as compared to the same period ended 2013. The increase was
primarily attributable to a total of $29.7 million milestone payments recognized under the Mitek MONOVISC Agreement, which was
partially offset by an increase in inventory due to anticipated future sales demand.
Cash used in investing activities was $8,302,922, $253,155 and $1,504,707 in 2014, 2013, and 2012, respectively. The increase in
cash used in investing activities in 2014, as compared to the same period in the prior year, is a result of purchases of investments and
increased capital purchases associated with our Bedford facility during 2014. We expect an increase in investing activities in 2015 as a
result of our decision to establish additional manufacturing capabilities at the Bedford, Massachusetts facility. We expect to spend
approximately $8 million in 2015 related to this activity.
Cash provided by financing activities was $5,331,871 for 2014, whereas cash used in financing activities was $5,689,229, and
$758,854 in 2013 and 2012, respectively. Cash provided by financing activities for 2014 was due to primarily to proceeds from the exercise
of stock options of $2.1 million, and the related tax benefit from the exercise of stock options of $9.6 million. This increase was partially
offset by $6.3 million of minimum tax withholdings on share-based awards.
Contractual Obligations and Other Commercial Commitments
We incurred significant capital investments related to the build-out of our manufacturing 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:
(cid:120) Market acceptance of our existing and future products;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
The success and sales of our products under current and future marketing, license, and distribution agreements;
The successful commercialization of products in development;
Progress in our product development efforts;
The magnitude and scope of such efforts;
(cid:120) Any potential acquisitions of products, technologies or businesses;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Progress of 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 or other appropriate commercial strategies 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; and
The cost of maintaining adequate inventory levels to meet current and future product demand.
- 39 -
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. 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 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 for
at least the next 12 months. See Item 1A.
The table below summarizes our non-cancelable operating leases and contractual obligations at December 31, 2014:
Total
Less than
1 year
1 - 3 years
4 - 5 years
More than
5 years
Payments due by period
Operating Leases (1)
Purchase Commitments
Total
$
$
8,185,997
983,190
9,169,187
$
$
1,547,414
728,230
2,275,644
$
$
1,943,000
187,712
2,130,712
$
$
1,943,000
67,248
2,010,248
$
$
2,752,583
-
2,752,583
(1)
Included in this line is a lease we entered into on January 4, 2007, pursuant to which we lease our corporate headquarters
facility, which consists of approximately 134,000 square feet of general office, research and development, and manufacturing
space located in Bedford, Massachusetts. The lease has an initial term of ten and 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, ranging in length from 5 to 6 years, 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. Also included in this line is a lease entered into
pursuant to which Anika S.r.l. leases its Italian facility, which consists of approximately 28,000 square feet of space. The lease
commenced on December 30, 2009 for a period of six years with certain extension options. See the section captioned
“Properties” for additional information regarding these leases.
Accounting for Off-Balance Sheet Arrangements
We do not use special purpose entities or other off-balance sheet financing techniques, except for operating leases as disclosed in
the contractual obligations table above, 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
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes the
revenue recognition requirements in "Topic 605, Revenue Recognition" and requires entities to recognize revenue in a way that depicts the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Effective for the Company beginning on January 1, 2017, the amendment allows for two methods of
adoption, a full retrospective method or a modified retrospective approach with the cumulative effect recognized at the date of initial
application. Early adoption is not permitted. We are in the process of determining the method of adoption and the impact of this
amendment on our consolidated financial statements.
- 40 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Primary Market Risk Exposures
We manage our investment portfolio in accordance with our investment policy. The primary objectives of our investment policy
are to preserve principal, maintain a high degree of liquidity to meet operating and other needs, and obtain competitive returns subject to
prevailing market conditions without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents
and investments in a variety of high quality securities, including money market funds and bank certificates of deposits. The investments are
classified as available-for-sale and consequently are recorded at fair value with unrealized gains or losses reported as a separate component
of accumulated other comprehensive income. Our portfolio of cash equivalents and investments is subject to interest rate fluctuations,
changes in credit quality of the issuer and other factors.
Foreign Exchange Risk
Our primary market risk exposures are in the area of 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 currency exchange rate fluctuation for the two contracts on our financial statements was immaterial in 2014. 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.
A significant portion of Anika S.r.l.’s revenue, and all operating expenses, are denominated in Euros, which leaves us vulnerable
to foreign exchange risk.
- 41 -
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, 2014 and 2013
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2014, 2013 and
2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012
Notes to Consolidated Financial Statements
43
44
45
46
47
48
- 42 -
To The Board of Directors and Stockholders of Anika Therapeutics, Inc.
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations 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, 2014 and December 31, 2013 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2014 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, 2014, based on criteria established in Internal Control - Integrated Framework (2013) as 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, 2015
- 43 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
Current assets:
ASSETS
Cash and cash equivalents
Investments
Accounts receivable, net of reserves of $146,618 and $593,023 at December 31, 2014 and
2013, respectively
Inventories
Prepaid income taxes
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
Income taxes payable
Total current liabilities
Other long-term liabilities
Long-term deferred revenue
Deferred tax liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and
outstanding at December 31, 2014 and 2013, respectively
Common stock, $.01 par value; 30,000,000 shares authorized, 14,851,703 and 14,289,308
shares issued and outstanding at December 31, 2014 and 2013, respectively
Additional paid-in-capital
Accumulated currency translation adjustment
Retained earnings
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
December 31,
2014
2013
$
100,155,864
6,750,000
$
63,333,160
-
17,152,028
12,406,776
412,301
1,188,768
959,305
139,025,042
53,619,589
(21,950,706)
31,668,883
69,042
14,894,710
8,338,699
193,996,376
1,201,226
4,747,526
24,510
-
5,973,262
893,935
102,192
8,929,890
$
$
18,736,845
10,996,785
-
659,040
865,957
94,591,787
52,413,423
(19,474,712)
32,938,711
69,080
18,998,409
9,443,894
156,041,881
2,793,911
5,537,881
180,433
770,276
9,282,501
1,133,544
2,054,941
7,936,864
-
-
148,517
77,539,699
(4,494,800)
104,903,681
178,097,097
193,996,376
$
142,893
70,606,031
(1,699,095)
66,584,202
135,634,031
156,041,881
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 44 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating expenses:
Cost of product revenue
Research & development
Selling, general & administrative
Restructuring charges (credits)
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
$
$
$
$
$
$
For the Years Ended December 31,
2013
71,773,730
3,307,424
75,081,154
2014
75,473,998
30,120,841
105,594,839
$
$
20,930,318
8,144,152
15,073,485
-
44,147,955
61,446,884
58,137
61,505,021
23,185,542
38,319,479
2.61
14,678,240
2.51
15,269,435
$
$
$
22,765,404
7,059,875
12,936,001
(286,843)
42,474,437
32,606,717
(127,186)
32,479,531
11,905,010
20,574,521
1.46
14,086,912
1.39
14,825,599
$
$
$
2012
68,010,169
3,348,336
71,358,505
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
38,319,479
$
20,574,521
$
11,757,460
(2,795,705)
35,523,774
$
955,535
21,530,056
$
412,551
12,170,011
The accompanying notes are an integral part of these consolidated financial statements.
- 45 -
Balance, December 31,
2011
Issuance of common
stock for equity
awards
Tax benefit related to
stock-based
compensation
Stock-based
compensation
expense
Net income
Other comprehensive
income
Balance, December 31,
2012
Issuance of common
stock for equity
awards
Tax benefit related to
stock-based
compensation
Stock-based
compensation
expense
Net income
Other comprehensive
income
Balance, December 31,
2013
Issuance of common
stock for equity
awards
Tax benefit related to
stock-based
compensation
Stock-based
compensation
expense
Retirement of
common stock for
minimum tax
withholdings
Net income
Other comprehensive
loss
Balance, December 31,
2014
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
Number of
Shares
$.01 Par
Value
Additional
Paid
in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
13,630,607
$ 136,305
$
63,441,433
$
34,252,221
$
(3,067,181) $
94,762,778
235,453
2,354
386,321
13,866,060
138,659
65,431,424
46,009,681
(2,654,630)
108,925,134
-
-
412,551
412,551
423,248
4,234
3,049,707
-
-
-
-
452,471
1,151,199
-
-
11,757,460
856,830
1,268,070
-
-
20,574,521
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
388,675
452,471
1,151,199
11,757,460
-
-
-
-
3,053,941
856,830
1,268,070
20,574,521
-
-
955,535
955,535
14,289,308
142,893
70,606,031
66,584,202
(1,699,095)
135,634,031
696,169
6,961
2,047,745
-
-
-
-
9,626,064
1,607,421
-
-
-
(133,774)
-
(1,337)
-
(6,347,562)
-
-
38,319,479
-
-
-
-
-
2,054,706
9,626,064
1,607,421
(6,348,899)
38,319,479
-
-
-
-
(2,795,705)
(2,795,705)
14,851,703
$ 148,517
$
77,539,699
$
104,903,681
$
(4,494,800) $
178,097,097
The accompanying notes are an integral part of these consolidated financial statements.
- 46 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
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
Gain on sale of assets
Tax benefit from exercise of stock options
Restructuring charges (credits)
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Prepaid income taxes
Accounts payable
Accrued expenses
Deferred revenue
Income taxes payable
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturity of investments
Purchase of investments
Purchase of property and equipment
Proceeds from sale of assets
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 equity awards
Minimum tax withholdings on share-based awards
Net cash provided by (used in) financing activities
For the years ended December 31,
2014
2013
2012
$
38,319,479
$
20,574,521
$
11,757,460
4,705,602
1,607,421
815,169
-
377,753
-
(9,626,064)
-
897,561
(1,974,423)
585,452
(437,833)
(749,601)
(1,189,096)
(2,014,264)
8,874,394
(213,175)
39,978,375
20,000,000
(26,750,000)
(1,552,922)
-
(8,302,922)
4,772,491
1,268,070
2,205,608
238,071
171,089
(126,284)
(856,830)
(160,559)
2,411,247
(2,823,059)
306,505
-
622,928
(376,897)
(2,795,285)
152,364
(418,979)
25,165,001
-
-
(440,890)
187,735
(253,155)
-
2,054,706
9,626,064
(6,348,899)
5,331,871
(9,600,000)
3,053,941
856,830
-
(5,689,229)
4,525,247
1,151,199
(10,269)
135,353
1,310,953
-
(452,471)
1,604,256
(4,271,129)
(2,370,318)
234,448
-
(2,879,330)
1,420,131
(2,858,262)
1,268,442
(17,033)
10,548,677
-
-
(1,504,707)
-
(1,504,707)
(1,600,000)
388,675
452,471
-
(758,854)
Exchange rate impact on cash
(184,620)
43,066
5,139
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
36,822,704
63,333,160
100,155,864
13,777,956
-
$
$
$
19,265,683
44,067,477
63,333,160
9,841,546
125,978
$
$
$
8,290,255
35,777,222
44,067,477
6,496,000
184,881
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
- 47 -
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 which resulted in a loss from foreign currency translation of $2,795,705 for the year ended
December 31, 2014 and a gain from foreign currency translation of $955,535 and $412,551 for the years ended December 31, 2013 and
2012, respectively.
The Company recognized a loss from foreign currency transactions of $554,241 during the year ended December 31, 2014 and
gains from foreign currency transactions of $259,275 and $200,452 during the years ended December 31, 2013 and 2012, 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
non-performance. 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 1 instruments include
securities traded on active exchange markets, such as the New York Stock Exchange.
- 48 -
• 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.
The Company’s financial assets have been classified as Level 2. The Company’s financial assets (which include cash equivalents
and investments) have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing
third party pricing services or other market observable data.
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 $146,618
and $593,023 at December 31, 2014 and 2013, respectively.
Balance, beginning of the year
Amounts provided
Amounts written off
Balance, end of the year
2014
December 31,
2013
$
$
593,023
-
(446,405)
146,618
$
$
337,459
255,564
-
593,023
$
$
2012
334,473
138,339
(135,353)
337,459
Uncollectible trade accounts receivable written-off were $446,405, $0 and $135,353 in 2014, 2013, and 2012. There were no
amounts provided for bad debt in 2014. Provisions for bad debt expense were $255,564 and $138,339 in 2013, and 2012, respectively, and
are included in general and administrative expenses in the accompanying consolidated statements of operations.
Revenue Recognition - General
We recognize revenue 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
quarterly unaudited or annual audited financial statements.
Pursuant to the Health Care and Education Reconciliation Act of 2010, in conjunction with the Patient Protection and Affordable
Care Act, a medical device excise tax (“MDET”) became effective on January 1, 2013 for sales of certain medical devices. Some of our
product sales are subject to the provisions of the MDET. The Company has elected to recognize any amounts related to the MDET under
the gross method as allowed under ASC 605-45. For the period ended December 31, 2014 and 2013, amounts included in revenues and
costs of goods sold for the MDET were immaterial.
- 49 -
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 ASU 2009-13, Revenue Recognition, in January 2011, which
amends 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 up-front 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 and Cash Equivalents
The Company considers 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. The Company’s cash equivalents consist of money market funds and bank
certificates of deposit with an original maturity of less than 90 days.
Investments
The Company’s investments consist of bank certificates of deposit with an original maturity of more than 90 days. The Company
has designated all investments as available-for-sale and therefore, such investments are reported at fair value, with unrealized gains and
losses recorded in accumulated other comprehensive income. For securities sold prior to maturity, the cost of securities sold is based on the
specific identification method. Realized gains and losses on the sale of investments are recorded in interest income (expense), net. Interest
is recorded when earned. Investments with original maturities greater than approximately three months and remaining maturities less than
one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term
investments. The Company considers securities with maturities of three months or less from the purchase date to be cash equivalents.
All of the Company’s investments are subject to a periodic impairment review. The Company recognizes an impairment charge
when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. Factors considered in
determining whether a loss is temporary include the extent and length of time the investment's fair value has been lower than its cost basis,
the financial condition and near-term prospects of the investee, extent of the loss related to credit of the issuer, the expected cash flows
from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security prior the
expected recovery of the investment's amortized cost basis. During the year ended December 31, 2014, the Company did not record any
other-than-temporary impairment charges on its available-for-sale securities because the Company does not intend to sell the securities and
it is not more likely than not that the Company will be required to sell these securities before the recovery of their amortized cost
basis. During the years ended December 31, 2013 and 2012 the Company did not have any investments.
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’s cash equivalents and investments are held with two major international financial institutions.
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, 2014 and 2013, DePuy Mitek, Bausch & Lomb, Pharmascience,
Inc., AT Technologies Gmbh and Soylu Medikal San ve Dis Tic Ltd., combined, represented 74% and 67%, respectively, 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.
The Company’s policy is to write-down inventory when conditions exist that suggest 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.
- 50 -
When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value. Inventory
of $12,406,776 and $10,996,785 as of December 31, 2014 and 2013, respectively, is stated net of inventory reserves of $940,306 and
$758,106, 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.
Equipment and software are typically amortized over two to ten 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. 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 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 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, 2014 indicated that the fair value of our reporting unit exceeded the carrying value of the reporting unit. Our
goodwill balance relates entirely to the 2009 acquisition of Anika S.r.l. and has been assigned to the Anika S.r.l. reporting unit. There can
be no assurance that, at the time future impairment tests are completed, a material impairment charge will not be recorded.
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 value 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. Our annual assessment for impairment of IPR&D indicated that the fair value of our IPR&D as of
November 30, 2014 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 expense of approximately $1.2 million as a component of the overall restructuring charge for
the year ended December 31, 2012. See “Restructuring Charges,” below, and Note 18 for additional disclosure.
Long-Lived Assets
Long-lived assets primarily include property and equipment, and intangible assets with finite lives. Our intangible assets are
comprised of purchased developed technologies, distributor relationships, patents and trade names. These intangible assets are carried at
cost, net of accumulated amortization. Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range
from approximately 5 to 16 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.
- 51 -
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 expense of approximately $0.3 million as a component of the overall restructuring charge for
the year ended December 31, 2012. See “Restructuring Charges,” below, and Note 18 for additional disclosure.
Restructuring Charges
Restructuring charges primarily consisted 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.
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 award recipients’ 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 12 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.
For performance based awards with financial achievement targets, we recognize expense using the graded vesting methodology
based on the number of shares expected to vest. Compensation expense associated with these performance based awards is adjusted to
reflect subsequent changes in the estimated outcome of performance-related conditions until the date the results are determined. Changes
to the probability assessment and the estimated shares expected to vest will result in adjustments to the related share-based compensation
expense that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized,
and any previously recognized compensation cost is reversed. There was no expense recognized on performance based awards in 2014 as
satisfaction of the performance conditions were not considered probable. There were no performance based awards outstanding in 2013.
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 and unrealized gains and losses on available-for-sale securities. 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, 2014 and 2013, 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 the
accompanying consolidated financial statements.
- 52 -
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes the
revenue recognition requirements in "Topic 605, Revenue Recognition" and requires entities to recognize revenue in a way that depicts the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. Effective for the Company beginning on January 1, 2017, the amendment allows for two methods of
adoption, a full retrospective method or a modified retrospective approach with the cumulative effect recognized at the date of initial
application. Early adoption is not permitted. We are in the process of determining the method of adoption and the impact of this
amendment on our consolidated financial statements.
3. Investments
All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses
recorded as a component of accumulated other comprehensive income, net of related income taxes. The Company held no investments at
December 31, 2013. The Company’s investments at December 31, 2014 are invested in the following:
Bank certificates of deposit
4. Fair Value Measurements
December 31, 2014
Amortized
Cost
6,750,000
$
Unrealized
Gains
Unrealized
Losses
Fair
Value
-
-
$
6,750,000
The Company’s investments are all classified within Level 2 of the fair value hierarchy. The Company’s investments classified
within Level 2 of the fair value hierarchy are valued based on matrix pricing compiled by third party pricing vendors, using observable
market inputs such as interest rates, yield curves, and credit risk.
The fair value hierarchy of the Company’s cash equivalents and investments at fair value is as follows:
Fair Value Measurements at Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable Inputs
(Level 3)
December 31,
2014
Cash & cash equivalents:
Money market funds
Bank certificates of deposit
Total cash & cash equivalents
Investments:
Bank certificates of deposit
Money market funds
$
$
$
69,551,754
3,000,000
72,551,754
$
$
6,750,000
$
-
-
-
-
$
$
$
69,551,754
3,000,000
72,551,754
$
$
6,750,000
$
-
-
-
-
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
-
$
34,266,501
$
-
December 31,
2013
34,266,501
$
We did not have any transfers between Level 1 and Level 2 or transfers in or out of Level 3 of the fair value hierarchy during the
years ended December 31, 2014 and 2013.
- 53 -
5. 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 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
Years ended December 31,
2013
14,086,912
2014
14,678,240
591,195
15,269,435
738,687
14,825,599
2012
13,260,739
1,083,838
14,344,577
Stock options to purchase 129,540 shares, 21,326 shares, and 131,273 shares for 2014, 2013, and 2012, respectively, were
excluded from the computation of diluted EPS as their effect would have been anti-dilutive.
At December 31, 2014, 2013, and 2012, 30,700 shares, 52,339 shares, and 54,124 shares of issued and outstanding unvested
restricted stock, respectively, were excluded from the basic earnings per share.
6. Inventories
Inventories consist of the following:
Raw materials
Work-in-process
Finished goods
Total
7. Property and Equipment
Property and equipment is stated at cost and consists of the following:
Equipment and software
Furniture and fixtures
Leasehold improvements
Construction in progress
Subtotal
Less accumulated depreciation
Total
December 31,
2014
6,161,363
3,041,227
3,204,186
12,406,776
$
$
2013
5,926,030
2,308,233
2,762,522
10,996,785
December 31,
2014
24,175,954
1,295,847
27,589,020
558,768
53,619,589
(21,950,706)
31,668,883
$
$
2013
23,326,622
1,316,014
27,613,495
157,292
52,413,423
(19,474,712)
32,938,711
$
$
$
$
Depreciation expense was $2,612,799, $2,678,745 and $2,496,749 for the years ended December 31, 2014, 2013, and 2012,
respectively.
- 54 -
8. 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 commercialize, distribute, and market the ELEVESS product, 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.
The Company completed its annual impairment review as of November 30, 2014 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, 2014, 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
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.
Amortization expense was $2,092,803, $2,093,746, and $2,028,498 for the years ended December 31, 2014, 2013, and 2012,
respectively. Amortization expense on intangible assets is expected to be approximately $1.0 million annually for the next five years and
approximately $5.2 million in aggregate thereafter.
Intangible assets consist of the following:
December 31, 2014
December 31, 2013
Developed technology
In-process research &
development
Distributor relationships
Patents
Elevess trade name
Total
Gross Value
16,700,000
$
5,502,686
4,700,000
1,000,000
1,000,000
28,902,686
$
Currency
Translation
Adjustment
$
(2,255,722) $
Accumulated
Amortization
(5,034,341) $
Net Book
Value
9,409,937
Net Book
Value
11,753,003
$
(849,812)
(415,344)
(134,315)
-
$
(3,655,193) $
-
(4,284,656)
(284,486)
(749,300)
(10,352,783) $
4,652,874
-
581,199
250,700
14,894,710
5,286,127
863,655
719,574
376,050
18,998,409
$
Useful Life
15
Indefinite
5
16
9
Changes in the carrying value of goodwill were as follows:
Balance, beginning
Effects of foreign currency adjustments
Balance, ending
9. Accrued Expenses
Accrued expenses consist of the following:
Compensation and related expenses
Professional fees
Clinical trial costs
Research grants
Restructuring costs
Other
Total
- 55 -
December 31,
2014
9,443,894
(1,105,195)
8,338,699
$
$
2013
9,065,891
378,003
9,443,894
December 31,
2014
2013
2,791,935
553,630
508,042
539,053
8,384
346,482
4,747,526
$
$
2,870,147
383,231
882,651
610,498
24,638
766,716
5,537,881
$
$
$
$
10. Deferred Revenue
In December 2003, the Company entered into the Mitek ORTHOVISC 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 Mitek.
Under the Mitek ORTHOVISC Agreement, Mitek performs sales, marketing, and distribution functions, and Mitek 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 Mitek ORTHOVISC Agreement provides that
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 Mitek ORTHOVISC 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 Mitek ORTHOVISC 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 agreement (the “Mitek MONOVISC Agreement”) with
DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics, Inc., to exclusively market MONOVISC in the U.S. The
Company received an upfront payment of $2,500,000 in December 2011. This non-refundable upfront payment did not have standalone
value without Anika’s completion of development obligations, which included obtaining regulatory approval of the product and resolving
the related patent litigation. As a result, the Company recognized the upfront payment over the development obligation period. During the
first quarter of 2014, the Company received FDA approval of MONOVISC and resolved the patent lawsuit with Genzyme Corporation. As
a result of the full delivery of its development obligations under this agreement, the Company recognized approximately $2,200,000,
which represented the remaining balance of deferred revenue relating to the initial $2,500,000 payment, in accordance with current
generally accepted principles on revenue recognition. In the first quarter of 2014, the Company also received a milestone payment of
$17,500,000 as a result of achieving FDA approval for MONOVISC and resolving the patent litigation with Genzyme. This milestone
payment was fully recognized as revenue during the three months ended March 31, 2014. On April 15, 2014 the first U.S. commercial sale
of MONOVISC was made by our commercial partner, Mitek. Under the terms of the Mitek MONOVISC Agreement, the Company earned
and collected a milestone payment of $5 million, which was fully recognized as revenue in the second quarter of 2014. On November 10,
2014, the Center for Medicare & Medicaid Services ("CMS") assigned a unique Healthcare Common Procedure Coding System
("HCPCS") code, or J-Code, to MONOVISC. The issuance of this code by CMS set national Medicare reimbursement rates for the
product. The new J-Code became effective on January 1, 2015. As a result of CMS assigning the J-Code, the Company collected a
milestone payment of $5,000,000, which was fully recognized as revenue in the fourth quarter of 2014. For the year ended December 31,
2014, the Company recognized a total of $29,652,778 in milestone revenue related to MONOVISC.
The Company had current and long-term deferred revenue of $126,702 at December 31, 2014, which consisted primarily of
customer prepayments. Current and long term deferred revenue was $2,235,374 at December 31, 2013, and consisted primarily of the
unamortized upfront payment from the Mitek MONOVISC Agreement.
11. 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 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 the Company notify the landlord that the Company is
exercising each option at least one year prior to the expiration of the original or then current term. The first three renewal options each
extend the term an additional five years, while the final renewal option extends the term by six years. The Company’s administrative and
R&D personnel moved into the Bedford facility in November of 2007. The Bedford facility was fully validated and approved by applicable
regulatory authorities in 2012.
Our fully-owned subsidiary Anika S.r.l., the leases approximately 28,000 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, with options to extend which the
Company has not exercised as of December 31, 2014.
- 56 -
Rental expense in connection with the various facility leases totaled $1,401,317, $1,400,120, and $2,486,849, for the years ended
December 31, 2014, 2013, and 2012, respectively.
The Company’s future lease commitments as of December 31, 2014 are as follows:
2015
2016
2017
2018
2019 and thereafter
Total
Warranty and Guarantor Arrangements
$
$
1,547,414
971,500
971,500
971,500
3,724,083
8,185,997
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, 2014 or 2013, 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 alleged that the Company infringed U.S. Patent No.
5,143,724 by manufacturing MONOVISC in the United States for sale outside the United States and would infringe U.S. Patent Nos.
5,143,724 and 5,399,351 if the Company manufactured and sold MONOVISC in the United States. On March 7, 2014, Genzyme and the
Company filed a joint motion to lift the stay in Genzyme’s lawsuit against the Company and to dismiss with prejudice all of Genzyme’s
claims. On March 10, 2014, the District Court granted the motion to dismiss all of Genzyme’s claims against the Company with prejudice,
and the case was terminated.
In 2011, MEROGEL INJECTABLE was voluntarily withdrawn from the market due to a labeling error on the product’s
packaging. The Company settled the matter related to this dispute with Medtronic in August, 2012. This labeling error related to conduct
that initially occurred prior to our acquisition of Anika S.r.l. from Fidia Farmaceutici S.p.A. (“Fidia”) and, as a result, the Company made
claims against Fidia for indemnification for Anika’s losses related to this issue. Fidia maintained that it did not have liability for this matter,
and it 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. The Company reached agreement with Fidia in October 2013 to settle this matter without admission of liability
by either party in return for a payment made by Fidia to the Company. As a result of the settlement, the arbitration with Fidia pending
before the London Court of International Arbitration has been withdrawn, and the shares previously held in escrow have been released.
The Company is 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, the Company does 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.
12. 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 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. There are 1,337,192 shares available for
future grant at December 31, 2014.
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 it resulted in a total of 2,350,000 shares of common stock being
reserved for issuance under the Amended 2003 Plan.
- 57 -
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.
At the 2013 Annual Meeting of Stockholders on June 18, 2013, the shareholders of the Company approved an additional
amendment to the Amended 2003 Plan, which, among other things, increased the number of shares reserved for issuance under the
Company’s stock option and incentive plan by 650,000 to 3,800,000 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 conditions or service and performance conditions,
and they generally become exercisable ratably over one to four years.
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 the exercise of stock options and other factors to evaluate and estimate the expected term of
share-based awards. The Company also evaluates actual forfeiture rates periodically and adjusts the expected forfeiture rate assumption
within the model accordingly. The expected volatility assumption is evaluated against the historical volatility of the Company’s common
stock over a four year average, and it is adjusted if there are material swings in historical volatility. 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 2014, 2013, and 2012 was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions:
Risk free interest rate
Expected volatility
Expected lives (years)
Expected dividend yield
December 31,
2014
1.16% to 1.39%
2013
0.61% to 1.02%
2012
0.63% to
0.64%
53.28% to 57.05% 53.60% to 57.60%
4
0.00%
4
0.00%
57.60%
4
0.00%
The Company recorded $1,607,421, $1,268,070, and $1,151,199 of share-based compensation expense for the years ended
December 31, 2014, 2013, and 2012, 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, 2014 and
2013, respectively:
Options and SAR's outstanding at beginning of year
Granted
Cancelled
Expired
Exercised
Options and SAR's outstanding at end of year
2014
2013
Weighted
Average
Exercise
Price Per
Share
Weighted
Average
Exercise
Price Per
Share
Number of
Shares
Number of
Shares
$
1,513,326
179,240
$
(53,325) $
(24,292) $
(763,662) $
$
851,287
9.14
35.62
23.73
9.87
7.95
14.85
$
1,793,685
413,500
$
(243,724) $
(9,928) $
(440,207) $
$
1,513,326
8.30
12.55
8.77
9.62
8.71
9.14
Of the 851,287 options and SAR’s outstanding at December 31, 2014, 829,298 are vested, or are expected to vest, with a
weighted-average exercise price of approximately $14.58 as well as an aggregate intrinsic value of approximately $22 million related to
these awards. The weighted average remaining contractual term of the vested and expected to vest options and SAR’s was 6.7 years as of
December 31, 2014.
- 58 -
As of December 31, 2014, total unrecognized compensation costs related to non-vested options and SAR’s was approximately
$2,908,000 and is expected to be recognized over a weighted average period of 2.9 years.
There were 128,536 incentive stock options exercisable at December 31, 2014 with a weighted-average exercise price of $8.73
and a weighted-average remaining contractual term of 4.4 years for these awards.
There were 180,989 non-qualified stock options exercisable at December 31, 2014 with a weighted-average exercise price of
$8.58 and a weighted-average remaining contractual term of 5.6 years.
There were 65,092 SAR’s exercisable at December 31, 2014 with a weighted-average exercise price of $8.58 and a
weighted-average remaining contractual term of 3.6 years for these awards.
The aggregate intrinsic value of stock options and SAR’s fully vested at December 31, 2014 and 2013 was $12,028,589 and
$27,997,198, respectively. The aggregate intrinsic value of stock options and SAR’s outstanding at December 31, 2014 and 2013 was
$21,734,258 and $43,199,713, respectively.
The total intrinsic value of options and SAR’s exercised was $26,749,627 and $4,370,830 for the years ended December 31, 2014
and 2013, respectively. During the second quarter of 2014, the Company acquired, and subsequently retired, 133,774 common shares
related to an employee SAR’s exercise to meet minimum statutory tax withholding requirements.
The total fair value of options and SAR’s vested during the years ended December 31, 2014 and 2013 was $1,148,947 and
$1,088,802, respectively.
The Company received $2,054,706 and $3,053,941 for exercises of stock options during the years ended December 31, 2014 and
2013, respectively.
The restricted stock activity for the years ended December 31, 2014 and 2013 is as follows:
Nonvested at Beginning of year
Granted
Cancelled
Expired
Vested/Released
Nonvested at end of year
2014
2013
Number of
Shares
Weighted
Average
Grant Date
Fair Value
11.93
$
79,591
32.02
60,098
$
25.46
(7,500) $
-
$
-
10.01
(22,575) $
23.91
$
109,614
Number of
Shares
Weighted
Average
Grant Date
Fair Value
6.87
$
68,956
17.00
$
36,220
-
$
-
-
$
-
5.95
(25,585) $
11.93
$
79,591
The total fair value of restricted stock and restricted stock units vested during the year ended December 31, 2014 and 2013 was
$799,006 and $290,704.
13. Shareholder Rights Plan
On April 4, 2008, the Board of Directors of the Company adopted a Shareholder Rights Plan (the “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 a number of shares of preferred stock 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.
- 59 -
The current exercise price per Right is $75.00. The Rights may be redeemed in whole, but not in part, at a price of $0.01 per Right
(payable in cash, shares of the Company’s common stock or other consideration deemed appropriate by the Board of Directors) by the
Board of Directors only until the earlier of :
(1) The time at which any person becomes an “Acquiring Person,” or
(2) The Expiration Date.
At any time after any person becomes an “Acquiring Person,” the Board of Directors may, at its option, exchange all or any part of
the then outstanding and exercisable Rights for shares of the Company’s common stock at an exchange ratio specified in the Rights Plan.
Notwithstanding the foregoing, the Board of Directors generally will not be empowered to affect such exchange at any time after any
person becomes the beneficial owner of 50% or more of the Company’s common stock.
In connection with the establishment of the Rights Plan, the Board of Directors approved the creation of Preferred Stock of the
Company designated as Series B Junior Participating Cumulative Preferred Stock with a par value of $0.01 per share. The Board also
reserved 175,000 shares of preferred stock for issuance upon exercise of the Rights. Until a Right is exercised, the holder will have no
rights as a stockholder of the Company, beyond those as an existing stockholder, including the right to vote or to receive dividends.
14. Employee Benefit Plan
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 eligible
compensation. In addition, the Company may make annual discretionary contributions. For the years ended December 31, 2014, 2013, and
2012, the Company made matching contributions of $350,049, $362,150, and $326,007, respectively.
15. Revenue by Product Group, by Significant Customer and by Geographic Region; Geographic Information
Product revenue by product group is as follows:
2014
2013
2012
Years Ended December 31,
Orthobiologics
Dermal
Surgical
Ophthalmic
Veterinary
Revenue
$ 61,956,870
1,334,295
5,854,876
3,153,435
3,174,522
$ 75,473,998
Percentage of
Product
Revenue
Revenue
82% $ 55,956,068
1,816,602
5,445,715
4,656,560
3,898,785
100% $ 71,773,730
2%
8%
4%
4%
Percentage of
Product
Revenue
Revenue
78% $ 49,954,112
1,384,403
5,022,456
8,784,011
2,865,187
100% $ 68,010,169
3%
8%
6%
5%
Percentage of
Product
Revenue
Product revenue by significant customers as a percent of product revenues is as follows:
DePuy Mitek
Boehringer
Medtronic XoMEd
Bausch & Lomb
Nordic Pharma
Percentage of Product Revenue
Years Ended December 31,
2013
2014
2012
72%
4%
4%
3%
2%
85%
63%
5%
3%
5%
2%
78%
- 60 -
74%
2%
7%
13%
4%
100%
61%
4%
3%
12%
1%
81%
Total revenue by geographic location based on the location of the customer in total and as a percentage of total revenue are as
follows:
2014
Years Ended December 31,
2013
2012
United States
Europe
Other
Total
Revenue
$
92,259,139
6,214,441
7,121,259
$ 105,594,839
Percentage of
Total Revenue
Revenue
Percentage of
Total Revenue
Revenue
Percentage of
Total Revenue
87% $ 58,490,142
7,411,568
9,179,444
100% $ 75,081,154
6%
7%
78% $ 57,976,667
6,218,890
10%
12%
7,162,948
100% $ 71,358,505
81%
9%
10%
100%
The Company recorded licensing, milestone and contract revenue of $30,120,841, $3,307,424, and $3,348,336 for the years
ended December 31, 2014, 2013, and 2012, 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
16. Income Taxes
Income Tax Expense
$
$
Years Ended December 31,
2013
31,999,468
939,243
32,938,711
2014
31,058,617
610,266
31,668,883
$
$
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
Years ended December 31,
2013
2014
2012
63,231,721
(1,726,700)
61,505,021
$
$
33,060,976
(581,445)
32,479,531
$
$
26,170,313
(6,642,892)
19,527,421
Years ended December 31,
2013
2014
2012
18,301,334
3,894,577
192,268
22,388,179
1,153,024
121,376
(477,037)
797,363
23,185,542
$
$
8,024,303
1,580,963
94,136
9,699,402
2,374,850
114,546
(283,788)
2,205,608
11,905,010
$
$
7,594,287
885,958
(188,650)
8,291,595
776,486
602,447
(1,900,567)
(521,634)
7,769,961
$
$
$
$
- 61 -
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Net operating loss carry forward, foreign
Stock-based compensation expense
Accrued expenses and other
Inventory reserve
Deferred revenue
Tax credit carry forward
Deferred tax assets
Deferred tax liabilities:
Acquisition-related Intangibles
Depreciation
Deferred tax liabilities
Tax Rate
December 31,
2014
2013
2,292,023
755,044
856,871
333,842
23,854
45,621
4,307,255
$
$
2,578,640
1,358,554
649,402
283,996
852,207
19,967
5,742,766
December 31,
2014
2013
(4,826,937) $
(7,221,440)
(12,048,377) $
(6,056,162)
(6,964,428)
(13,020,590)
$
$
$
$
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
Years ended December 31,
2013
2014
2012
35.0%
4.9%
0.1%
(0.1%)
(0.7%)
0.2%
(1.7%)
37.7%
35.0%
4.8%
(0.2%)
(0.1%)
(0.5%)
0.1%
(2.4%)
36.7%
35.0%
6.4%
0.9%
(0.2%)
(1.2%)
2.5%
(3.6%)
39.8%
As of December 31, 2014, the Company had NOL’s for income tax purposes in Italy of $8,334,628 with no expiration date.
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. The
Company has concluded that the positive evidence outweighs the negative evidence and, thus, that the deferred tax assets not otherwise
subject to a valuation allowance are realizable on a “more likely than not” basis. As such, the Company has not recorded a valuation
allowance at December 31, 2014 or 2013.
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
Statute expirations
Unrecognized tax benefit, end of year
Years ended December 31,
2014
2013
2012
-
-
-
-
-
$
$
56,170
-
-
(56,170)
-
$
$
56,170
-
38,329
(38,329)
56,170
$
$
- 62 -
In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities. The
Company files 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
2011 through 2014 tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal and state tax purposes.
The 2010 through 2014 tax years remain subject to examination by the appropriate governmental authorities for Italy.
The Company does not anticipate experiencing any significant increases or decreases in our unrecognized tax benefits within the
twelve months following December 31, 2014.
The Company incurred expenses related to stock-based compensation in 2014, 2013, and 2012 of $1,607,421, $1,268,070, and
$1,151,199, respectively. Accounting for the tax effects of certain stock-based awards requires that the Company 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 gross tax benefit recognized in the consolidated statement of operations related to stock-based compensation totaled
$3,134,425, $1,984,280, and $285,068 in 2014, 2013, and 2012, respectively.
Upon the settlement of certain stock-based awards (i.e., exercise, vesting, forfeiture, or cancellation), the actual tax deduction is
compared with cumulative financial reporting compensation cost and any excess tax deduction related to these awards is considered a
windfall tax benefit. Such benefits are tracked in a “windfall tax benefit pool” to offset any future tax deduction shortfalls, and they will be
recorded as increases to additional paid-in capital in the period when the tax deduction reduces income taxes payable. The Company
follows 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. The Company recorded a net windfall of $9,626,064, $856,830 and $452,471 in 2014, 2013 and 2012, respectively.
17. 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 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. The Company 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 represented a debt modification.
On November 29, 2013, the Company terminated the Credit Agreement entered into on January 31, 2008 with Bank of America,
N.A. In connection with the termination, the Company pre-paid, in full, its entire outstanding debt under the Agreement of $8,400,000,
plus accrued interests. All capitalized costs associated with the debt facility were recorded as interest expense upon termination and the
Company did not incur any pre-payment penalties. As of December 31, 2014 and 2013, the Company had no outstanding debt.
18. Restructuring
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 became effective January 1, 2013. As a result of the plan, the
Company recorded restructuring and associated impairment charges in the fourth quarter 2012 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 related to cash payments anticipated to occur primarily in 2013 and to employee termination costs.
- 63 -
The Company completed the restructuring plan in 2013. Settlements for employee dismissals were lower than anticipated and
certain previously impaired and written-off assets were sold, resulting in a restructuring credit of $286,843 for the twelve months ended
December 31, 2013. The carrying value of the restructuring accrual approximated fair value at December 31, 2014 and 2013.
The following table summarizes restructuring accrual activity for the twelve months ended December 31, 2014 and 2013:
December 31, 2012
Cash Disbursements
Write Offs and Abandonments
Foreign Exchange Impact
December 31, 2013
Cash Disbursements
Foreign Exchange Impact
December 31, 2014
19. Related Party
Restructuring Accrual
Employee
Severance and
Related
Benefits
Activity
Termination and
Facility Closure
Costs
$
$
$
801,453
(724,064)
(56,549)
869
21,709
(13,240)
(1,407)
7,062
$
$
$
132,279
(46,776)
(82,691)
117
2,929
(1,425)
(182)
1,322
$
$
$
Total
933,732
(770,840)
(139,240)
986
24,638
(14,665)
(1,589)
8,384
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. Fidia sold 100% of its ownership interest in Anika Therapeutics, Inc.
common stock during the third and fourth quarters of 2013. As such, Fidia owned 0%, of the outstanding shares of the Company as of
December 31, 2014 and 2013, and 14.3% as of December 31, 2012.
20. Quarterly Financial Data (Unaudited)
Year 2014
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 2013
Product revenue
Total revenue
Cost of product revenue
Gross profit on product revenue
Net income
Per common share information:
Basic net income per share
Basic common shares outstanding
Diluted net income per share
Diluted common shares outstanding
Quarter ended
December 31,
$
$
$
$
17,880,125
23,254,469
5,511,586
12,368,539
7,816,076
0.53
14,800,813
0.51
15,277,583
Quarter ended
December 31,
$
$
$
$
20,188,488
21,251,328
6,235,334
13,953,154
6,654,369
0.47
14,272,606
0.44
15,084,738
- 64 -
Quarter ended
September 30,
$
21,975,312
22,055,423
5,724,800
16,250,512
6,170,800
0.42
14,758,781
0.40
15,434,875
17,023,346
17,754,438
5,377,568
11,645,778
4,957,258
0.36
13,682,449
0.33
14,958,965
Quarter ended
September 30,
$
$
$
$
$
$
$
Quarter ended
June 30,
Quarter ended
March 31,
$
$
$
$
21,267,156
26,274,660
5,332,913
15,934,243
9,302,350
0.63
14,687,747
0.60
15,492,732
$
$
$
$
14,351,405
34,010,287
4,361,019
9,990,386
15,030,253
1.04
14,461,367
0.97
15,499,447
Quarter ended
June 30,
Quarter ended
March 31,
$
$
$
$
20,067,407
20,828,377
6,311,332
13,756,075
5,894,892
0.44
13,510,573
0.40
14,578,927
$
$
$
$
14,494,489
15,247,011
4,841,170
9,653,319
3,068,002
0.23
13,406,952
0.21
14,357,110
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 as of December 31, 2014 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 our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our
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 we may from time to time make changes aimed at enhancing their
effectiveness and ensuring 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 2014 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 it 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, 2014. In making
this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated Framework as issued in 2013.
Based on our assessment and those criteria, our management believes that our company maintained effective internal control over
financial reporting as of December 31, 2014.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere in
this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
- 65 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended
December 31, 2014.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended
December 31, 2014.
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 our definitive proxy statement pursuant to Regulation 14A, which
proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended December 31, 2014.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended
December 31, 2014.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with the SEC not later than 120 days after the close of our fiscal year ended
December 31, 2014.
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 and Comprehensive Income
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Schedules
43
44
45
46
47
48-64
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.
- 66 -
Exhibit
Number
Description
Filed
with this
Form 10-K
Incorporated by Reference
Filing Date
with SEC
Exhibit
Number
Form
3.1a
3.1b
3.1c
3.1d
3.1e
3.1f
3.1g
3.2
4.1
10.1
10.2
10.3a
10.3b
X
X
X
X
Restated Articles of Organization, as amended, of Anika
Therapeutics, Inc. (with date of filing with Secretary of State of
the Commonwealth of Massachusetts):
(a) Restated Articles of Organization (April 29, 1993)
(b) Certificate of Correction (November 10, 1993)
(c) Certificate of Vote of Directors Establishing a Series of a
Class of Stock (May 18, 1995)
(d) Articles of Amendment (January 9, 1997)
(e) Certificate of Vote of Directors Establishing a Series of a
Class of Stock (April 7, 1998)
(f) Articles of Amendment (June 3, 1998)
(g) Articles of Amendment (April 4, 2008)
Amended and Restated Bylaws of Anika Therapeutics, Inc.
Shareholder Rights Agreement, dated as of April 7, 2008,
between Anika Therapeutics, Inc. and American Stock Transfer
& Trust Company
Lease, dated January 3, 2007, between Anika Therapeutics, Inc.
and Farley White Wiggins, LLC, relating to 32 Wiggins
Avenue, Bedford, Massachusetts
Lease Agreement, dated December 30, 2009, between Fidia
Farmaceutici S.p.A. and Fidia Advanced Biopolymers S.r.l.,
relating to Via Ponte della Fabbrica 3/A and 3/B Abano Terme,
Padua, Italy
Credit Agreement with Bank of America, N.A.:
(a) Credit Agreement, dated as of January 31, 2008, among
Anika Therapeutics, Inc., Anika Securities, Inc. and Bank
of America, N.A., as administrative agent
(b) Consent and First Amendment, dated as of December 30,
2009, by and among Anika Therapeutics, Inc., Anika
Securities, Inc. and Bank of America, N.A., as
administrative agent
10-QSB January 14, 1997
10-QSB August 13, 1998
10-K
10-Q
8-A12B April 7, 2008
March 9, 2009
August 14, 2002
3.1
3.1
3.7
3.6
4.1
8-K
January 10, 2007
10.1
8-K
January 6, 2010
10.2
8-K
February 6, 2008
10.1
8-K
January 6, 2010
10.4
10.3c
(c) Pledge Agreement on a Quota of Fidia Advanced
10-Q
May 10, 2010
10.1
Biopolymers S.r.l., dated March 12, 2010, by Anika
Therapeutics, Inc. in favor of Bank of America, N.A., as
agent bank
Sale and Purchase Agreement, dated December 30, 2009, by and
between Fidia Farmaceutici S.p.A. and Anika Therapeutics, Inc.
Tolling Agreement, dated December 30, 2009, between Fidia
Farmaceutici S.p.A. and Fidia Advanced Biopolymers S.r.l
Registration Rights Agreement, dated December 30, 2009,
between Anika Therapeutics, Inc. and Fidia Farmaceutici S.p.A.
10.4
10.5
10.6
8-K
8-K
8-K
January 6, 2010
January 6, 2010
January 6, 2010
2.1
10.3
10.1
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†10.8i
(i) Form of Stock Appreciation Right Agreement for
10-Q
May 9, 2006
Filed
with this
Form 10-K
Incorporated by Reference
Filing Date
with SEC
Exhibit
Number
Form
8-K
December 22, 2011
10.1
8-K
8-K
8-K
8-K
8-K
10-K
10-K
10-Q
June 10, 2011
June 21, 2013
October 5, 2004
October 5, 2004
February 6, 2008
March 9, 2009
March 12, 2008
May 9, 2006
8-K
February 6, 2008
10-K
March 12, 2008
10-K
May 5, 2014
10-K
May 5, 2014
10.1
10.1
10.3
10.4
10.3
10.25
10.27
10.1
10.2
10.2
10.28
10.42
10.43
8-K
September 14, 2009
10.1
10-K
March 16, 2011
10.35
8-K
September 14, 2009
10.2
10-K
March 16, 2011
10.36
8-K
8-K
October 22, 2008
October 22, 2008
10.2
10.1
10-K
March 16, 2011
10.33
Exhibit
Number
Description
*10.7
†10.8a
License Agreement, dated as of December 21, 2011, by and
between Anika Therapeutics, Inc. and DePuy Mitek, Inc.
2003 Stock Option and Incentive Plan:
(a) Second Amended and Restated 2003 Stock Option and
Incentive Plan (adopted April 5, 2011)
†10.8b
(b) Amendment to Second Amended and Restated 2003 Stock
†10.8c
†10.8d
†10.8e
†10.8f
†10.8g
†10.8h
Option and Incentive Plan (adopted April 11, 2013)
(c) Form of Incentive Stock Option Agreement
(d) Form of Non-Qualified Stock Option Agreement for
Non-Employee Directors
(e) Form of Performance Share Award Agreement
(f) Form of Restricted Deferred Stock Unit Award Agreement
for Non-Employee Directors
(g) Form of Restricted Stock Award Agreement for Employees
(h) Form of Stock Appreciation Right Agreement for
Employees
†10.9
†10.10
†10.11a
†10.11b
†10.12a
†10.12b
†10.13a
†10.13b
†10.14
†10.15a
†10.15b
Non-Employee Directors
Anika Therapeutics, Inc. Senior Executive Incentive
Compensation Plan
Anika Therapeutics, Inc. Non-Employee Director
Compensation Policy
Employment Agreement, dated March 22, 2010, between Anika
Therapeutics, Inc. and Sylvia Cheung
Amendment No. 1 to the Employment Agreement, dated
December 8, 2010, by and between Anika Therapeutics, Inc. and
Sylvia Cheung
Employment Agreement, dated September 10, 2009, between
Anika Therapeutics, Inc. and Frank J. Luppino
Amendment No. 1 to Employment Agreement, dated December
1, 2010, by and between Anika Therapeutics, Inc. and Frank J.
Luppino
Employment Agreement, dated September 10, 2009, between
Anika Therapeutics, Inc. and William J. Mrachek
Amendment No. 1 to Employment Agreement, dated December
1, 2010, by and between Anika Therapeutics, Inc. and William J.
Mrachek
Employment Agreement, dated October 17, 2008, between
Anika Therapeutics, Inc. and Kevin Quinlan
Employment Agreement, dated October 17, 2008, between
Anika Therapeutics, Inc. and Charles H. Sherwood, Ph.D.
Amendment No. 1 to Employment Agreement, dated December
8, 2010, by and between Anika Therapeutics, Inc. and Charles
H. Sherwood, Ph.D.
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Filed
with this
Form 10-K
Incorporated by Reference
Filing Date
with SEC
Exhibit
Number
Form
X
X
X
X
X
X
X
X
Exhibit
Number
†10.16
†10.17
21.1
23.1
31.1
31.2
**32.1
***101
Description
Separation Agreement, effective November 26, 2014, by and
between Anika Therapeutics, Inc. and Carol Barnett
Separation Agreement , effective November 7, 2014, by and
between Anika Therapeutics, Inc. and John W. Sheets
List of Subsidiaries of Anika Therapeutics, Inc.
Consent of PricewaterhouseCoopers LLP
Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following materials from the Annual Report on Form 10-K
of Anika Therapeutics, Inc. for the fiscal year ended
December 31, 2014, formatted in xBRL: (i) Consolidated
Balance Sheets as of December 31, 2014 and December 31,
2013; (ii) Consolidated Statements of Operations for the Years
Ended December 31, 2014, December 31, 2013, and December
31, 2012; (iii) Consolidated Statements of Stockholders’ Equity
for the Years Ended December 31, 2014, December 31, 2013,
and December 31, 2012; (iv) Consolidated Statements of Cash
Flows for the Years Ended December 31, 2014, December 31,
2013, and December 31, 2012; and (v) Notes to Consolidated
Financial Statements
†
*
**
***
Management contract or compensatory plan or arrangement.
Certain portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and
Commission. The omitted portions have been filed separately with the Commission.
The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the SEC and is not to be
incorporated by reference into any filing of Anika Therapeutics, Inc. under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after the date of this Form 10-K, irrespective of any general incorporation
language contained in such filing.
Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is deemed not filed
or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not
filed for purposes of section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these
sections.
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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, 2015
By:
/s/ CHARLES H. SHERWOOD
ANIKA THERAPEUTICS, INC.
Charles H. Sherwood, Ph.D.
President and 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
Title
Date
/s/ CHARLES H. SHERWOOD
Charles H. Sherwood, Ph.D.
/s/ SYLVIA CHEUNG
Sylvia Cheung
/s/ JOSEPH L. BOWER
Joseph L. Bower
/s/ RAYMOND J. LAND
Raymond J. Land
/s/ GLENN R. LARSEN
Glenn R. Larsen
/s/ JOHN C. MORAN
John C. Moran
/s/ JEFFERY S. THOMPSON
Jeffery S. Thompson
/s/ STEVEN E. WHEELER
Steven E. Wheeler
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
March 13, 2015
President and Chief Executive Officer
Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
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SUBSIDIARIES OF ANIKA THERAPEUTICS, INC.
Name of Subsidiary
Anika Securities Corp.
Anika Therapeutics S.r.l.
(Formerly: Fidia Advanced Biopolymers S.r.l.)
Jurisdiction of Formation
Massachusetts
Italy
EXHIBIT 21.1
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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, 333-176103 and 333-190597) of Anika Therapeutics, Inc. of our report dated March 13,
2015 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, 2015
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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, 2014 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 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, 2015
/s/ CHARLES H. SHERWOOD
Charles H. Sherwood, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT 31.2
I, Sylvia Cheung, certify that:
CERTIFICATION
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2014 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 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, 2015
/s/ SYLVIA CHEUNG
Sylvia Cheung
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18,
United States Code), each of the undersigned officers of Anika Therapeutics, Inc., a Massachusetts corporation (the “Company”), does
hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) of the Company fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form
10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 13, 2015
/s/ CHARLES H. SHERWOOD
Charles H. Sherwood, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
/s/ SYLVIA CHEUNG
Sylvia Cheung
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Anika Therapeutics, Inc.
32 Wiggins Avenue
Bedford, MA 01730
(781) 457-9000
www.anikatherapeutics.com