Anika Therapeutics, Inc. (NASDAQ:ANIK) Q1 2024 Earnings Call Transcript

Anika Therapeutics, Inc. (NASDAQ:ANIK) Q1 2024 Earnings Call Transcript May 8, 2024

Anika Therapeutics, Inc. misses on earnings expectations. Reported EPS is $-0.30712 EPS, expectations were $-0.19. Anika Therapeutics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good evening, ladies and gentlemen, and welcome to Anika’s First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded.

I will now turn the call over to Mark Namaroff, Vice President, Investor Relations, ESG and Corporate Communications. Please proceed.

Mark Namaroff: Thank you. Good afternoon, everyone. Thank you for joining us for Anika’s First Quarter 2024 Conference Call and Webcast. Our Q1 earnings press release was issued after the close of the market today and is available on our Investor Relations website located anika.com, as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Mike Levitz, Executive Vice President, Chief Financial Officer and Treasurer.

Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company’s actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance.

In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which include adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are used in addition to the results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our first quarter 2024 press release.

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Q&A Session

And now I’d like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Cheryl Blanchard: Thanks, Mark. Good afternoon, everyone, and thanks for joining us. Please turn to Slide 3. Last quarter, we outlined the actions we’re taking to focus our business, optimize performance and drive even stronger results as we accelerate our path to profitability. With continued strength in our market-leading OA Pain Management platform and expanding and highly differentiated HA-based regenerative solutions pipeline and continued cost discipline, we delivered a good start to the year and are on track to achieve our 2024 guidance. And we are confident that the core elements of our strategy position us well to maximize value creation in an orderly fashion in 2024 and beyond.

In the first quarter, our overall revenue was up 7% compared to Q1 last year, driven by another strong quarter in OA Pain Management. We also completed the cost reduction initiatives that we spoke about last quarter, including significant head count reductions, putting Anika on the path to realize $10 million in annualized cost savings. These cost savings will enable Anika to deliver 75% growth in adjusted EBITDA in 2024, accelerating our profitability for the year.

Let me now review our key achievements from the quarter. First, OA Pain Management had another great quarter with revenue of $24.3 million, representing a 7% increase year-over-year on growing market demand and some favorable order timing. And we’re pleased to announce that we’ve extended the exclusive distribution agreement with our established Canadian commercial partner, Pendopharm, to sell Cingal, Monovisc, Orthovisc through 2030, building on the existing market leadership position in Canada. Cingal remains a key driver as the next-generation non-opioid OA pain product of choice in now over 40 countries outside the United States. We continue to see strong growth and are exploring partnership opportunities in select Asian markets, and we remain confident that Cingal will truly be a game changer when it is approved in the U.S.

To that end, as we continue to interact with the FDA on a regular basis, we recently received feedback from the agency in response to our proposals that were requested by FDA during the Type-C meeting in April of last year. While the FDA feedback provided some clarity, there’s additional information Anika needs regarding what FDA will require for nonclinical data. We have reverted back to the FDA with questions. As we’ve said previously, we will begin the remaining nonclinical testing once we have received additional clarity from the FDA.

Moving to Joint Preservation and Restoration. We had revenues of $13.8 million, up 3%. We are seeing good progress following the recent launches of several new innovative solutions. These early results have energized our teams as we work diligently to increase the adoption of our new products, which offset headwinds from some of our more mature products during the quarter.

Let me first describe the progress we are making on the regenerative side. We have now completed more than 200 cases with over 40 surgeons using our HA-based Integrity Implant System since its limited market release at the end of last November, which is double the number since our last update. We continue to receive incredibly positive clinical feedback as it becomes increasingly adopted by surgeons not only for rotator cuff repair but also in other tendon repair applications such as in the foot and ankle. The full market release remains on track for the middle of this year and is expected to increase growth in our regenerative business in the back half of 2024.

Hyalofast continues to do very well outside the U.S., now selling in over 35 countries. As a reminder, Hyalofast, our HA single-stage cartilage repair system, was granted Breakthrough Device Designation by the FDA. We expect to begin filing the modular PMA this year with a target product launch by 2026, creating a highly differentiated entrant into the $1 billion plus U.S. cartilage repair market opportunity.

With great clinical feedback on Integrity and 15-year data likely publishing this year on Hyalofast, Anika now has 2 highly differentiated regenerative platforms to leverage as the basis for additional near-term regenerative products. We continue to build out our exciting regenerative pipeline, and we look forward to providing additional details about it in the future.

We also remain encouraged by the performance of our X-Twist Fixation System, which has been a standout product for us. More than 10,000 X-Twist anchors have now been implanted globally since the limited release of the PEEK version early last year, which is a real milestone for us. Between the Biocomposite version now fully launched this month and X-Twist PEEK, we are addressing the entire $600 million U.S. rotator cuff market.

Lastly, regarding our RevoMotion Reverse Shoulder System. We regularly engage with our distributors to improve our channel and commercial execution, and we’re actively training surgeons on the safe and effective use of the system. The pace of adoption remains slower than anticipated due to a more complex sales cycle, including obtaining facility approvals. That said, we are encouraged by the recent CMS decision to now reimburse shoulder arthroplasty procedures in the ASC and that surgeons are taking RevoMotion to their surgery centers due to our efficient 2-instrument tray system design.

I’m proud of the work we’ve done to build on our momentum, [ enhanced ] execution across our business. We are laser-focused on maximizing value for our shareholders and remain open to paths that will help us achieve this objective while continuing to invest in our greatest opportunities.

On a separate note, we announced earlier today that Mike made a personal decision to step down as CFO effective June 3. On behalf of all of us at Anika, I’d like to thank Mike for his leadership over the past 4 years. Mike joined Anika in mid-2020 following our 2 acquisitions. His strategic and operational insights have helped Anika navigate this period of significant change while positioning the company for an exciting future. I appreciate everything Mike has done for Anika, and we all wish him the best.

We’re excited to welcome Steve Griffin as our new CFO on June 3. Steve comes to Anika with more than 15 years of experience in public company CFO and other senior finance leadership roles and a proven track record of value creation at both large and small public companies. We are confident that Steve will help us build on our momentum to achieve the meaningful growth and profitability potential across the business. Mike will remain with Anika through the end of the year and will work closely with Steve and me to ensure a smooth transition of responsibilities. We’re glad to continue benefiting from his expertise during that time, and in the near term, looking forward to introducing you all to Steve.

Mike, I’ll now turn it over to you for a few words on our financial results.

Michael Levitz: Thank you very much, Cheryl. While I have decided to leave Anika to spend more time with my family, I am very thankful for the opportunity to have been a part of the Anika team over the last 4 years. When I joined the company, it was just starting to absorb its acquisitions of Parcus Medical and Arthrosurface in the midst of the first few months of the COVID pandemic. COVID lasted much longer than expected, and its impacts were more widespread.

The company has navigated this challenging period and made meaningful strides, including thoughtful investments, strengthening the core OA business and advancing a meaningful portfolio and pipeline of products that leverage Anika’s HA expertise, while at the same time, maintaining a healthy balance sheet and making targeted cost reductions to support sustainable and growing cash generation. Anika’s foundation is strong, and the company has tremendous opportunity with its established and differentiated products and pipeline to both fulfill its mission to customers and their patients and deliver value for our shareholders.

These last 4 years, I have so appreciated the opportunity to work closely with Cheryl, with my peers and team in finance and IT, with the many wonderful, dedicated people across Anika globally and with such a quality Board of Directors. Cheryl is a smart and resilient leader who exemplifies the Anika core values of doing the right things the right way, focused on driving high-quality products that truly improve lives. Steve is joining a talented team, and I look forward to supporting his transition as Anika’s next CFO and to following Anika’s success for years to come.

Now please refer to Slide 4 on the online presentation, where I will walk through the results for the first quarter of 2024. Unless otherwise stated, all comparisons will be against the same period in the prior year.

I’m pleased to report total revenue for the first quarter grew to $40.5 million, driven by growing demand as well as favorable order timing. Revenue in our largest product family, OA Pain Management, increased 7% in the first quarter to $24.3 million due to growing demand as well as favorable ordering patterns from both J&J Mitek in the United States and from our international distributors. Our Joint Preservation and Restoration revenue increased 3% in the first quarter to $13.8 million, driven by our recent product launches in the U.S. led by X-Twist and Integrity. This growth was partially offset by lower sales of certain of our more mature products. Lastly, our Non-Orthopedic revenue increased 29% to $2.4 million on growing demand and year-over-year order timing in the high-risk veterinary sales.

Moving to gross margin. Our gross margin in the first quarter was 61%, up from 60% on lower intangible amortization. Our adjusted gross margin was 62% in the quarter, down from 64% due primarily to the timing of impact of production inefficiencies and reserves in the quarter.

Moving to operating expenses. Our operating expenses in the first quarter totaled $29.7 million. That’s down $5.7 million. These lower operating expenses reflect fewer nonrecurring costs as well as effective cost control following the launches of key products and addressing the new regulatory requirements in the EU to continue to sell our legacy products there. As a reminder, Anika incurred $5.8 million in nonrecurring costs in the first quarter of last year for the Parcus arbitration settlement, shareholder activism and other items. In comparison, operating expenses in the first quarter this year reflected $1.4 million of nonrecurring items, including severance costs for the head count reductions we took in the first quarter and shareholder activism costs.

Our net loss for the quarter was $4.5 million or $0.31 per share compared to a net loss of $10.4 million or 71% — $0.71 per share, excuse me. We generated adjusted net income of $1.2 million in the first quarter or $0.09 per diluted share, up from an adjusted net loss of $2.2 million or $0.14 per share. As we highlighted on our last earnings call, beginning this year, the calculations of adjusted net income and adjusted EPS have been revised to exclude stock-based compensation, net of tax, and this revised calculation is reflected for all periods presented.

Anika generated adjusted EBITDA in the quarter of $2.5 million, up from a negative $1.2 million. And our adjusted EBITDA margin in the quarter grew to 6%, up from a negative 3%. The 9 point improvement was primarily due to the combined benefit of both revenue growth and reduced spending.