<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
REGISTRATION STATEMENT NO. 333-38993
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
----------------
ANIKA THERAPEUTICS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
MASSACHUSETTS 8731 04-3145961
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
----------------
236 WEST CUMMINGS PARK
WOBURN, MASSACHUSETTS 01801
(781) 932-6616
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
----------------
J. MELVILLE ENGLE
PRESIDENT
ANIKA THERAPEUTICS, INC.
236 WEST CUMMINGS PARK
WOBURN, MASSACHUSETTS 01801
(781) 932-6616
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
H. DAVID HENKEN, ESQ. RICHARD R. PLUMRIDGE, ESQ.
GOODWIN, PROCTER & HOAR LLP BROBECK, PHLEGER & HARRISON LLP
EXCHANGE PLACE 1633 BROADWAY, 47TH FLOOR
BOSTON, MASSACHUSETTS 02109 NEW YORK, NY 10019
(617) 570-1000 (212) 581-1600
----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1997
3,000,000 SHARES
[LOGO OF ANIKA THERAPEUTICS APPEARS HERE]
COMMON STOCK
Of the shares of Common Stock, par value $.01 per share (the "Common Stock"),
offered hereby, 2,500,000 shares are being sold by Anika Therapeutics, Inc.
("Anika" or the "Company") and 500,000 shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders.
The Common Stock of the Company is traded on the Nasdaq Small-Cap Market
under the symbol "ANIK." The Company has applied to have its Common Stock
listed on the Nasdaq National Market under such symbol. On November 6, 1997,
the last sale price of the Common Stock as reported on the Nasdaq Small-Cap
Market was $8.5625 per share. See "Price Range of Common Stock and Dividend
Policy."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) The Company and certain stockholders of the Company have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 225,000 and
225,000 additional shares of Common Stock, respectively, on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-----------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
certificates for the shares of Common Stock will be made at the offices of
Furman Selz LLC, New York, New York, on or about , 1997.
FURMAN SELZ
VOLPE BROWN WHELAN & COMPANY
LEERINK SWANN & COMPANY
-----------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
Inside Front Cover
(1) Color photograph of Anika commercialized products (AMVISC, AMVISC PLUS,
HYVISC and ORTHOVISC).
Legend: Anika Therapeutics' family of ultra-pure, natural hyaluronic acid
(HA) products is intended to promote protection and healing of
bone, cartilage and soft tissue. Based on hyaluronic acid (HA), a
naturally-occurring, biocompatible polymer found throughout the
body, Anika's HA products are intended to restore the elasticity
and viscosity of synovial fluid and provide lubrication and
protection of tissues. Anika's currently marketed product line
consists of ORTHVISC(R), an injectable, high molecular weight HA
product used in the treatment of some forms of osteoarthritis and
HYVISC(R), an HA product used in the treatment of equine
osteoarthritis. Also, Anika manufactures AMVISC(R) and AMVISC
Plus(R), HA products used as viscoelastic supplements in opthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation.
(ORTHOVISC(R), is approved for marketing in Canada and Europe; in
the U.S.; it is currently limited to investigational use only.)
(2) Color medical illustration depicting knee anatomy as treated with ORTHOVISC.
Legend: This diagram illustrates the knee joint coated within the synovial
membrane by synovial fluid, the body's natural biomaterial which
cushions and lubricates the knee; the inset illustration depicts a
close-up, cross-sectional view of a bone's articulating surface
coated by the synovial fluid of which hyaluronic acid (HA) is a
major component. ORTHOVISC(R), Anika's ultra-pure, high molecular
weight HA product, is intended to be injected into the synovial
fluid space of an osteoarthritic joint to provide
viscosupplementation. It can help to restore the elasticity and
viscosity of the synovial fluid which can provide relief and
improve joint mobility for up to six months after treatment.
HYVISC(R), ORTHOVISC(R), and INCERT(R) are registered trademarks of the
Company. All other trademarks, servicemarks or tradenames referred to in this
Prospectus, including AMVISC(R), AMVISC(R) Plus and OSSIGEL(TM), are the
property of their respective owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON NASDAQ IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Investors should carefully consider the information set forth under the heading
"Risk Factors" and elsewhere in this Prospectus, before purchasing the
securities offered hereby. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and
gives effect to the automatic conversion of all outstanding shares of Series A
Preferred Stock upon consummation of this offering. This Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Prospective investors are cautioned that such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include, among other factors noted herein, the
factors set forth under the heading "Risk Factors."
THE COMPANY
Anika Therapeutics, Inc. develops, manufactures and commercializes
therapeutic products and devices intended to promote the protection and healing
of bone, cartilage and soft tissue. 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 has been developing HA and HA based products since 1983. The Company's
currently marketed products consist of ORTHOVISC(R), which is an HA product
used in the treatment of some forms of osteoarthritis ("OA") in humans and
HYVISC(R), which is an HA product used in the treatment of equine
osteoarthritis. ORTHOVISC is currently approved for marketing in Canada and
Europe; in the U.S. ORTHOVISC is currently limited to investigational use only.
The Company manufactures AMVISC(R) and AMVISC Plus(R), which are HA products
used as viscoelastic supplements in ophthalmic surgery, for Chiron Vision, a
subsidiary of Chiron Corporation. The Company is currently developing
INCERT(R), which is an HA based product designed for use in the prevention of
post-surgical adhesions. In addition, the Company is collaborating with
Orquest, Inc. to develop OSSIGEL(TM), an injectable formulation of basic
fibroblast growth factor combined with HA designed to accelerate the healing of
bone fractures.
The Company is a leading manufacturer of ultra-pure, high molecular weight
HA. The purity level and molecular weight of HA is important because if HA
contains even trace levels of proteins, an immunogenic or inflammatory response
may be elicited when the HA is introduced into the body and preclinical and
clinical data suggest that high molecular weight HA correlates with increased
efficacy of HA products. The Company believes its expertise and proprietary
know-how in the development and manufacture of ultra-pure, high molecular
weight HA products are difficult to replicate and provide it with a competitive
advantage.
The Company's goal is to leverage its position as a leading manufacturer of
ultra-pure, high molecular weight HA for significant therapeutic applications.
Key elements of the Company's strategy are to: (i) identify additional medical
applications for HA; (ii) develop proprietary therapeutic products both on its
own and in collaboration with strategic partners; (iii) capitalize on its
existing proprietary high-quality and cost-effective HA manufacturing
expertise; and (iv) establish strategic alliances for the marketing and
distribution of its products.
PRODUCTS
The Company has been manufacturing AMVISC for use in ophthalmic surgery since
1983. Ophthalmic surgeons inject HA during cataract surgery to protect delicate
tissues and to maintain the shape of the corneal chamber of the eye. The
Company estimates that worldwide sales of HA ophthalmic products approximated
$300 million in 1996. Industry sources indicate that there were over 2 million
cataract surgeries and approximately
3
<PAGE>
2.3 million viscoelastic units for ophthalmic surgery sold in the United States
in 1996. The Company manufactures AMVISC and AMVISC Plus for Chiron Vision for
distribution in the United States and internationally. In 1996, sales of AMVISC
and AMVISC Plus represented approximately 20% of total sales of HA ophthalmic
products in the United States.
The Company has developed ORTHOVISC (currently limited to investigational use
only in the U.S.) for the treatment of OA of the knee in humans. According to
the Arthritis Foundation, osteoarthritis of some form afflicts approximately 16
million people in the U.S. ORTHOVISC is intended to be injected into the knee
to restore the elasticity and viscosity of the synovial fluid. The Company's
clinical studies have indicated that injection of HA into the knee joint can
provide pain relief and improved joint mobility for up to six months after
treatment. The Company's preclinical and clinical studies and experience with
other HA products indicate that treatment with HA does not have certain adverse
side effects that often accompany alternative treatments for OA, such as non-
steroidal anti-inflammatory drugs ("NSAIDs") or steroid injections. While
ORTHOVISC is not currently approved for marketing in Japan, HA products for the
treatment of OA have been sold in Japan since the mid-1980s and total sales in
Japan have grown to approximately $300 million in 1996. HA products for the
treatment of OA have been more recently introduced in Europe and Canada.
ORTHOVISC is approved for marketing in Canada for treatment of OA of the knee
and temporomandibular joint ("TMJ") dysfunction and in Europe for the treatment
of OA in synovial joints. In the United States, the Company has completed a
pivotal clinical trial investigating the use of ORTHOVISC for treatment of OA
of the knee which included 226 patients at ten centers. The Company is
preparing a Pre-Market Approval Application ("PMA") for this use which it plans
to file with the United States Food and Drug Administration ("FDA") before the
end of 1997. On November 7, 1997, the Company entered into a distribution
agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company
("Zimmer"), granting Zimmer the exclusive marketing and distribution rights to
ORTHOVISC in the United States, Canada and certain selected countries in the
Asia-Pacific region. The Company received an up-front non-refundable payment of
$2.5 million upon signing and may receive up to an additional $20.5 million in
payments contingent upon the achievement of certain regulatory and sales
milestones. The Company has also entered into third-party arrangements for the
distribution of ORTHOVISC in Spain, Portugal, Israel, Turkey and Egypt, and is
currently selling ORTHOVISC in Canada and Turkey. The Company has also
developed and sells an HA product, HYVISC, a veterinary product used primarily
for the treatment of OA in racehorses that is distributed in the U.S. by
Boehringer Ingelheim Animal Health, Inc.
The Company is also developing INCERT, a bioabsorbable, cross-linked HA
membrane that is designed to be placed between tissues during surgery to
prevent post-surgical adhesions, in particular in abdominal, obstetric,
gynecological and back surgeries. Adhesions that form after surgery are a major
medical complication that can lead to intestinal blockage, female infertility
and recurrent back pain. Costly secondary surgeries are often performed in an
attempt to correct problems caused by adhesions. According to Medical Device
International ("M.D.I."), over 1.8 million abdominal surgeries are performed
annually in the United States and over 400,000 secondary surgeries were
performed in 1994 to remove adhesions. M.D.I. and other industry sources
estimate that the total worldwide market potential for all anti-adhesion
products is approximately $900 million. The Company has completed preclinical
studies of INCERT and currently plans to commence testing in humans in Europe
during 1998.
The Company, in collaboration with scientists and other companies, is also
participating in the development of other applications of HA, including its
potential as a drug delivery vehicle for pharmaceutical and biologic compounds.
OSSIGEL, which is in preclinical development by Orquest, uses HA as a drug
delivery vehicle for basic fibroblast growth factor to accelerate the healing
of bone fractures. In addition, in collaboration with Tufts University and
Massachusetts General Hospital, the Company is studying the use of HA
oligosaccharides (discrete pieces of the HA molecule) to inhibit cancer
metastasis. The Company's collaborative research has indicated that the HA
oligosaccharides bind and block HA receptors on the surface of cancer cells
that play a role in cancer metastasis. Neither of these products has been
approved for clinical investigation or commercial distribution in the U.S. or
any other market.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 2,500,000 shares
Company......................
Common Stock offered by
Selling Stockholders......... 500,000 shares
Total Common Stock offered.. 3,000,000 shares
Common Stock to be outstanding
after the offering........... 9,381,879 shares(1)
Use of proceeds............... To expand the Company's manufacturing facility,
fund the Company's product research and
development efforts, including clinical trials,
and for working capital and other general
corporate purposes. See "Use of Proceeds."
Nasdaq symbol................. ANIK
</TABLE>
- ----------
(1) Assumes cashless exercise of all outstanding warrants to acquire shares of
Series A Preferred Stock which are convertible into 453,638 shares of
Common Stock. Excludes (i) 1,871,495 shares of Common Stock issuable upon
the exercise of stock options outstanding as of October 31, 1997 with a
weighted average exercise price of $3.68 per share and an additional
785,000 shares of Common Stock reserved for issuance under the Company's
1993 Stock Option Plan (the "Stock Option Plan") and an additional 17,500
shares of Common Stock reserved for issuance under the Company's 1993
Directors' Stock Option Plan (the "Directors' Plan") and (ii) 203,700
shares of Common Stock issuable upon the exercise of warrants outstanding
as of October 31, 1997 with a weighted average exercise price of $3.28 per
share. See "Management -- Executive Compensation," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ---------------
1994 1995 1996 1995(1) 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,663 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962
Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016
Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946
Total operating
expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749
Income (loss) before
income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302
Net income (loss)....... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 286
Earnings (loss) per
common share and common
share equivalents(2)... (.45) (.63) (.76) (.30) (.56) (.54) .03
Common shares and common
share equivalents
outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 3,055 $22,463
Working capital......................................... 5,186 24,594
Total assets............................................ 8,131 27,539
Accumulated deficit..................................... (9,088) (9,088)
Stockholders' equity.................................... 3,159 25,272
</TABLE>
- ----------
(1) The Company changed its fiscal year end from August 31 to December 31,
effective December 31, 1996. Represents data for the four month
transitional year ended December 31, 1996 and the comparable period in
1995. See Note 1 of Notes to Financial Statements.
(2) See Note 2 of Notes to Financial Statements for a description of the method
of computing earnings (loss) per common share and common share equivalents.
(3) Adjusted to reflect (i) the sale by the Company of 2,500,000 shares of
Common Stock at an assumed public offering price of $8.5625 per share
(after deducting the estimated underwriting discounts and commissions and
estimated expenses of the offering) and the application of the net proceeds
therefrom as set forth under "Use of Proceeds" and (ii) the exercise of all
outstanding warrants to acquire Series A Preferred Stock.
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus 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. Discussions containing such
forward-looking statements may be found in the material set forth under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in this Prospectus
generally. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. The Company's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include, among other factors noted herein, the factors set
forth below.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred annual operating losses since its inception in May
1993 and had an accumulated deficit of approximately $9.1 million as of
September 30, 1997. The continued development of the Company's products will
require the commitment of substantial resources to conduct research and
preclinical and clinical development programs, and to establish sales and
marketing capabilities. The Company incurred substantial and increasing
operating losses through December 31, 1996 and, although the Company had net
income of $286,000 for the nine months ended September 30, 1997, the ability
of the Company to reach sustained profitability is highly uncertain. To
achieve sustained profitability the Company must, among other things,
successfully complete development of certain of its products, obtain
regulatory approvals and establish sales and marketing capabilities for
certain of its products. There can be no assurance that the Company will be
able to achieve sustained profitability. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
COMPETITION
The Company competes with many companies, including large pharmaceutical
companies and specialized medical products companies. Many of these companies
have substantially greater financial and other resources, larger research and
development staffs, more extensive marketing and manufacturing organizations
and more experience in the regulatory process than the Company. The Company
also competes with academic institutions, governmental agencies and other
research organizations which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete clinical studies and obtain FDA marketing and foreign regulatory
approvals prior to its competitors. There can be no assurance that the Company
will be able to compete against current or future competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate as a result of a
number of factors, including timing of approvals of new products of the
Company, its competitors or its customers, slower-than-anticipated market
penetration rates of current products, temporary delays in obtaining certain
product components from suppliers and the ability of the Company to establish
marketing and distribution arrangements with strategic partners. A significant
portion of the Company's expenses is relatively fixed in nature and the
Company may not be able to reduce spending in response to shortfalls or delays
in revenues. Such shortfalls or delays may result in a material adverse effect
on the Company's business, financial condition and results of operations. As a
result, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Due to the foregoing factors, it is likely
that in one or more future fiscal quarters the Company's operating results may
be below the expectations of equity research analysts and investors. Such an
occurrence could have a material adverse effect on the market price of the
7
<PAGE>
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Quarterly Results of Operations."
COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
The Company's products, product development activities, manufacturing
processes, and current and future sales and marketing are subject to extensive
and rigorous regulation by the FDA and comparable agencies in foreign
countries. In the United States, the FDA regulates the marketing, advertising,
promotion, and distribution of medical devices, drugs, and biologics, as well
as testing, manufacturing, labeling, recordkeeping, and reporting activities
for such products.
Medical products regulated by the FDA are generally classified as devices
and/or drugs and/or biologics. Product development and approval within the FDA
framework takes a number of years and involves the expenditure of substantial
resources. There can be no assurance that the FDA will grant approval for the
Company's new products on a timely basis if at all, or that FDA review will
not involve delays that will adversely affect the Company's ability to
commercialize additional products or expand permitted uses of existing
products, or that the regulatory framework will not change, or that additional
regulation will not arise at any stage of the Company's product development
process which may adversely affect approval of or delay an application or
require additional expenditures by the Company. In the event the Company's
future products are regulated as human drugs or biologics, the FDA's review
process typically would be substantially longer and more expensive than the
review process for devices.
The Company's ORTHOVISC product is currently regulated as a Class III device
by the FDA. Class III devices are those that generally must receive pre-market
approval by the FDA to ensure their safety and effectiveness (e.g. life-
sustaining, life-supporting and implantable or new devices which have not been
found to be substantially equivalent to legally marketed devices) and require
clinical testing to ensure safety and effectiveness and FDA approval prior to
marketing and distribution. In order for the Company to commercially
distribute ORTHOVISC in the U.S., it must obtain FDA approval of a PMA. The
Company is currently preparing a PMA for ORTHOVISC and plans to submit it by
the end of 1997. The PMA approval process can be expensive, uncertain and
lengthy. A number of devices for which pre-market approval has been sought
have never been approved for marketing. The review of an application often
occurs over a protracted time period and may take two years or more from the
filing date to complete. There can be no assurance that the FDA will approve a
PMA application for ORTHOVISC on a timely basis, if at all, or that the FDA
review will not involve delays that will affect the Company's ability to
commercialize additional products or expand permitted uses of existing
products. Furthermore, even if granted, the approval may include significant
limitations on the indications for use for which the product may be marketed.
See "Business--Government Regulation."
The Company's developmental HA products, including INCERT and HA
oligosaccharides, have not obtained regulatory approval in the U.S. for
investigational use and/or commercial marketing and sale. The Company believes
that INCERT will be regulated as a Class III medical device and HA
oligosaccharides will be regulated as a drug, although there can be no
assurance that such products will not be otherwise classified. Before
undertaking clinical trials in the U.S. to support a PMA, the Company must
apply for and obtain FDA and/or institutional review board ("IRB") approval of
an investigation device exemption ("IDE"). There can be no assurance that the
Company will be permitted to undertake clinical trials of these or other
future products in the U.S. or that clinical trials will demonstrate that the
products are safe and effective or otherwise satisfy the FDA's pre-market
approval requirements. Orquest has not received regulatory approval in the
U.S. for the investigational use and/or commercial marketing and sale of
OSSIGEL. OSSIGEL may be regulated as a Class III medical device, a biologic, a
drug or a combination thereof. There can be no assurance that Orquest will be
permitted to undertake clinical trials of OSSIGEL or, if clinical trials are
permitted, that such clinical trials will demonstrate that OSSIGEL is safe and
effective or otherwise satisfy FDA requirements.
Once obtained, marketing clearance can be withdrawn by the FDA due to
failure to comply with regulatory standards or the occurrence of unforeseen
problems following initial clearance. The Company may be required to make
further filings with the FDA under certain circumstances. The FDA's
regulations require agency
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approval of a PMA supplement for certain changes if they affect the safety and
effectiveness of an approved device, including, but not limited to, new
indications for use, labeling changes, the use of a different facility to
manufacture, process or package the device, changes in manufacturing methods or
quality control systems and changes in performance or design specifications.
Failure by the Company to receive approval of a PMA supplement regarding the
use of a different manufacturing facility or any other change affecting the
safety or effectiveness of an approved device on a timely basis, or at all,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The FDA could also limit or prevent the
manufacture or distribution of the Company's products and has the power to
require the recall of such products. Significant delay or cost in obtaining, or
failure to obtain FDA clearance to market products, any FDA limitations on the
use of the Company's products, or any withdrawal or suspension of clearance by
the FDA could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, all FDA-approved products manufactured by the Company must be
manufactured in compliance with FDA's Good Manufacturing Practices ("GMP")
regulations or, for medical devices, FDA's Quality System Regulations ("QSR").
Ongoing compliance with GMP and other applicable regulatory requirements is
monitored through periodic inspection by state and federal agencies, including
the FDA. The FDA may inspect the Company and its facilities from time to time
to determine whether the Company is in compliance with regulations relating to
medical device and manufacturing companies, including regulations concerning
manufacturing, testing, quality control and product labeling practices. There
can be no assurance that the Company will be able to comply with current or
future FDA requirements applicable to the manufacture of products.
FDA regulations depend heavily on administrative interpretation and there can
be no assurance that the future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of
new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the FDA to grant pre-market clearance or pre-market approval for
devices, withdrawal of approvals and criminal prosecution.
In addition to regulations enforced by the FDA, the Company is subject to
other existing and potential future federal, state, local and foreign
regulations. International regulatory bodies often establish regulations
governing product standards, packing requirements, labeling requirements,
import restrictions, tariff regulations, duties and tax requirements. To enable
the Company to market its products in Europe, the Company was required to
receive a "CE" marking certification, an international symbol of quality and
compliance with the applicable European medical device directive. In October
1996, the Company received an EC Design Examination and an EC Quality System
Certificate from a European Notified Body, which entitles the Company to affix
a CE marking on ORTHOVISC for the treatment of osteoarthritis in synovial
joints. There can be no assurance that the Company will be able to achieve
and/or maintain compliance required for CE marking or other foreign regulatory
approvals for any or all of its products or that it will be able to produce its
products in a timely and profitable manner while complying with applicable
requirements. Federal, state, local and foreign regulations regarding the
manufacture and sale of medical products are subject to change. The Company
cannot predict what impact, if any, such changes might have on its business.
The requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement also vary widely from country to country.
The process of obtaining approvals from the FDA and other regulatory
authorities can be costly, time consuming, and subject to unanticipated delays.
There can be no assurance that approvals of the Company's products will be
granted or that the Company will have the necessary funds to develop certain of
such products. Any failure to obtain, or delay in obtaining, such approvals
could adversely affect the ability of the Company to market its products. See
"Business -- Government Regulation."
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UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS
Several of the Company's products, including INCERT and HA oligosaccharides,
as well as the products of the Company's collaborative partners, including
OSSIGEL, will require clinical trials to determine their safety and efficacy
in humans for various conditions. There can be no assurance that the Company
or its collaborative partners will not encounter problems that will cause it
to delay or suspend clinical trials of any of these products. In addition,
there can be no assurance that such clinical trials, if completed, will
ultimately demonstrate these products to be safe and efficacious. See
"Business -- Clinical Applications."
DEPENDENCE UPON MARKETING PARTNERS
The Company does not plan to directly market and sell its current products
to customers. Therefore, the Company's success will be dependent upon the
efforts of its marketing partners and the terms and conditions of the
Company's relationships with such marketing partners. The Company currently
manufactures AMVISC and AMVISC Plus for Chiron Vision under a non-exclusive
fixed price, five-year supply agreement which contains stated minimum annual
purchase obligations and terminates on December 31, 2001. Bausch & Lomb, Inc.
recently announced that it has signed definitive agreements to acquire Chiron
Vision, as well as Storz Instrument Company, a subsidiary of American Home
Products and a competitor of Chiron Vision. Since January 1, 1997, Chiron
Vision has purchased AMVISC and AMVISC Plus in amounts substantially in excess
of the minimum purchase obligations set forth in the AMVISC supply contract.
There can be no assurance that the acquisitions will be consummated or if
consummated, that Bausch & Lomb, Inc. will continue to purchase AMVISC and
AMVISC Plus at levels beyond the stated minimum annual purchase obligations.
Any such decrease in orders under the AMVISC supply contract could have a
material adverse effect on the Company's business, financial condition and
results of operations. For the nine months ended September 30, 1997 and 1996,
AMVISC and AMVISC Plus sales through Chiron Vision accounted for 84% and 90%
of net sales, respectively.
On November 7, 1997, the Company entered into a distribution agreement with
Zimmer for the exclusive marketing and distribution of ORTHOVISC in the United
States, Canada and selected countries in the Asia-Pacific region. While the
agreement provides for future payments to the Company of up to $20.5 million
(which includes the right upon attaining certain milestones, at Zimmer's
election, to make an equity investment in the Company equal to the greater of
$2.5 million or 9.9% of the then outstanding Common Stock (but not to exceed
19.9% of the then outstanding Common Stock) at a premium to the then current
market price), such payments are contingent upon the achievement of certain
enumerated regulatory approval and sales milestones. There can be no assurance
that such milestones will be met on a timely basis or at all and, accordingly,
that any such payments will be received by the Company. In addition, Zimmer
has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. These circumstances include (i) the failure of Zimmer to sell
a stated minimum number of units of ORTHOVISC during the second quarter of
1998 or the failure of a competitor of the Company to report enumerated sales
minimums during the first two quarters of 1998, (ii) an FDA requirement of
additional clinical trials for ORTHOVISC or the FDA's acceptance for filing by
a party other than Anika or its primary competitors of a PMA for an injectable
HA product for the treatment of OA in humans without requiring submission of
an IDE clinical study to support the application, (iii) both Synvisc and
Hyalgan are either voluntarily or involuntarily withdrawn from the U.S.
market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June
30, 1998 which results in Zimmer's determination that the knee implant product
line is not a core product. There can be no assurance that any of these events
will not occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
The Company will need to obtain the assistance of additional marketing
partners for new products which are brought to market and existing products
brought to new markets. There can be no assurance that such additional
partners will be available or that such partners will agree to market the
Company's products on acceptable terms. The failure to establish strategic
partnerships for the marketing and distribution of the
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Company's products on acceptable terms would have a material adverse effect on
the Company's business, financial condition and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS
The Company's success will depend in part upon the acceptance of the
Company's new products by the medical community, hospitals and physicians and
other health care providers, and third-party payors. Such acceptance may
depend upon the extent to which the medical community perceives the Company's
products as safer, more effective or cost-competitive than other similar
products. Ultimately, for the Company's new products to gain general market
acceptance, it will also be necessary for the Company to develop marketing
partners for the distribution of its products. There can be no assurance that
the Company's new products will achieve significant market acceptance on a
timely basis, or at all. Failure of some or all of the Company's new products
to achieve significant market acceptance could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Competition."
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms, including the Company, can be uncertain and
involve complex legal and factual questions. There can be no assurance that
any patent applications will result in the issuance of patents or, if any
patents are issued, whether they will provide significant proprietary
protection or commercial advantage, or will not be circumvented by others. In
the event a third party has also filed one or more patent applications for any
of its inventions, the Company may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office ("PTO") to
determine priority of invention (see below), which could result in failure to
obtain or the loss of patent protection for the inventions and the loss of any
right to use the inventions. Even if the eventual outcome is favorable to the
Company, such interference proceedings could result in substantial cost to the
Company. 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 the Company's patents, if issued,
are challenged by one or more third parties, that any court or patent
authority ruling on such challenge will determine that such patent claims are
valid and enforceable. An adverse outcome in such litigation could cause the
Company to lose exclusivity covered by the disputed rights. If a third party
is found to have rights covering products or processes used by the Company,
the Company could be forced to cease using the technologies or marketing the
products covered by such rights, could be subject to significant liabilities
to such third party, and could be required to license technologies from such
third party. Furthermore, even if the Company's 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
the Company using the resulting alternative technology.
The Company has a policy of seeking patent protection for patentable aspects
of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and solely owns patents directed to
certain manufacturing processes. The Company also holds an exclusive license
from Tufts University to use technologies claimed in a United States patent
application which relate to the anti-metastasis applications of HA
oligosaccharides. The Company's issued patents expire between 2007 and 2015
and the license expires upon expiration of all related patents. The Company
intends to seek patent protection with respect to products and processes
developed in the course of its activities when it believes such protection is
in its 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 the Company 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 the Company's patents. The
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Company's issued patents and any patents which arise from the Company's
licensed application would provide competitive protection, if at all, only in
the United States. The Company has not, to date, pursued foreign patents
equivalent to those issued or applied for in the United States.
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 the Company
will not infringe the patent rights of others in the future. Any such
infringement may have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, the Company has
received notice from the PTO that a third party is attempting to provoke a
patent interference with respect to one of the Company's co-owned patents
covering the use of INCERT for post-surgical adhesion prevention. Although the
Company believes that an interference will be declared by the PTO, it is too
early to determine the merits of the interference or the effect, if any, the
interference will have on the Company's marketing of INCERT for this use. The
existence of the interference proceeding may have a negative impact on the
marketing of the INCERT product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the third-
party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of the INCERT products, which could have a material adverse
effect on the Company's future operating results. See "Business -- Patents and
Proprietary Rights."
The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires 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 the Company
would have adequate remedies for any such breach, or that the Company's trade
secrets, proprietary know-how, and technological advances will not otherwise
become known to others. In addition, there can be no assurance that, despite
precautions taken by the Company, others have not and will not obtain access
to the Company's proprietary technology. Further, there can be no assurance
that third parties will not independently develop substantially equivalent or
better technology.
Pursuant to the AMVISC supply contract the Company has agreed to grant
Chiron Vision a royalty-free, worldwide, exclusive license to the Company's
manufacturing and product inventions which relate to AMVISC products,
effective on December 31, 2001, the termination date of the AMVISC supply
contract which became effective on January 1, 1997. Upon expiration of the
AMVISC supply contract, there can be no assurance that Chiron Vision will
continue to use the Company to manufacture AMVISC and AMVISC Plus. If Chiron
Vision discontinues the use of the Company as a manufacturer after such time,
the Company's business, financial condition and results of operations could be
materially and adversely affected.
RISKS ASSOCIATED WITH MANUFACTURING
The Company's results of operations are dependent upon the continued
operation of its manufacturing facility in Woburn, Massachusetts. The
operation of biomedical manufacturing plants involves many risks, including
the breakdown, failure or substandard performance of equipment, natural and
other disasters, and the need to comply with the requirements of directives of
government agencies, including the FDA. In addition, the Company relies on a
single supplier for syringes and a small number of suppliers for a number of
other materials required for the manufacturing and delivery of its HA
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Nine months ended September
30, 1997 compared to nine months ended September 30, 1996." Furthermore,
manufacturing processes and research and development efforts of the Company
involve animals and products derived from animals. 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
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research and development programs or boycotted the products resulting from
such programs could cause an interruption in the Company's 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 the Company's business, financial
condition and results of operations during the period of such operational
difficulties. See "Business -- Manufacturing of Hyaluronic Acid."
NO ASSURANCE OF ABILITY TO MANAGE GROWTH
The Company's future success depends on substantial growth in product sales.
There can be no assurance that such growth can be achieved or, if achieved,
can be sustained. There can be no assurance that if substantial growth in
product sales and the demand for the Company's products is achieved, the
Company will be able to (i) develop the necessary manufacturing capabilities,
(ii) obtain the assistance of additional marketing partners, (iii) attract,
retain and integrate the required key personnel, or (iv) implement the
financial, accounting and management systems needed to manage growing demand
for its products, should it occur. Failure of the Company to successfully
manage future growth could have a material adverse effect on the Company's
business, financial condition and results of operations.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's
products, generally rely on third party payors, including Medicare, Medicaid
and other health insurance and managed care plans, to reimburse all or part of
the cost of the health care product. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the
use of the Company's products are clinically useful and cost-effective,
medically necessary and not experimental or investigational. Since
reimbursement approval is required from each payor individually, seeking such
approvals can be a time consuming and costly process which, in the future,
could require the Company or its marketing partners to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third party
payors are increasingly attempting to contain the costs of health care
products and services by limiting both coverage and the level of reimbursement
for new therapeutic products and by refusing in some cases to provide coverage
for uses of approved products for disease indications for which the FDA has
not granted marketing approval. In addition, Congress and certain state
legislatures have considered reforms that may affect current reimbursement
practices, including controls on health care spending through limitations on
the growth of Medicare and Medicaid spending. There can be no assurance that
third party reimbursement coverage will be available or adequate for any
products or services developed by the Company. Outside the U.S., the success
of the Company's products is also dependent in part upon the availability of
reimbursement and health care payment systems. Lack of adequate coverage and
reimbursement provided by government and other third party payors for the
Company's products and services could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."
NEED FOR ADDITIONAL FUNDS; LIQUIDITY
The Company anticipates that its cash and cash equivalents of approximately
$3.1 million on September 30, 1997, together with the $2.5 million payment
received upon signing of the distribution agreement with Zimmer, the net
proceeds from the offering and cash flow from operations will be adequate to
fund its operations for 24 months from the date of this Prospectus. The
Company's future capital requirements and the adequacy of available funds will
depend, however, on numerous factors, including market acceptance of its
existing and future products, the successful commercialization of products in
development, progress in its product development efforts, the magnitude and
scope of such efforts, progress with preclinical studies, clinical trials and
product clearances by the FDA and other agencies, the cost and timing of its
efforts to expand its manufacturing capabilities, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, and the
development of strategic
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alliances for the marketing of certain of its products. To the extent that
funds generated from the Company's operations, together with the Company's
existing capital resources and the net proceeds of this offering are
insufficient to meet future requirements, the Company will be required to
obtain additional funds through equity or debt financings, strategic alliances
with corporate partners and others, or through other sources. The terms of any
future equity financings may be dilutive to the Company's stockholders and the
terms of any debt financings may contain restrictive covenants which limit the
Company's ability to pursue certain courses of action. The ability of the
Company to obtain financing is dependent on the status of the Company's 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 the Company or will be available on acceptable terms should such
a need arise. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
EXPOSURE TO PRODUCT LIABILITY CLAIMS
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 the Company. Although the Company has not received any material
product liability claims to date and has a $1 million insurance policy to
cover such claims should they arise, there can be no assurance that material
claims will not arise in the future or that the Company's 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 the Company's business, financial condition and results of
operations. See "Business -- Product Liability."
DEPENDENCE UPON KEY PERSONNEL
The Company is highly dependent on the members of its management and
scientific staff, the loss of one or more of whom could have a material
adverse effect on the Company. In addition, the Company believes that its
future success will depend in large part upon its ability to attract and
retain highly skilled, scientific, managerial and manufacturing personnel. The
Company faces significant competition for such personnel from other companies,
research and academic institutions, government entities and other
organizations. There can be no assurance that the Company will be successful
in hiring or retaining the personnel it requires. The failure to hire and
retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTY OF ESTIMATES
To assist investors in evaluating the Company, this Prospectus contains
certain estimates of market size and market share for the Company's and its
competitors' HA products. These estimates have been derived by the Company on
the basis of its analysis of industry reports, press releases and market
research reports compiled by independent third-party sources which the Company
believes to be reliable. However, all such estimates are inherently subject to
uncertainties, and the Company is unable to determine with a degree of
certainty the size of the market for certain HA based products and the market
share held by its products.
This Prospectus also reflects the Company's estimates regarding future
regulatory submission dates. Regulatory submissions can be delayed, or plans
to submit applications for product approvals can be canceled, for a number of
reasons, including the receipt of unfavorable preclinical or clinical study
results, changes in regulations, adoption of new or unanticipated enforcement
of existing regulations, technological developments and competitive
developments. Accordingly, no assurances can be given that the Company's
anticipated submissions will be made on their target dates, or at all. Delays
in such submissions could have a material adverse effect on the Company's
business, financial condition and results of operations.
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BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The Company expects to use most of the net proceeds of this offering for
expansion of its manufacturing facilities, to fund its research and
development efforts, including clinical trials, and for working capital and
general corporate purposes. A portion of the net proceeds of the offering may
also be used to acquire or invest in products, technologies or other
businesses. There are no current agreements or understandings with respect to
any acquisitions, investments or other transactions. Accordingly, the
Company's management will retain broad discretion as to the allocation of a
substantial portion of the net proceeds from this offering. Pending such uses,
the Company intends to invest the net proceeds in short-term, investment-
grade, interest-bearing securities. See "Use of Proceeds."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic, or other hazardous substances
used in the manufacture of the Company's products. Any failure by the Company
to control the use, disposal, removal or storage of hazardous chemicals or
toxic substances could subject the Company to significant liabilities, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Environmental Laws."
RISKS RELATING TO INTERNATIONAL OPERATIONS
Approximately 10% of the Company's product sales during 1996 were generated
in international markets through marketing partners. The Company's
representatives, agents and distributors which sell products in international
markets are subject to the laws and regulations of the foreign jurisdictions
in which they operate and in which the Company's products are sold. A number
of risks are inherent in international sales and operations. For example, the
volume of international sales may be limited by the imposition of government
controls, export license requirements, political instability, trade
restrictions, changes in tariffs, difficulties in managing international
operations, import restrictions and fluctuations in foreign currency exchange
rates. Such changes in the volume of sales may have an adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING
The market price of shares of the Company's Common Stock may be highly
volatile. Factors such as announcements of new commercial products or
technological innovations by the Company or its competitors, disclosure of
results of clinical testing or regulatory proceedings, governmental regulation
and approvals, developments in patent or other proprietary rights, public
concern as to the safety of products developed by the Company and general
market conditions may have a significant effect on the market price of the
Company's Common Stock. The trading price of the Company's Common Stock could
be subject to wide fluctuations in response to quarter-to-quarter variations
in the Company's operating results, material announcements by the Company or
its 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 the Company's 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. The Company's operating results in
future quarters may be below the expectations of equity research analysts and
investors. In such event, the price of the Common Stock would likely decline,
perhaps substantially.
No person is under any obligation to make a market in the Common Stock or
publish research reports on the Company, and any person making a market in the
Common Stock or publishing research reports on the Company may discontinue
market making or publishing such reports at any time without notice. There can
be no assurance that an active public market in the Common Stock will develop
or, if developed, will be sustained.
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LACK OF PAYMENT OF DIVIDENDS ON COMMON STOCK
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. See "Price Range of Common Stock and Dividend Policy."
CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND OFFICERS
Upon completion of this offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will
beneficially own approximately 24.8% of the outstanding shares of Common
Stock. As a result, these stockholders may be able to exercise significant
influence over matters requiring shareholder approval, including the election
of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."
RISKS INVOLVING SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this offering, or the perception that such sales may occur, could adversely
affect prevailing market prices for the Common Stock following this offering.
Upon completion of this offering, the Company will have a total of 9,381,879
of Common Stock outstanding (assuming the exercise of all outstanding warrants
to purchase Series A Preferred Stock). Of these shares, 8,123,051 shares of
Common Stock, including the 3,000,000 offered hereby, will be freely tradable
without restriction or registration under the Securities Act of 1933
("Securities Act") by persons other than "affiliates" of the Company, as that
term is defined in Rule 144 ("Rule 144") promulgated under the Securities Act
("Affiliates"). The remaining 1,258,828 shares of Common Stock, and an
additional 203,700 shares of Common Stock issuable from time to time upon the
exercise of outstanding warrants, are "restricted" securities that may be sold
only if registered under the Securities Act, or sold in accordance with an
applicable exemption from registration, such as Rule 144. As of October 31,
1997, 3,000,000 shares of Common Stock were reserved for issuance under the
Stock Option Plan of which 1,871,495 shares were issuable upon the exercise of
outstanding stock options, and 40,000 shares of Common Stock were reserved for
issuance under the Directors' Plan, of which 22,500 shares were issuable upon
the exercise of outstanding stock options. In June 1993 and June 1996, the
Company filed registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock reserved for issuance under the Stock
Option Plan and the Directors' Plan. Shares of Common Stock issued upon the
exercise of options under either plan generally are available for sale in the
open market, subject to Rule 144 limitations with respect to affiliates, and
subject to the lock-up arrangements described below.
The Company's executive officers, directors and certain other stockholders
who, in the aggregate, will hold upon completion of this offering 1,279,880
shares of the outstanding Common Stock have entered into lock-up agreements
which provide that, for a period of 180 days from the effective date of the
Registration Statement of which this Prospectus is a part, they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, or
otherwise dispose of (or enter into any transaction which is designed to, or
could be expected to, result in the disposition by any such person of) any
shares of Common Stock or any securities convertible into or exercisable for
Common Stock, or any right to purchase or acquire Common Stock without the
prior written consent of Furman Selz LLC. Furman Selz LLC will have complete
discretion in determining whether to consent to early releases from the lock-
up agreements delivered in connection with the offering, and there can be no
assurance that it will not consent to the early release of all or a portion of
the shares of Common Stock and options covered by such lock-up agreements. See
"Shares Eligible for Future Sale."
POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's 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 the Company and preventing
certain changes in control. These provisions include a classified Board of
Directors, advance notice
16
<PAGE>
to the Board of Directors of stockholder proposals, limitations on the ability
of stockholders to remove directors and to call stockholder meetings, the
provision that vacancies on the Board of Directors be filled by a majority of
the remaining directors, the ability of the Board of Directors to issue,
without further stockholder approval, preferred stock with rights and
privileges which could be senior to the Common Stock and the ability of the
Board of Directors to adopt a shareholder rights plan without seeking
stockholder approval. The Company also is subject to Chapter 110F of the
Massachusetts General Laws which, subject to certain exceptions, prohibits a
Massachusetts corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder.
These provisions could discourage a third party from pursuing a takeover of
the Company at a price considered attractive by many stockholders, since such
provisions could have the effect of preventing or delaying a potential
acquiror from acquiring control of the Company and its Board of Directors. See
"Description of Capital Stock."
17
<PAGE>
THE COMPANY
The Company was a division of MedChem Products, Inc. ("MedChem") until 1993.
The Company was incorporated under the laws of Massachusetts and became an
independent publicly-traded entity in May 1993 when MedChem distributed all of
the then outstanding shares of Common Stock of the Company to MedChem
stockholders as a dividend. The Company's principal executive offices are
located at 236 West Cummings Park, Woburn, Massachusetts 01801, and its
telephone number is (781) 932-6616.
As used in this Prospectus, the terms "Anika" and the "Company" refer to
Anika Therapeutics, Inc. and its predecessor unless the context otherwise
requires.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $19,408,000
($21,200,000 if the Underwriters' overallotment option is exercised in full)
at an assumed public offering price of $8.5625 per share after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company intends to use the net proceeds of this
offering for expansion of its manufacturing facilities, to fund the Company's
product research and development efforts, including clinical trials, and for
working capital and other general corporate purposes. The Company may also use
a portion of the net proceeds of this offering to acquire or invest in new
products or technologies or to acquire other businesses. The Company is not
currently a party to any agreements or understandings with respect to any such
acquisitions. Pending such uses, the Company will invest the net proceeds from
this offering in short-term, investment-grade, interest-bearing securities.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
18
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq Small-Cap Market under
the symbol "ANIK." The following table sets forth, for the periods indicated,
the high and low sale prices of the Common Stock on the Nasdaq Small-Cap
Market. These prices represent prices between dealers and do not include
retail mark-ups, markdowns or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter................................................... $2 7/8 $1 3/4
Second Quarter.................................................. 2 1/4 1 1/2
Third Quarter................................................... 2 7/8 1 7/8
Fourth Quarter.................................................. 3 2 1/4
1996
First Quarter................................................... $3 1/8 $2 5/8
Second Quarter.................................................. 4 5/8 2 7/8
Third Quarter................................................... 7 7/8 3 1/2
Fourth Quarter.................................................. 6 5/8 4 3/8
Transitional Year(1)............................................ 6 1/4 3 3/8
1997
First Quarter................................................... $6 1/4 $3 1/2
Second Quarter.................................................. 7 5
Third Quarter................................................... 9 1/4 6 3/8
Fourth Quarter (through November 6, 1997)....................... 9 1/4 7 1/2
</TABLE>
- ----------
(1) Represents the four-month transitional year ended December 31, 1996.
On November 6, 1997, the last reported sale price per share of the Common
Stock on the Nasdaq Small-Cap Market was $8.5625. At September 30, 1997, there
were 294 holders of record of the Common Stock. The Company has applied to
have the Common Stock listed for quotation on the Nasdaq National Market
effective upon completion of this offering under its current symbol "ANIK."
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, for use in
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Payment of future dividends, if any, on the Common
Stock will be at the discretion of the Company's Board of Directors after
taking into account various factors, including the Company's financial
condition, operating results, anticipated cash needs and plans for expansion.
See "Description of Capital Stock -- Authorized and Outstanding Capital
Stock."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual basis and as adjusted to give effect to (i)
the sale by the Company of 2,500,000 shares of Common Stock offered hereby at
an assumed public offering price of $8.5625 per share and receipt and
application of the net proceeds therefrom as described in "Use of Proceeds"
and (ii) the cashless exercise of all outstanding warrants to acquire Series A
Preferred Stock and conversion of all outstanding shares of Series A Preferred
Stock upon completion of the offering on a 10-for-1 basis. This table should
be read in conjunction with the Company's Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
ACTUAL(1) AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Redeemable convertible preferred stock, $.01 par value:
750,000 shares authorized; 130,211 shares issued and
outstanding, actual; none issued and outstanding, as
adjusted .............................................. $ 2,706 --
Stockholders' equity:
Undesignated preferred stock, $.01 par value:
1,250,000 shares authorized; no shares issued and
outstanding actual and as adjusted................... -- --
Common stock, $.01 par value: 15,000,000 shares
authorized; 5,123,051 shares issued and outstanding,
actual; 9,381,879 shares issued and outstanding, as
adjusted(1).......................................... 51 $ 94
Additional paid-in capital............................ 12,196 34,266
Accumulated deficit................................... (9,088) (9,088)
------- -------
Total stockholders' equity.......................... $ 3,159 $25,272
======= =======
</TABLE>
- ----------
(1) Excludes (i) 1,871,495 shares of Common Stock issuable upon exercise of
options outstanding as of October 31, 1997 with a weighted average
exercise price of $3.68 per share and an additional 785,000 shares of
Common Stock reserved for future grants under the Stock Option Plan and an
additional 17,500 shares reserved for future grants under the Director's
Plan and (ii) 203,700 shares of Common Stock issuable upon the exercise of
warrants outstanding as of October 31, 1997 with a weighted average
exercise price of $3.28 per share. See "Management -- Executive
Compensation," "Certain Transactions," "Description of Capital Stock," and
"Shares Eligible for Future Sale."
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional year ended
December 31, 1996, and as of and for each of the years in the three-year
period ended August 31, 1996, have been derived from the financial statements
of Anika Therapeutics, Inc. which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The financial statements, including
the independent auditors' report thereon, as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional year ended
December 31, 1996 and for the year ended August 31, 1996, are included
elsewhere in this Prospectus. The selected financial data presented below as
of and for the nine-month period ended September 30, 1996 and as of and for
the four-month period ended December 31, 1995 are derived from the unaudited
financial statements of the Company.
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ---------------
1994 1995 1996 1995(1) 1996(1) 1996 1997
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 4,662 $ 3,356 $ 4,613 $1,191 $ 1,212 $ 3,630 $5,962
Cost of sales........... 3,934 3,118 4,472 1,263 1,309 3,404 3,016
------- ------- ------- ------ ------- ------- ------
Gross profit (loss)..... 728 238 141 (72) (97) 226 2,946
------- ------- ------- ------ ------- ------- ------
Operating expenses:
Research and
development............ 1,496 1,318 1,635 456 1,310 1,348 1,477
Selling, general and
administrative......... 734 904 1,469 384 1,309 1,241 1,272
------- ------- ------- ------ ------- ------- ------
Total operating
expenses............... 2,230 2,222 3,104 840 2,619 2,589 2,749
------- ------- ------- ------ ------- ------- ------
Interest income, net.... (62) (29) (114) (5) (58) (123) (105)
------- ------- ------- ------ ------- ------- ------
Income (loss) before
income taxes........... (1,440) (1,955) (2,849) (907) (2,658) (2,240) 302
Income taxes............ -- -- -- -- -- -- 16
------- ------- ------- ------ ------- ------- ------
Net income (loss)....... $(1,440) $(1,955) $(2,849) $ (907) $(2,658) $(2,240) $ 286
======= ======= ======= ====== ======= ======= ======
Earnings (loss) per
common share and common
share equivalents(2)... $ (.45) $ (.63) $ (.76) $ (.30) $ (.56) $ (.54) $ .03
Common shares and common
share equivalents
outstanding............ 3,177 3,225 4,053 3,294 4,905 4,479 6,358
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------- ----------------
1994 1995 1996 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 2,584 $ 2,825 $ 3,651 $ 1,743 $ 2,705 $ 3,399 $ 3,055
Working capital......... 5,520 4,972 5,858 3,943 4,226 5,701 5,186
Total assets............ 7,698 8,046 8,580 7,280 6,920 8,400 8,131
Redeemable convertible
preferred stock........ -- 2,326 2,523 2,394 2,603 2,543 2,706
Accumulated deficit..... (1,913) (3,867) (6,716) (4,774) (9,374) (7,014) (9,088)
Stockholders' equity.... 5,378 3,544 4,415 2,591 2,369 4,216 3,159
</TABLE>
- ----------
(1) The Company changed its fiscal year end to December 31, effective December
31, 1996. The financial data presented are for the four-month transitional
year ended December 31, 1996 and the comparable period in 1995. See Note 1
of Notes to Financial Statements.
(2) See Note 2 of Notes to Financial Statements for a description of the
method of computing earnings (loss) per common share and common share
equivalents.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of Anika should be read in conjunction with the accompanying
financial statements and footnotes. This Prospectus 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. Discussions containing such
forward-looking statements may be found in the material set forth below as well
as in the Prospectus generally. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference include, among other factors noted
herein, the factors set forth under the heading "Risk Factors."
OVERVIEW
The Company develops, manufactures and commercializes therapeutic products
and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on hyaluronic acid, 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 has been developing
HA and HA based products since 1983. The Company's currently marketed products
consist of ORTHOVISC(R), which is an HA product used in the treatment of some
forms of osteoarthritis in humans, and HYVISC(R), which is an HA product used
in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for
marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to
investigational use only. The Company manufactures AMVISC(R) and AMVISC
Plus(R), which are HA products used as viscoelastic supplements in ophthalmic
surgery, for Chiron Vision. The Company is currently developing INCERT(R),
which is an HA based product designed for use in the prevention of post-
surgical adhesions. In addition, the Company is collaborating with Orquest,
Inc. to develop OSSIGEL(TM), an injectable formulation of basic fibroblast
growth factor combined with HA designed to accelerate the healing of bone
fractures.
The Company receives a substantial portion of its revenue from the sale of
AMVISC and AMVISC Plus to Chiron Vision. For the nine months ended September
30, 1997 and 1996, AMVISC sales accounted for 84% and 90% of total revenue,
respectively. In addition, sales of ORTHOVISC to the Company's marketing
partner in Turkey accounted for 10% of net sales for the nine months ended
September 30, 1997. The Company also sells ORTHOVISC in Canada directly, and
sells HYVISC in the United States through Boehringer Ingelheim Animal Health,
Inc.
The Company supplies AMVISC to Chiron Vision under a five-year supply
contract (the "AMVISC Supply Contract") that expires in December 2001. Chiron
Vision assumed the AMVISC Supply Contract when it purchased IOLAB from Johnson
& Johnson in March 1995. Bausch & Lomb, Inc. recently announced that it has
signed definitive agreements to acquire Chiron Vision, as well as Storz
Instrument Company, a subsidiary of American Home Products and a competitor of
Chiron Vision. There can be no assurance, however, that such acquisitions will
be consummated or, if consummated, will not adversely affect the Company's
business. The current AMVISC Supply Contract has stated minimums with
substantially higher unit selling prices than a previous six-year supply
contract with Chiron Vision which expired on December 31, 1996. Under the
previous supply contract, the Company was obligated to supply AMVISC at unit
selling prices that approximated the Company's unit manufacturing cost. This
previous supply contract was a component of MedChem's sale of the AMVISC
product line to IOLAB in connection with the settlement in January 1991 of
patent litigation between Pharmacia, IOLAB and MedChem. The Company has no
additional obligations to Chiron Vision as a result of the settlement of such
litigation.
22
<PAGE>
In November 1997, the Company entered into a long-term distribution
agreement with Zimmer, Inc., a subsidiary of Bristol-Myers Squibb Company (the
"Zimmer Distribution Contract"). The Zimmer Distribution Contract provides
Zimmer with exclusive marketing and distribution rights to ORTHOVISC in the
United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New Zealand,
the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the option
under the agreement to seek regulatory approval for and market ORTHOVISC in
Japan and has a right of first offer with respect to China. Upon signing of
the agreement, the Company received an up-front non-refundable payment of $2.5
million. Zimmer has also agreed to make payments aggregating up to $20.5
million upon the achievement of certain regulatory approval and enumerated
sales milestones. As an alternative to a $2.5 million milestone payment,
Zimmer has the right to elect to acquire shares of the Company's Common Stock
equal to the greater of $2.5 million or 9.9% of the then outstanding Common
Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a
premium to the then current market price. There can be no assurance that any
of such milestones will be met on a timely basis or at all. In addition,
Zimmer has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. These circumstances include (i) the failure of Zimmer to sell
a stated minimum number of units of ORTHOVISC during the second quarter of
1998 or the failure of a competitor of the Company to report enumerated sales
minimums during the first two quarters of 1998, (ii) an FDA requirement of
additional clinical trials for ORTHOVISC or the FDA acceptance for filing by a
party other than Anika or its primary competitors of a PMA for an injectable
HA product for the treatment of OA in humans without requiring submission of
an IDE clinical study to support the application, (iii) both Synvisc and
Hyalgan are either voluntarily or involuntarily withdrawn from the U.S.
market, or (iv) if Zimmer undergoes a company-wide restructuring prior to June
30, 1998 which results in Zimmer's determination that the knee implant product
line is not a core product. There can be no assurance that any of these events
will not occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results.
On October 28, 1997, the Company amended the Stock Option Plan to reserve an
additional 1,000,000 shares of Common Stock for issuance under the Stock
Option Plan, and granted to certain executive officers and employees options
to acquire 235,000 shares of Common Stock at an exercise price of $7.625 per
share, vesting over a four-year period. Such grants are subject to the
completion of this offering and stockholder approval of the amendment to the
Stock Option Plan. The amendment to the Plan will be submitted for
stockholders' approval at the Company's next annual meeting of stockholders.
If the amendment is approved by stockholders, the Company will be required to
record compensation expense with respect to the 235,000 options granted
October 28, 1997 over the four-year vesting period equal to the difference, if
any, between the exercise price and the market value of the Common Stock at
the time of such approval.
23
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationship that certain statement of operations items bear to net sales:
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
------------------------- ------------- --------------
1994 1995 1996 1995 1996 1996 1997
------- ------- ------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit (loss)..... 15.6 7.1 3.1 (6.0) (8.0) 6.2 49.4
Research and development
expense................ 32.1 39.3 35.4 38.2 108.1 37.1 24.8
Selling, general and
administrative
expense................ 15.7 26.9 31.9 32.2 108.0 34.2 21.3
Total operating
expenses............... 47.8 66.2 67.3 70.4 216.1 71.3 46.1
Interest income, net.... (1.3) (0.9) (2.5) (0.4) (4.8) (3.4) (1.8)
Net income (loss)....... (30.9) (58.3) (61.8) (76.2) (219.3) (61.7) 4.8
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales. Net sales of HA products for the nine months ended September 30,
1997 totaled $6.0 million, an increase of $2.4 million, or 67%, over the $3.6
million recorded for the prior year. The increase in sales was primarily
attributable to an increase in sales of AMVISC and ORTHOVISC. Sales of AMVISC
as measured in units declined by 9% from the prior period, which was more than
offset by a 67% increase in the average unit selling price of AMVISC under the
AMVISC Supply Contract. Future increases in selling prices under the AMVISC
Supply Contract will be limited to annual adjustments based on changes in the
producer price index during the term of the contract, which expires December
31, 2001. Sales of ORTHOVISC as measured in units increased 475% over the
prior period. ORTHOVISC sales began in late 1996. Customer orders received for
units of AMVISC and ORTHOVISC scheduled for delivery during the nine months
ended September 30, 1997 exceeded the prior year by 11%. At September 30,
1997, the Company had $1.0 million of AMVISC and ORTHOVISC customer back
orders that were not shipped in September due to a quality problem in syringes
supplied by a third party used to deliver the Company's HA products which
resulted in a shortage of these syringes. The Company and the supplier have
rectified the quality problem, the supplier replaced the faulty syringes and
the Company anticipates that all of the $1.0 million in customer back orders
will be shipped during the fourth quarter of 1997.
Gross profit. The Company's gross profit as a percentage of sales increased
to 49% for the nine months ended September 30, 1997 versus 6% in the prior
year. The increase in the gross profit was primarily due to a 67% increase in
the average unit selling price of AMVISC under the new AMVISC Supply Contract
and increased sales volume of ORTHOVISC, which has a higher gross margin per
unit than AMVISC.
Research and development. Research and development expenses for the nine
months ended September 30, 1997 increased by $129,000, or 9.6%, to $1.5
million from $1.3 million recorded in the prior year. The increase was
primarily due to expenses associated with the ORTHOVISC clinical trial.
Selling, general and administrative. Selling general and administrative
expenses for the nine months ended September 30, 1997 increased by $30,000, or
2.4%, to $1.3 million from $1.2 million in the prior year. The staffing level
was substantially the same and the increase was due primarily to salary
increases.
FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31,
1995
Net sales. Net sales of HA products for the four month transitional period
ended December 31, 1996 totaled $1.2 million, which was substantially
unchanged from the net sales recorded for the comparable four month period of
the prior year.
Gross loss. The Company's gross loss as a percentage of net sales was 8.0%
for the four month transitional year ended December 31, 1996, an increase of
two percentage points from the 6.0% gross loss recorded for the same period in
1995. The increase was primarily attributable to increased sales of HA
products with lower margins.
24
<PAGE>
Research and development. Research and development expenses for the four-
month transitional year ended December 31, 1996 increased by $854,000, or
187.3%, to $1.3 million from $456,000 for the same period last year. The
increase was primarily attributable to $600,000 in expenses related to the
clinical trial for ORTHOVISC and the amortization of $375,000 of unearned
stock option compensation related to the amendment of the employment agreement
of the Company's chief scientist.
Selling, general and administrative. Selling, general and administrative
expenses for the four-month transitional year ended December 31, 1996
increased by $925,000, or 240.9%, to $1.3 million from $384,000 for the same
period last year. The increase was primarily attributable to the hiring of
additional marketing and administrative staff, a $544,000 write-off of
leasehold improvements and lease expenses resulting from closing one of the
Company's facilities, and $200,000 in severance costs associated with the
departure of the Company's former president.
YEAR ENDED AUGUST 31, 1996 COMPARED TO YEAR ENDED AUGUST 31, 1995
Net sales. Net sales of HA products totaled $4.6 million in the fiscal year
ended August 31, 1996 representing an increase of $1.3 million, or 38.2%, from
the $3.4 million for fiscal 1995. The increase was primarily attributable to
an increase in the volume of AMVISC sales.
Gross profit. The Company's gross profit as a percentage of net sales
declined to 3% in the fiscal year ended August 31, 1996, from 7% in fiscal
1995. During the year ended August 31, 1996 the balance in the AMVISC
manufacturing reserve of $521,000 was written off to cost of goods sold since
the previous AMVISC supply contract was marginally profitable and it expired
on December 31, 1996. The Company determined that the reserve was no longer
required as the previous AMVISC supply contract was expected to remain
marginally profitable through the end of the contract period. The decrease in
gross profit as a percentage of net sales is attributable to higher
manufacturing costs per unit in the fiscal year ended August 31, 1996 versus
fiscal 1995 and an unfavorable mix of product sales in the fiscal year ended
August 31, 1996 versus fiscal 1995.
Research and development. Research and development expenses increased by
$317,000, or 24.0%, to $1.6 million in the fiscal year ended August 31, 1996
from $1.3 million in fiscal 1995. The increase was attributable primarily to
the commencement of the pivotal ORTHOVISC clinical trial in the United States.
Selling, general and administrative. Selling, general and administrative
expenses for the fiscal year ended August 31, 1996 increased by $565,000, or
62.5%, to $1.5 million from $904,000 in fiscal 1995. The increase was
attributable primarily to additions to administration staffing for the fiscal
year ended August 31, 1996, increased selling and marketing costs associated
with the international commercialization of ORTHOVISC and severance payments
to the Company's former president.
Net interest income. The Company's net interest income increased to
$114,000, or 293.0%, in the fiscal year ended August 31, 1996 from $29,000 in
fiscal 1995. The increase is attributable to the Company having more cash to
invest on average in the fiscal year ended August 31, 1996 as compared to
fiscal 1995.
Income tax benefit. The Company has not recorded income tax benefits for the
fiscal years ended August 31, 1996 and 1995. The Company will not be able to
record income tax benefits from the operating losses incurred after May 1,
1993 until the Company has operating profits, since the realization of these
benefits cannot be reasonably assured.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly results of
operations for each of the three quarters ended September 30, 1997, the four-
month transitional year ended December 31, 1996 and each of the three quarters
ended August 31, 1996, together with such data as percentages of net sales. In
the opinion of management, this quarterly information has been prepared on a
basis consistent with the fiscal year Financial Statements presented elsewhere
in this Prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the information for the
periods presented when read in conjunction with the Financial Statements and
the Notes thereto. The operating results for any period set forth below are
not necessarily indicative of results for the full fiscal year or any future
quarter.
<TABLE>
<CAPTION>
PERIOD ENDED
---------------------------------------------------------------------
FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
-------- ------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,020 $1,461 $1,270 $ 1,212 $1,927 $2,450 $1,584
Cost of sales........... 1,187 1,293 1,167 1,309 1,019 1,188 809
------ ------ ------ ------- ------ ------ ------
Gross profit (loss)... (167) 168 103 (97) 908 1,262 775
------ ------ ------ ------- ------ ------ ------
Operating expenses:
Research and
development........... 391 465 477 1,310 323 509 645
Selling, general and
administrative........ 309 307 591 1,309 394 436 441
------ ------ ------ ------- ------ ------ ------
Total operating
expenses............. 700 772 1,068 2,619 717 945 1,086
------ ------ ------ ------- ------ ------ ------
Interest income
(expense), net......... 1 (53) (51) (58) (29) (30) (46)
------ ------ ------ ------- ------ ------ ------
Income (loss) before
income taxes........... (868) (551) (914) (2,658) 220 347 (265)
Income taxes............ -- -- -- -- 4 10 2
------ ------ ------ ------- ------ ------ ------
Net income (loss)..... $ (868) $ (551) $ (914) $(2,658) $ 216 $ 337 $ (267)
====== ====== ====== ======= ====== ====== ======
<CAPTION>
AS PERCENTAGE OF NET SALES
---------------------------------------------------------------------
PERIOD ENDED
---------------------------------------------------------------------
FEB. 29, MAY 31, AUG. 31, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996(1) 1997 1997 1997
-------- ------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 116.4 88.5 91.9 108.0 52.9 48.5 51.1
------ ------ ------ ------- ------ ------ ------
Gross profit (loss)... (16.4) 11.5 8.1 (8.0) 47.1 51.5 48.9
Operating expenses:
Research and
development........... 38.3 31.8 37.6 108.1 16.8 20.8 40.7
Selling, general and
administrative........ 30.3 21.0 46.5 108.0 20.4 17.8 27.8
------ ------ ------ ------- ------ ------ ------
Total operating
expenses............. 68.6 52.8 84.1 216.1 37.2 38.6 68.5
Interest income
(expense), net......... 0.1 (3.6) (4.0) (4.8) (1.5) (1.2) (2.9)
Income (loss) before
income taxes........... (85.1) (37.7) (72.0) (219.3) 11.4 14.2 (16.7)
Income taxes............ -- -- -- -- 0.2 0.4 0.2
------ ------ ------ ------- ------ ------ ------
Net income (loss)..... (85.1)% (37.7)% (72.0)% (219.3)% 11.2% 13.8% (16.9)%
====== ====== ====== ======= ====== ====== ======
</TABLE>
- ----------
(1) Represents four-month transitional year following change of fiscal year
from August 31 year end to December 31 year end.
The Company's quarterly operating results may fluctuate as a result of a
number of factors, including timing of approvals of new products by the
Company, its competitors or its customers, slower-than-anticipated market
penetration rates of current products, temporary delays in obtaining certain
product components from suppliers or the ability to establish marketing and
distribution relationships with strategic partners. A significant portion of
the Company's expenses is relatively fixed in nature and the Company may not
be able to reduce spending in
26
<PAGE>
response to shortfalls or delays in revenues. Such shortfalls or delays may
result in a material adverse effect on the Company's business, financial
condition and results of operations. As a result, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
Due to the foregoing factors, it is likely that in one or more future fiscal
quarters the Company's operating results may be below the expectations of
equity research analysts and investors. Such an occurrence could have a
material adverse effect on the market price of the Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred annual operating losses since its inception on May
1, 1993 that have resulted in an accumulated deficit of $9.1 million as of
September 30, 1997. The Company has funded these operating losses from the
sale of $5.8 million in equity securities and the receipt of $5.9 million in
equity capital from MedChem on May 1, 1993 when the Company was spun-off to
the shareholders of MedChem.
In March 1996, the Company completed a financing involving the private
placement of 1,455,000 shares of newly issued Common Stock to institutional
and private accredited investors. Total gross proceeds were approximately $4.0
million and net proceeds to the Company after fees and expenses were
approximately $3.5 million. In connection with the private placement, the
Company issued to the private placement agent warrants to purchase 57,036
shares of Common Stock at $4.00 per share and warrants to purchase 146,664
shares of Common Stock at $3.00 per share. The proceeds from the private
placement were used to repay $1.0 million of indebtedness and for working
capital.
On May 17, 1995, the Company raised through a private placement $2,235,642,
net of offering costs, from the issuance of 120,970 shares of Series A
Preferred Stock at a selling price of $20.00 per share. Each share of the
Series A Preferred Stock is entitled to receive an annual dividend on May 1 of
each year at a rate of $1.80 per share, payable in additional shares of Series
A Preferred Stock, with the number of dividend shares determined by the price
of the Company's Common Stock. The Company may elect to pay the dividend in
cash if certain financial covenants are met. During each consecutive 90 day
period in which the average quarterly price of the Company's Common Stock
remains above $6.00 per share, no dividend will accrue. Each outstanding share
of Series A Preferred Stock will automatically convert into 10 shares of
Common Stock effective upon completion of this offering. At September 30,
1997, there were an aggregate of 130,211 shares of Series A Preferred Stock
outstanding which were convertible at such date into 1,302,110 shares of
Common Stock.
At September 30, 1997, the Company had cash and cash equivalents of $3.1
million and working capital of $5.2 million. The Company believes that the
$2.5 million payment received upon signing of the Zimmer Distribution
Contract, the net proceeds from this offering, cash from operations and
current cash balances will be sufficient to meet its operating requirements
for at least 24 months from the date of this Prospectus. Thereafter, the
Company may require additional financing to fund its operations and for the
construction of a new manufacturing facility. The Company's future capital
requirements and the adequacy of available funds will depend, however, on
numerous factors, including market acceptance of its existing and future
products, the successful commercialization of products in development,
progress in its product development efforts, the magnitude and scope of such
efforts, progress with preclinical studies, clinical trials and product
clearances by the FDA and other agencies, the cost and timing of its efforts
to expand its manufacturing capabilities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the development of
strategic alliances for the marketing of certain of its products. To the
extent that funds generated from the Company's operations, together with the
Company's existing capital resources and the net proceeds of this offering are
insufficient to meet future requirements, the Company will be required to
obtain additional funds through equity or debt financings, strategic alliances
with corporate partners and others, or through other sources. The terms of any
future equity financings may be dilutive to the Company's stockholders and the
terms of any debt financings may contain restrictive covenants which limit the
Company's ability to pursue certain courses of action. The ability of the
Company to obtain financing
27
<PAGE>
is dependent on the status of the Company's 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 the Company or
will be available on acceptable terms should such a need arise. The Company's
estimate of the time period for which cash and cash equivalents, net proceeds
from this offering and cash from operations will be adequate to fund
operations is a forward looking statement within the meaning of the Private
Securities Litigation Reform Act of 1995 and is subject to risks and
uncertainties. Actual results may differ materially from those contemplated in
such forward looking statements. In addition to those described above, factors
which may cause such a difference are set forth under the caption "Risk
Factors" as well as in this Prospectus generally.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS") by all entities that have publicly
traded common stock or potential common stock (options, warrants, convertible
securities or contingent stock arrangements). SFAS 128 also requires a
presentation of earnings per share by an entity that has made a filing or is
in the process of filing with a regulatory agency in preparation for the sale
of those securities in a public market. Basic EPS is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The
computation of Diluted EPS does not assume conversion, exercise or contingent
exercise of securities that would have an antidilutive effect on earnings.
SFAS 128 is effective for both interim and annual periods ending after
December 15, 1997. The Company does not believe that the effect on the
Company's earnings per share resulting from the adoption of SFAS 128 will be
material.
28
<PAGE>
BUSINESS
OVERVIEW
The Company develops, manufactures and commercializes therapeutic products
and devices intended to promote the protection and healing of bone, cartilage
and soft tissue. These products are based on 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 has been developing HA
and HA based products since 1983. The Company's currently marketed products
consist of ORTHOVISC(R), which is an HA product used in the treatment of some
forms of osteoarthritis in humans and HYVISC(R), which is an HA product used
in the treatment of equine osteoarthritis. ORTHOVISC is currently approved for
marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to
investigational use only. The Company manufactures AMVISC(R) and AMVISC
Plus(R), which are HA products used as viscoelastic supplements in ophthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is
currently developing INCERT(R), which is an HA based product designed for use
in the prevention of post-surgical adhesions. In addition, the Company is
collaborating with Orquest, Inc. to develop OSSIGEL(TM), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
The Company is a leading manufacturer of ultra-pure, high molecular weight
HA. The purity level and molecular weight of HA is important because if HA
contains even trace levels of proteins, an immunogenic or inflammatory
response may be elicited when the HA is introduced into the body and
preclinical and clinical data suggest that high molecular weight HA correlates
with increased efficacy of HA products. The Company believes its expertise and
proprietary know-how in the development and manufacture of ultra-pure, high
molecular weight HA products are difficult to replicate and provide it with a
competitive advantage.
CLINICAL APPLICATIONS
OPHTHALMIC SURGERY
HA products are used in surgical procedures such as cataract extraction and
intraocular lens implantation to help maintain the shape of the eye and
protect and lubricate the delicate eye tissues. Over two million cataract
surgeries were performed in the U.S. and approximately 2.3 million
viscoelastic units for ophthalmic surgery were sold in the U.S. in 1996. The
Company estimates that annual sales of HA products for ophthalmology are
approximately $100 million in the U.S. and approximately $300 million
worldwide.
The Company has developed and currently manufactures AMVISC and AMVISC Plus,
high molecular weight, ultra-pure HA gels that are used during ophthalmic
surgery. AMVISC and AMVISC Plus are distinguished from other HA viscoelastics
by their purity, high molecular weight and viscosity. Because of their high
viscosity, AMVISC and AMVISC Plus excel in inflating and maintaining the shape
of the anterior chamber of the eye, an essential product characteristic for
the implantation of an intraocular lens. AMVISC and AMVISC Plus also provide
the ophthalmic surgeon with improved optical clarity, an important property
because bubbles or particulates can obscure the view of the surgical field.
The Company has manufactured AMVISC and AMVISC Plus since 1983, first for
Johnson & Johnson's IOLAB division and since 1994 for Chiron Vision, following
Chiron Vision's acquisition of IOLAB. The Company currently manufactures
AMVISC and AMVISC Plus for Chiron Vision under a fixed-price, five-year supply
agreement with stated minimum annual purchase obligations. This supply
agreement became effective January 1, 1997 and contains substantially higher
prices than the Company's previous agreement with Chiron Vision. The Company
estimates that AMVISC and AMVISC Plus represented approximately 20% of sales
of HA products for ophthalmic surgery in the U.S. in 1996. Major competing
products include Healon (manufactured by Pharmacia) and Viscoat (manufactured
by Alcon). The Company estimates that these two products combined held
approximately 56% of the U.S. market in 1996. See "-- Competition."
29
<PAGE>
OSTEOARTHRITIS
Description of Osteoarthritis. Where two bones meet in a normal joint the
ends are coated with cartilage, a smooth, slippery cushion that protects the
bone and reduces friction during movement. A tough capsule called the synovial
membrane seals the joint and produces a lubricating synovial fluid composed
primarily of HA. Osteoarthritis is a painful degenerative joint disease
characterized by gradual breakdown of the cartilage in a joint due to the
effects of mechanical stress and 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.
This breakdown of the cartilage is often associated with pain and inflammation
and may eventually create bone on bone contact in the joint and loss of
movement.
(GRAPHICS)
[Description: a graphic representation of the anatomy of a healthy knee,
indicating the joint capsule, synovial membrane, synovial fluid, bursa,
bone, cartilage, tendon and muscle and a graphic representation showing the
anatomy of an osteoarthritic knee, indicating cartilage destruction, loose
cartilage particles and bone spurs.)
According to the Arthritis Foundation, approximately 16 million people in
the U.S. are afflicted with some form of OA. OA is a very debilitating,
degenerative disease that most commonly afflicts the middle to older age group
and can range in severity from mild to very severe. Patients with OA have
persistent, significant problems performing physical tasks and may have
significant restrictions on their mobility. The most common joints afflicted
with OA are the weight bearing joints of the knees, hip and back. Although age
is the leading cause of OA, other factors such as sports injuries, obesity and
repetitive movement of the joint are also associated with OA.
The primary reason patients with OA seek treatment is pain. The mode of
therapy for OA depends upon its severity and each current therapy has
significant drawbacks. In mild cases, patients may be encouraged to lose
weight and physical therapy is employed to strengthen the muscles supporting
the joint. As the severity increases doctors may initially prescribe
analgesics and subsequently NSAIDs. While NSAIDs are widely prescribed, their
repeated use can cause gastrointestinal ulcers and bleeding and renal failure.
As the severity of OA increases and the mobility of the joint decreases,
physicians may inject steroids into the joint to decrease the inflammation and
relieve pain. While intra-articular steroids are effective in reducing pain
and inflammation, they are effective generally for only a short period of
time. In addition, the repeated use of intra-articular steroids may be
associated with the destruction of the cartilage in the joint and may have a
profound adverse metabolic effect on the body. Therefore, physicians may be
hesitant to use steroids on a repetitive basis to treat osteoarthritic
patients.
30
<PAGE>
When OA progresses to the point at which the cartilage is almost completely
destroyed, there is bone on bone contact which severely limits mobility and
causes a high level of pain. At this stage, an orthopedic surgeon may pursue
arthroscopic surgery and ultimately may elect to replace the osteoarthritic
joint with an artificial implant.
Treatment of Osteoarthritis with HA. Because of the problems associated with
the available treatments of OA, patients and physicians are currently seeking
safer and more effective treatment alternatives for OA. Although much of the
research in OA focuses on cartilage and bone, it has been recognized for some
time that the synovial fluid for osteoarthritic joints has a much lower
viscosity and elasticity than healthy joints. These observations have led to
the practice of viscosupplementation therapy for the treatment of OA.
Physicians inject HA into the joint to restore the elasticity and viscosity of
the synovial fluid. Injections of HA into an osteoarthritic joint can reduce
pain and improve joint mobility without the adverse side effects that often
accompany the use of NSAIDs or steroids.
The following chart depicts the treatment alternatives as OA progresses, and
shows the point at which treatment with HA would be appropriate:
(GRAPHICS)
[Graphic representation of treatment alternatives for OA indicating the use of
topical analgesics, asprin/acetaminophen, NSAIDS, HA therapy, intra-articular
steroids, arthroscopic surgery and joint replacement with the severity of the
disease increasing along a horizonal axis and the agressiveness of therapy
increasing along a vertical axis].
HA products for the treatment of osteoarthritis have been widely used in
Japan since the mid 1980s. The Company estimates, based on reported sales of
competing products, that sales of HA products for the treatment of OA in Japan
have grown to approximately $300 million in 1996, with Artz (manufactured by
Seikagaku Corporation ("Seikagaku"), representing a majority of such sales. HA
products for the treatment of OA have been more recently introduced in Europe
and Canada. In the United States, Hyalgan (manufactured by Fidia S.P.A.
("Fidia")) and Synvisc (manufactured by Biomatrix, Inc. ("Biomatrix"))
received FDA marketing approval (regulated as Class III medical devices)
during 1997 and are currently in the initial distribution stage.
ORTHOVISC. ORTHOVISC is an ultra-pure, high molecular weight, injectable HA
product for the treatment of OA in humans. ORTHOVISC received Communautee
European ("CE mark") approval in October 1996. The CE mark, a certification
required under European Community ("EC") medical device regulation, allows
ORTHOVISC to be marketed without further approvals in most of the EC nations
as well as countries that recognize EC device regulation. ORTHOVISC has also
been approved for sale in Canada, Turkey and Israel. Registrations for
marketing approval have been filed in Australia, New Zealand and Egypt.
In the U.S., ORTHOVISC is limited to investigational use only. The Company
received FDA approval of an IDE to conduct a clinical trial in the U.S. of
ORTHOVISC for treatment of OA of the knee in 1996. The Company completed its
pivotal clinical trial in August of 1997. The trial was a randomized, double-
blind, placebo-controlled study of 226 patients at 10 centers in the United
States. Patients in the study received three injections of ORTHOVISC over a
two week period and the patients were then evaluated for a twenty-six week
period. The Company believes the results of the clinical study are sufficient
to support a PMA application for submission to the FDA for ORTHOVISC for
treatment of OA of the knee. The Company is preparing such an application and
plans to file it by the end of 1997. The Company will supplement the data from
this clinical study with clinical data collected in Europe, supporting data
from studies relating to the treatment of
31
<PAGE>
temperomandibular joint dysfunction with ORTHOVISC and years of safety data
from the use of the Company's other HA products. In November 1997, the Company
entered into a long-term distribution agreement with Zimmer, Inc., a
subsidiary of Bristol-Myers Squibb Company. The Zimmer Distribution Contract
provides Zimmer with exclusive marketing and distribution rights to ORTHOVISC
in the United States, Canada, Australia, Hong Kong, Indonesia, Malaysia, New
Zealand, the Philippines, Singapore, Taiwan and Thailand. Zimmer also has the
option under the agreement to seek regulatory approval for and market
ORTHOVISC in Japan and has a right of first offer in China. Upon signing of
the agreement, the Company received an up-front non-refundable payment of $2.5
million. Zimmer has also agreed to make payments aggregating up to $20.5
million upon the achievement of certain regulatory approval and enumerated
sales milestones. As an alternative to a $2.5 million milestone payment,
Zimmer has the right to elect to acquire shares of the Company's Common Stock
equal to the greater of $2.5 million or 9.9% of the then outstanding Common
Stock (but not to exceed 19.9% of the then outstanding Common Stock) at a
premium to the then current market price. There can be no assurance that any
of such milestones will be met on a timely basis or at all. In addition,
Zimmer has the right to terminate the agreement on August 1, 1998 if certain
specified events occur prior to that date and upon payment to Anika of $1.0
million in cash. There can be no assurance that any of these events will not
occur or, if any such event does occur, that Zimmer will not elect to
terminate the agreement. Any such termination would have a material adverse
effect on the Company's ability to market ORTHOVISC, which may have a material
adverse effect on the Company's future operating results. The Company has also
entered into third-party arrangements for the distribution of ORTHOVISC in
Spain, Portugal, Israel, Turkey and Egypt.
The Company believes, based on preclinical, clinical and other data, that
the viscosity and purity of the HA used in products are important in
determining the efficacy and safety of the product. The two primary factors
which determine viscosity are HA concentration and molecular weight of the HA
molecule. High HA concentration combined with high molecular weight HA results
in higher viscosity. The Company believes that more viscous HA products may
provide an extended duration of effect from fewer injections potentially
resulting in improved patient compliance and lower cost of treatment. The
purity of an HA preparation is measured primarily by protein concentration.
Protein concentration is important because even low levels of protein have the
potential for causing an immunogenic or inflammatory response when the HA is
injected into the joint. Based on tests conducted on a limited number of
competing product samples by Company personnel in its facilities, the Company
believes ORTHOVISC is the purest HA product currently used for the treatment
of OA, although there can be no assurance that other HA products will not
ultimately be shown to be purer than ORTHOVISC.
The following table sets forth certain selected product characteristics for
the HA products of the Company and its principal competitors used in the
treatment of OA:
<TABLE>
<CAPTION>
VISCOSITY MOLECULAR HA INJECTIONS NATURAL/
(IN CENTISTOKES) WEIGHT OF HA CONCENTRATION PER COURSE CROSS-
PRODUCT MANUFACTURER (1) (MM DALTONS)(1) (MG/ML) OF TREATMENT(2) LINKED(2)
------- ------------ ---------------- --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ORTHOVISC(3)............ Anika 35,000 1.55 14.7(2) 3 Natural
Artz(3)................. Seikagaku 1,947 0.86 11.0(1) 5 Natural
Hyalgan................. Fidia 185 0.60 10.8(2) 5 Natural
Synvisc................. Biomatrix 45,000 * 8.0(2) 3 Cross-linked
</TABLE>
- ----------
(1) Data obtained from tests conducted on limited product samples by Company
personnel in its facilities. Results may vary from sample to sample.
(2) Data derived from product labeling.
(3) Not currently approved for sale in the U.S.
* The Company is unable to determine the overall molecular weight of Synvisc
because, based on Synvisc's product labeling, Synvisc contains two cross-
linked HA based polymers, one of which is listed as having a molecular
weight of 6.0 mm daltons and the other of which has no molecular weight
listed. The Company believes that molecular weight of cross-linked HA
products such as SYNVISC is not a relevant measurement when comparing such
products to non-cross-linked products.
The above table indicates that ORTHOVISC's molecular weight and viscosity
measurements are among the highest when compared with the HA products
currently being used for the treatment of OA. The Company's HA products have a
favorable safety profile and the Company has manufactured more than three
million units of AMVISC, AMVISC Plus and HYVISC without receiving any reports
of adverse reactions. To date, there have
32
<PAGE>
been no reported adverse reactions from the use of ORTHOVISC. The Company
believes that ORTHOVISC will have a commercial advantage over Artz and Hyalgan
because only three injections of ORTHOVISC are required per course of
treatment as compared to five injections for Artz and Hyalgan. Unlike
ORTHOVISC, Synvisc is cross-linked through a chemical modification process
using formaldehyde and divinyl sulphone to achieve a high viscosity.
VETERINARY APPLICATIONS
Veterinarians use HA for the ongoing prevention and treatment of joint
dysfunction in horses due to non-infectious synovitis associated with equine
osteoarthritis. HYVISC, a high end product which is used primarily to treat
racehorses, is a high molecular weight injectable HA product which lubricates
and protects the tissues in horse joints. HYVISC is distributed for the
Company in the United States by Boehringer Ingelheim Animal Health, Inc.
("Boehringer Ingelheim") under an exclusive agreement terminating in 2002. The
Company and Boehringer Ingelheim have entered into an agreement to distribute
HYVISC internationally and the Company expects to begin clinical testing in
horses in Europe in 1998.
POST-SURGICAL ADHESION PREVENTION
Post-surgical adhesions occur when fibrous bands of tissue form between
adjacent tissue layers during the wound healing process after surgery, in
particular in abdominal, obstetric, gynecological and back surgeries. Although
surgeons attempt to minimize the formation of adhesions, nevertheless
adhesions often form after surgery and cause major medical problems such as
intestinal blockage, female infertility and recurrent back pain. Costly
secondary surgeries are often performed in an attempt to correct problems
caused by adhesions. According to Medical Device International, over 1.8
million abdominal surgeries are performed annually in the United States, 70 to
90 percent of which resulted in postsurgical adhesion formation. Over 400,000
abdominal operations were performed in 1994 in the United States in which
adhesions were removed. M.D.I. estimates that the total worldwide market
potential for all anti-adhesion products is approximately $900 million.
First generation products for prevention of post-surgical adhesions such as
oxidized cellulose (Interceed(R), manufactured by Johnson & Johnson) and PTFE
(Goretex(R), manufactured by W.L. Gore & Associates, Inc.), serve as a
mechanical means of separating tissues and have been available for some time.
However, these products have not been shown to significantly reduce post-
surgical adhesion formation and, in some cases, require post-surgical removal.
More recently, second generation products have been developed or are in
development stage which are biocompatible and which have superior therapeutic
effect. Seprafilm, an HA product manufactured by Genzyme Corporation
("Genzyme"), received FDA approval in 1997. In addition, anti-adhesion
products in human clinical testing include Adcon (a carbohydrate polymer
manufactured by Gliatech, Inc.), Lubricoat Gel (an HA product manufactured by
LifeCore Biomedical, Inc. ("LifeCore")) and Repel-CV (manufactured by Life
Medical Sciences, Inc.).
INCERT, the Company's product in development for the prevention of post-
surgical adhesions, is a bioabsorbable, implantable membrane made from cross-
linked HA. INCERT is placed over the surgical site and surrounding organs and
tissues before an incision is closed and functions as a physical barrier to
prevent post-surgical adhesions. The Company believes INCERT will be
particularly useful for surgeons because it remains in place during and after
surgery and has superior handling characteristics. The Company has performed
toxicology testing of INCERT and has tested INCERT in animal studies at Duke
University. Both of these studies have indicated the biocompatibility and
efficacy of INCERT. Based on the results of these studies, the Company plans
to commence the testing of INCERT in humans in Europe during 1998. The Company
is seeking a strategic partner for the further development, marketing and
distribution of INCERT.
The Company co-owns an issued United States patent covering the use of
INCERT for adhesion prevention. The Company has received notification from the
PTO that a third party is attempting to provoke an interference with respect
to the Company's patent covering INCERT. See "-- Patents and Proprietary
Rights."
33
<PAGE>
DRUG DELIVERY
The Company is also investigating HA's potential as a drug delivery vehicle
for pharmaceutical and biologic compounds. The Company believes HA based
products have potential application to the delivery of drugs. Particular
properties of HA, including (i) its site specific mode of delivery, (ii) its
persistence at the site and (iii) its biocompatible properties, may have
application to certain drugs and modes of therapy where such properties are
important or beneficial. In June of 1997, the Company executed a multi-year
collaboration agreement with Orquest to develop and manufacture OSSIGEL, a
formulation of basic fibroblast growth factor and HA designed to accelerate
the healing of bone fractures. Orquest is a privately held orthobiologics
company headquartered in Mountain View, California, and was founded in 1994 to
develop products for bone and cartilage regeneration. OSSIGEL has been shown
in animal models to accelerate the healing of bone fractures. Orquest plans to
complete preclinical testing of OSSIGEL in animals by the end of 1997. If
favorable preclinical results are achieved and FDA approval of an IDE
application is received, Orquest plans to commence clinical testing of OSSIGEL
in humans in the U.S. during 1998. Orquest has filed an application with the
U.S. Patent and Trademark Office for a patent covering the use of OSSIGEL in
accelerating fracture healing.
OTHER APPLICATIONS FOR HA
HA may have additional medical applications which do not utilize HA's
biophysical properties but rather influence cell function. One of the critical
events in the metastasis of cancer is the interaction between tumor cells and
the host tissue stroma. This interaction is mediated by certain cell surface
receptors. Preclinical studies have indicated that the interaction between one
of these cell surface receptors, the hyaluronan receptor CD44, and HA
contained in the host tissue stroma enhances the growth of certain tumors.
Preclinical studies conducted by the Company, working in collaboration with
Tufts University and Massachusetts General Hospital, have indicated that HA
oligosaccharides, by binding to the CD44 receptor and blocking the interaction
with HA in the host tissue stroma, have inhibited the metastasis of human
melanoma cancer cells inserted in mice. In addition, studies in an in vitro
model have indicated that HA oligosaccharides have inhibited the metastasis of
human ovarian cancer cells.
The Company has obtained an exclusive worldwide license to this technology
from Tufts University, which has filed an application for a patent to protect
this technology. During 1998 the Company plans to continue the preclinical
testing of HA oligosaccharides and will seek a strategic partner to assist in
the further development of this technology.
BUSINESS STRATEGY
The Company's goal is to leverage its position as a leading manufacturer of
ultra-pure, high molecular weight HA for significant therapeutic applications.
Key elements of the Company's strategy are to:
Identify additional medical applications for HA. The Company will seek to
identify additional medical applications of HA alone and in combination with
other biologic materials and drugs. The Company is currently pursuing a broad
range of HA product applications in osteoarthritis, ophthalmology, veterinary
uses, post-surgical adhesion prevention, drug delivery and inhibition of
cancer metastasis. For example, the Company will seek approval for ORTHOVISC
to treat OA in joints in addition to the knee such as the hip, shoulder and
TMJ. As the Company expands its product offering, it will seek to broaden its
intellectual property rights and will apply for patents whenever possible to
protect its intellectual property and technology.
Develop proprietary therapeutic products both on its own and in
collaboration with strategic partners. The Company will seek to develop its
own proprietary therapeutic products. In addition, the Company plans to form
collaborations with scientists and other companies for the co-development of
new products that will utilize the Company's development, manufacturing and
regulatory capabilities. For example, the Company is currently involved in
collaborations with Orquest for the development of OSSIGEL and with
researchers at Tufts University and Massachusetts General Hospital in the area
of cancer treatment.
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Capitalize on its existing proprietary, high-quality and cost-effective HA
manufacturing expertise. The Company will seek to leverage its expertise in
the manufacture of ultra-pure, high molecular weight HA by focusing on new
applications in which these characteristics provide safety, efficacy and other
advantages over the products of its competitors. The Company already has in
place manufacturing processes that would require significant capital and
proprietary know-how to replicate. The Company will also seek to apply its
existing proprietary HA manufacturing expertise across other areas.
Establish strategic alliances for the marketing and distribution of its
products. The Company will seek to establish strategic alliances with partners
that have strong marketing, selling and distribution capabilities. The Company
has established relationships with Chiron Vision for the distribution of
AMVISC and AMVISC Plus, and Boehringer Ingelheim Animal Health for the
distribution of HYVISC. The Company has entered into distribution arrangements
for ORTHOVISC with Zimmer in the United States, Canada and certain selected
countries in the Asia-Pacific region and with Grupo Ferrer in Spain and
Portugal. The Company also has arrangements with other distribution partners
in Turkey, Israel and Egypt.
MANUFACTURING OF HYALURONIC ACID
The Company has been manufacturing HA since 1983 in its manufacturing
facility located in Woburn, Massachusetts. In 1996, the Company received an
International Standards Organization ("ISO") 9001 certification of its
manufacturing facility and HA manufacturing process. An ISO 9001 designation
is an internationally recognized certification for quality standards governed
by the International Organization for Standards based in Geneva, Switzerland.
The certifications for ISO 9001 were awarded to the Company after a rigorous
assessment and audit of the Company's quality system by a private, third-party
European accredited Notified Body. ISO 9001 is the highest level of
achievement possible in the ISO certification system.
The Company has developed a proprietary HA manufacturing process for the
extraction and purification of HA from rooster combs that yields an ultra-pure
HA which consistently has a high molecular weight. The Company believes its
proprietary extraction and purification process for manufacturing high
molecular weight ultra-pure HA will be difficult to replicate because most HA
purification methods result in the degradation of the HA molecule leading to a
final HA product that is pure but with a lower molecular weight than the
Company's products.
A substantial supply of rooster combs is available and the Company believes
that all the other materials required for the manufacture of its HA products
are also readily available from a number of sources. In addition, the Company
currently obtains rooster combs from two suppliers. The Company obtains
syringes used to deliver its HA products from a single supplier, however, it
generally keeps sufficient syringes in its inventory to meet anticipated
demand for at least six months. The Company also employs strict quality
control procedures to ensure the quality of its products, inventory and raw
materials. The Company believes that its facility in Woburn, Massachusetts,
has the present manufacturing capacity to accommodate anticipated demand
through 1999. The Company believes that with expansion and improvements to the
facility, capacity can be increased to accommodate anticipated demand through
2001. The Company anticipates a new, larger manufacturing facility will be
required to meet increased demand beyond 2001. The Company expects that
construction and regulatory approval of a new facility would take between two
and three years.
PATENT AND PROPRIETARY RIGHTS
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms, including the Company, can be uncertain and
involve complex legal and factual questions. There can be no assurance that
any patent applications will result in the issuance of patents or, if any
patents are issued, whether they will provide significant proprietary
protection or commercial advantage, or will not be circumvented by others. In
the event a third party has also filed one or more patent applications for any
of its
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inventions, the Company may have to participate in interference proceedings
declared by the PTO to determine priority of invention (see below), which
could result in the loss of any opportunity to secure patent protection for
the inventions and the loss of any right to use the inventions. Even if the
eventual outcome is favorable to the Company, such interference proceedings
could result in substantial cost to the Company. 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 the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such
challenge will determine that such patent claims are valid and enforceable. An
adverse outcome in such litigation could cause the Company to lose exclusivity
covered by the disputed rights. If a third party is found to have rights
covering products or processes used by the Company, the Company could be
forced to cease using the technologies or marketing the products covered by
such rights, could be subject to significant liabilities to such third party,
and could be required to license technologies from such third party.
Furthermore, even if the Company's 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 the Company
using the resulting alternative technology.
The Company has a policy of seeking patent protection for patentable aspects
of its proprietary technology. The Company co-owns certain United States
patents and a patent application which claim certain adhesion prevention uses
and certain drug delivery uses of HA, and the Company solely owns patents
covering certain manufacturing processes. The Company also holds an exclusive
license from Tufts University to use technologies claimed in a United States
patent application which relate to the anti-metastasis applications of HA
oligosaccharides. The Company's issued patents expire between 2007 and 2015
and the license expires upon expiration of all related patents. The Company
intends to seek patent protection with respect to products and processes
developed in the course of its activities when it believes such protection is
in its 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 the Company 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 the Company's patents. The Company's issued patents
and any patents which arise from the Company's licensed application would
provide competitive protection, if at all, only in the United States. The
Company has not, to date, pursued foreign patents equivalent to those issued
or applied for in the United States.
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 the Company
will not infringe the patent rights of others in the future. Any such
infringement may have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, the Company has
received notice from the PTO that a third party is attempting to provoke a
patent interference with respect to one of the Company's co-owned patents
covering the use of INCERT for post-surgical adhesion prevention. Although the
Company believes that an interference will be declared by the PTO, it is too
early to determine the merits of the interference or the effect, if any, the
interference will have on the Company's marketing of INCERT for this use. The
existence of the interference proceeding may have a negative impact on the
marketing of the INCERT product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the third
party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of the INCERT products, which could have a material adverse
effect on the Company's future operating results.
The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such
information. There can be no assurance
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<PAGE>
that these agreements provide meaningful protection or that they will not be
breached, that the Company would have adequate remedies for any such breach,
or that the Company's trade secrets, proprietary know-how, and technological
advances will not otherwise become known to others. In addition, there can be
no assurance that, despite precautions taken by the Company, others have not
and will not obtain access to the Company's proprietary technology. Further,
there can be no assurance that third parties will not independently develop
substantially equivalent or better technology.
The Company has agreed to grant Chiron Vision a royalty-free, worldwide,
exclusive license to the Company's manufacturing and product inventions which
relate to AMVISC products, effective on December 31, 2001, the termination
date of the AMVISC supply contract which became effective on January 1, 1997.
Upon expiration of the AMVISC supply contract, there can be no assurance that
Chiron Vision will continue to use the Company to manufacture AMVISC and
AMVISC Plus. If Chiron Vision discontinues the use of the Company as a
manufacturer after such time, the Company's business, financial condition and
results of operations could be materially and adversely affected.
RESEARCH AND DEVELOPMENT
The Company intends to continue development of its existing product
candidates, ORTHOVISC, INCERT and HA oligosaccharides, to expand the
therapeutic applications of its existing products and to develop new
therapeutic applications for HA-based products. The Company will seek to
expand the use of ORTHOVISC as a therapy for OA to other joints such as the
hip and shoulder and to develop ORTHOVISC as a treatment for TMJ dysfunction.
The Company's research and development efforts consist primarily of research
relating to new medical applications for its HA-based products and the
management of clinical trials for product candidates and the preparation and
processing of applications for regulatory approvals at all relevant stages of
development. The Company's development of new products is accomplished
primarily through in-house research and development personnel and resources as
well as with collaborations with other companies and scientific researchers.
For the fiscal years ended August 31, 1995 and 1996, the four-month
transitional year ended December 31, 1996 and for the nine months ended
September 30, 1997, research and development expenses were $1.3 million, $1.6
million, $1.3 million and $1.5 million, respectively. The Company anticipates
that it will continue to commit substantial resources to research and
development in the future. As of September 30, 1997, the Company had seven
employees engaged primarily in research and development.
THIRD PARTY REIMBURSEMENT
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's
products, generally rely on third party payors, including Medicare, Medicaid
and other health insurance and managed care plans, to reimburse all or part of
the cost of the health care product. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the
use of the Company's products are clinically useful and cost-effective,
medically necessary and not experimental or investigational. Since
reimbursement approval is required from each payor individually, seeking such
approvals can be a time consuming and costly process which, in the future,
could require the Company or its marketing partners to provide supporting
scientific, clinical and cost-effectiveness data for the use of the Company's
products to each payor separately. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third party
payors are increasingly attempting to contain the costs of health care
products and services by limiting both coverage and the level of reimbursement
for new therapeutic products and by refusing in some cases to provide coverage
for uses of approved products for disease indications for which the FDA has
not granted marketing approval. In addition, Congress and certain state
legislatures have considered reforms that may affect current reimbursement
practices, including controls on health care spending through limitations on
the growth of Medicare and Medicaid spending. There can be no
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assurance that third party reimbursement coverage will be available or
adequate for any products or services developed by the Company. Outside the
U.S., the success of the Company's products is also dependent in part upon the
availability of reimbursement and health care payment systems. Lack of
adequate coverage and reimbursement provided by government and other third
party payors for the Company's products and services could have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION
The Company's current and future products and product research, development,
manufacturing, sales and activities are subject to extensive and rigorous
regulation by the FDA and comparable agencies in foreign countries. In the
United States, the FDA regulates the marketing, advertising, promotion, and
distribution of medical devices, drugs, biologics, and animal drugs, as well
as testing, manufacturing, labeling, and recordkeeping and reporting
procedures for these products.
Product development and approval within the FDA regulatory framework takes a
number of years and involves the expenditure of substantial resources. There
can be no assurance that this regulatory framework will not change or that
additional regulation will not arise at any stage of the Company's product
development process which may affect approval of or delay an application or
require additional expenditures by the Company.
Any products manufactured or distributed by the Company are subject to
pervasive and continuing regulation by the FDA including record keeping
requirements, reporting of adverse experience with the use of the product,
post-market surveillance, post-market registry and other actions deemed
necessary by the FDA. In addition, all products manufactured by the Company
must be manufactured in compliance with the standards established by the FDA's
GMP regulations. Ongoing compliance with GMP and other applicable regulatory
requirements is monitored through periodic inspection by state and federal
agencies, including the FDA.
FDA regulations depend heavily on administrative interpretation, and there
can be no assurance that future interpretations made by the FDA or other
regulatory bodies, with possible retroactive effect, will not adversely affect
the Company. In addition, changes in the existing regulations or adoption of
new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could result in,
among other things, warning letters, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal of the government to grant pre-market clearance or pre-market approval
for devices, withdrawal of approvals and criminal prosecution.
Medical products regulated by the FDA are generally classified as drugs
and/or medical devices and/or biologics. AMVISC is approved as a Class III
device in the United States for ophthalmic surgical procedures in intraocular
use in humans. HYVISC is approved as an animal drug for intra-articular
injection in horse joints to treat degenerative joint disease associated with
synovitis. In the past, most HA products have been regulated by the FDA as
medical devices. ORTHOVISC for osteoarthritis of the knee is currently
considered a Class III device. The Company believes INCERT will be regulated
by the FDA as a Class III device. There can be no assurance, however, that
such products will not be classified as drugs or as both devices and drugs.
The Company believes HA oligosaccharides for use in the treatment of certain
proliferative diseases will be regulated as drugs.
Devices. The FDA regulates the research, testing, manufacture, safety,
labeling, storage, record keeping, advertising, distribution and production of
medical devices in the United States. Medical devices are classified into one
of three classes, Class I, II, or III on the basis of the controls deemed by
the FDA to be necessary to reasonably ensure their safety and effectiveness.
Class I devices are subject to general controls (e.g., labeling, pre-market
notification and adherence to QSR standards). Class II devices are subject to
general controls and special controls (e.g., performance standards, post-
market surveillance, patient registries and FDA guidelines). The FDA also has
the authority to require clinical testing of Class I and Class II devices.
Generally, Class III devices are those that must receive pre-market approval
by the FDA to ensure their safety and effectiveness (e.g.,
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life-sustaining, life-supporting and implantable or new devices which have not
been found to be substantially equivalent to legally marketed devices), and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and distribution.
Generally, before a new device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
pre-market notification ("510(k) notification") submission or approval of a
PMA application. If a medical device manufacturer or distributor can establish
that a device is "substantially equivalent" to a legally marketed Class I or
Class II device, or to a Class III device for which the FDA has not called for
PMA applications, the manufacturer or distributor may seek clearance from the
FDA to market the device by filing a 510(k) notification. The 510(k)
notification may need to be supported by appropriate data establishing the
claim of substantial equivalence to the FDA. The FDA recently has been
requiring a more rigorous demonstration of substantial equivalence.
Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an
order is issued by the FDA. At this time, the FDA typically responds to the
submission of a 510(k) notification within 90 to 200 days. An FDA order may
declare that the device is substantially equivalent to a legally marketed
device and allow the proposed device to be marketed in the United States. The
FDA, however, may determine that the proposed device is not substantially
equivalent or requires further information, including clinical data, to make a
determination regarding substantial equivalence. Such determination or request
for additional information could delay market introduction of the product that
is the subject of the 510(k) notification.
If human clinical trials of a device are required and if the device presents
a "significant risk," the manufacturer or distributor of the device is
required to file an investigational device exemption ("IDE") application with
the FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically the result of animal, and, possibly, mechanical
testing. If the IDE application is approved by the FDA, human clinical trials
may begin at a specific number of investigational sites with a maximum number
of patients, as approved by the FDA.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent to a legally market device, the
manufacturer or distributor must seek premarket approval of the proposed
device through submission of a PMA application. A PMA application must be
supported by extensive data, including data from preclinical studies and human
clinical trials, extensive literature, non-clinical data, a full description
of the device and its components, a full description of the methods,
facilities, and controls used for manufacturing, and proposed labeling to
prove the safety and effectiveness of the device. Following receipt of a PMA
application, if the FDA determines that the application is sufficiently
complete to permit a substantive review, the agency will "file" the
application. The FDA has 180 days to review a filed PMA application, although
the review of an application more often occurs over a protracted time period,
and generally takes approximately two years or more from the filing date to
complete.
The PMA approval process can be expensive, uncertain and lengthy. A number
of devices for which pre- market approval has been sought have never been
approved for marketing. The review time is often significantly extended by the
FDA, which may require more information or clarification of information
already provided in the submission. During the review period, an advisory
committee likely will be convened by the FDA to review and evaluate the
application and provide recommendations to the agency as to whether the device
should be approved. In addition, the FDA will inspect the manufacturing
facility to ensure compliance with the GMP regulations for medical devices
prior to approval of the PMA application. If granted, the approval may include
significant limitations on the indicated uses for which a product may be
marketed.
Even if regulatory clearance to market a device is obtained from the FDA,
this clearance may entail limitations on the indicated uses of the device.
Marketing clearance can also be withdrawn by the FDA due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following
initial clearance. The Company may be required to make further filings with
the FDA under certain circumstances. The FDA's
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regulations require agency approval of a PMA or 510(k) supplement for certain
changes if they affect the safety and effectiveness of the device, including,
but not limited to, new indications for use, labeling changes, the use of a
different facility to manufacture, process or package the device, changes in
manufacturing methods or quality control systems and changes in performance or
design specifications. Failure by the Company to receive approval of a PMA or
510(k) supplement regarding the use of a different manufacturing facility or
any other change affecting the safety or effectiveness of an approved or
cleared device on a timely basis, or at all, would have a material adverse
effect on the Company's business, financial condition and results of
operations. The FDA could also limit or prevent the manufacture or
distribution of the Company's products and has the power to require the recall
of such products. Significant delay or cost in obtaining, or failure to obtain
FDA clearance to market products, any FDA limitations on the use of the
Company's products, or any withdrawal of clearance by the FDA could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
In the U.S. the Company has completed a clinical study of the use of
ORTHOVISC for treatment of OA of the knee in humans. The Company is currently
preparing a PMA for ORTHOVISC for this use which it plans to submit to the FDA
by the end of 1997. The Company cannot predict the timing for approval, if
ever, of its PMA for ORTHOVISC. Internationally, the Company has received the
CE mark for the marketing in Europe of ORTHOVISC for use in synovial joints
and approval in Canada for use of the product in the knee and TMJ.
Drugs. Medical products may meet both the definition of a medical device and
a drug. In these instances, the FDA may regulate these products as drugs or as
both medical devices and drugs. The steps required before a drug may be
marketed in the United States include (i) preclinical laboratory and animal
tests, (ii) submission to the FDA of an Investigational New Drug Application
which must become effective before human clinical trials to establish the
safety and efficacy of the drug may commence, (iii) submission of a New Drug
Application ("NDA") to the FDA and (iv) FDA approval of the NDA prior to any
commercial sales or shipment of the drug. A clinical study program designed to
demonstrate the safety and effectiveness of a drug usually proceeds in three
phases: (i) phase I involves testing the drug for safety and tolerance in a
small group of health volunteers; (ii) phase II involves testing for efficacy
and identifying possible side effects in a target patient group; and (iii)
phase III involves additional testing for efficacy, optimal dosage and safety
with an expanded patient group, preferably using a comparative control agent.
The results of the clinical testing, together with manufacturing
information, are then submitted to the FDA in the form of an NDA. In the event
the Company's products are classified as drugs, it may take five to ten years
to complete this process, which typically would be substantially longer than
the review process for devices. The extended review process is also
substantially more expensive.
Furthermore, the Company or the FDA may suspend clinical trials at any time
upon a determination that the subjects or patients are being exposed to an
unacceptable adverse health risk ascribable to the Company's products. If
clinical studies are suspended, the Company may be unable to continue the
development of the investigational products affected.
In addition to regulations enforced by the FDA, the Company is 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 potential future federal, state and
local regulations of foreign governments. Federal, state and foreign
regulations regarding the manufacture and sale of medical products are subject
to change. The Company cannot predict what impact, if any, such changes might
have on its business.
For marketing outside the United States, the Company will be subject to FDA
regulations regarding the export of products within its jurisdiction and to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements relating to the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. The process of obtaining approvals from the FDA and other
regulatory authorities can be costly, time consuming, and subject to
unanticipated
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delays. There can be no assurance that approvals of the Company's products,
processes or facilities will be granted or that the Company will obtain the
financing needed to develop certain of such products. Any failure to obtain,
or delay in obtaining, such approvals could adversely affect the ability of
the Company to market its products.
In addition to regulations enforced by the FDA, the Company is subject to
other existing and potential future federal, state and local regulations of
foreign governments. International regulatory bodies often establish
regulations governing product standards, packing requirements, labeling
requirements, import restrictions, tariff regulations, duties and tax
requirements. To enable the Company to market its products in Europe, the
Company was required to receive a "CE" marking certification, an international
symbol of quality and compliance with the applicable European medical device
directive. In October 1996, the Company received an EC Design Examination and
an EC Quality System Certificate from a European Notified Body, which entitles
the Company to affix a CE marking on its ORTHOVISC product for osteoarthritis
and the treatment of TMJ. There can be no assurance that the Company will be
able to achieve and/or maintain compliance required for CE marking or other
foreign regulatory approvals for any or all of its products or that it will be
able to produce its products in a timely and profitable manner while complying
with applicable requirements. Federal, state and foreign regulations regarding
the manufacture and sale of medical products are subject to change. The
Company cannot predict what impact, if any, such changes might have on its
business. The requirements relating to the conduct of clinical trials, product
licensing, pricing and reimbursement also vary widely from country to country.
COMPETITION
The Company competes with many companies, including large pharmaceutical
companies and specialized medical products companies. Many of these companies
have substantially greater financial and other resources, larger research and
development staffs, more extensive marketing and manufacturing organizations
and more experience in the regulatory process than the Company. The Company
also competes with academic institutions, governmental agencies and other
research organizations which may be involved in research, development and
commercialization of products. Because a number of companies are developing HA
products for similar applications, the successful commercialization of a
particular product will depend in part upon the ability of the Company to
complete clinical studies and obtain FDA marketing and foreign regulatory
approvals prior to its competitors. There can be no assurance that the Company
will be able to compete against current or future competitors or that
competition will not have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is aware of several companies, including Genzyme, Biomatrix,
Inc., Hyal Pharmaceutical Corp., Fidia S.P.A. and LifeCore, that are
developing and/or marketing products utilizing HA for a variety of human
applications. In some cases, competitors have obtained product approvals,
submitted for approval or have commenced human clinical studies, either in the
United States or in certain foreign countries. Major competing products for
the use of HA in ophthalmic surgery include Healon (manufactured by Pharmacia)
and Viscoat (manufactured by Alcon). The FDA has recently approved for
marketing two HA products for the treatment of osteoarthritis in the knee,
Hyalgan and Synvisc. Hyalgan is manufactured by Fidia S.P.A. and is
distributed in the United States by Sanofi Pharmaceuticals and OrthoLogic
Corp. Fidia S.P.A. is selling Hyalgan throughout Europe. Synvisc is
manufactured by Biomatrix Inc. and is distributed in the United States by
Wyeth-Ayerst Laboratories, a division of American Home Products Corp.
Biomatrix, Inc. is marketing this product in Canada, Italy and Sweden. Artz is
manufactured by Seikagaku Corporation and is distributed in Japan, Spain and
Sweden. Genzyme has received marketing approvals in Europe and the U.S. for a
chemically modified HA for the prevention of post-surgical adhesions. LifeCore
is conducting a Phase III human clinical trial testing HA to prevent surgical
adhesions.
ENVIRONMENTAL LAWS
The Company believes that it is in compliance with all federal, state and
local environmental regulations with respect to its manufacturing facilities
and that the cost of ongoing compliance with such regulations does
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not have a material effect on the Company's operations. The Company's
manufacturing facility is located within the Wells G&H Superfund site in
Woburn, MA. The Company has not been named and is not a party to any such
legal proceedings regarding the Wells G&H Superfund site.
PRODUCT LIABILITY
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no
assurance that substantial product liability claims will not be asserted
against the Company. Although the Company has not received any material
product liability claims to date and has coverage under its insurance policy
of $1,000,000, as of September 30, 1997, there can be no assurance if material
claims arise in the future, that the Company's 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 the
Company's business, financial condition and results of operations.
LEGAL PROCEEDINGS
On November 21, 1997, the Company received correspondence from one of its
competitors claiming that the Company had made materially misleading
statements about the competitor's and the Company's products. The competitor
also threatened the Company with legal action if the Company does not take
certain steps to correct the alleged inaccuracies. The Company does not
currently intend to take such steps and is unable to assess whether the
competitor will take legal action against the Company. The Company believes
that these claims are without merit and will vigorously seek to protect its
rights regarding such claims. While the Company is still investigating the
matter, it does not believe the matter will have a material adverse effect on
its business, financial position or results of operations. The Company is not
currently a party to any other material legal proceedings.
FACILITIES AND EMPLOYEES
The Company leases its corporate headquarters located at 236 West Cummings
Park, Woburn, Massachusetts. The Company leases approximately 22,000 square
feet of space at this location for the manufacture of HA products and for its
corporate headquarters. This facility has received all FDA and state
regulatory approvals to operate as a sterile device and drug manufacturer. The
lease for this facility terminates in February 2001. The Company also leases
approximately 15,000 square feet of administrative and research and
development space in Woburn, Massachusetts. The lease for this facility
terminates in October 2001. For the year ended August 31, 1996, the Company
had aggregate lease costs of approximately $370,000.
As of September 30, 1997, the Company had approximately 43 full-time
employees. The Company considers its relations with its employees to be good.
No employees are represented by labor unions.
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MANAGEMENT
EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS
The executive officers, significant employees and directors of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
J. Melville Engle................. 47 President, Chief Executive Officer and
Director
Sean F. Moran..................... 39 Vice President of Finance and
Administration, Chief Financial Officer,
Clerk and Treasurer
Jing-wen Kuo, Ph.D. .............. 51 Vice President of Technical and Clinical
Affairs
Shawn D. Kinney................... 38 Vice President of Operations
Edward Ross, Jr................... 41 Vice President, Sales and Marketing
Mary Ellen Freddo................. 41 Vice President, Quality Systems and
Regulatory Affairs
David A. Swann, Ph.D. ............ 61 Chairman and Chief Scientific Officer
Joseph L. Bower(1)(2)............. 59 Director
Eugene A. Davidson, Ph.D.(1)...... 67 Director
Jonathan D. Donaldson(2).......... 48 Director
Samuel F. McKay(1)................ 58 Director
Harvey S. Sadow, Ph.D............. 75 Director
Steven E. Wheeler(1)(2)........... 50 Director
</TABLE>
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
EXECUTIVE OFFICERS
Mr. Engle was appointed President and Chief Executive Officer of the Company
in September 1996. Previously, he served as President and Chief Executive
Officer for U.S. Medical Products, Inc., a manufacturer and distributor for
orthopedic implants, from 1995 to 1996, and was Senior Vice President, U.S.
Sales and Canadian Operations from 1994 to 1995, Senior Vice President, Latin
America and Canada from 1990 to 1994, Vice President, Managing Director,
Allergan Canada from 1986 to 1990 and Vice President of Finance/Chief
Financial Officer from 1982 to 1986 for Allergan, Inc. Mr. Engle received a
B.S. from the University of Colorado and an M.B.A. from the University of
Southern California.
Mr. Moran was appointed Treasurer of the Company in February 1992 and Vice
President of Finance and Administration and Chief Financial Officer in
February 1993. From July 1996 to September 1996, Mr. Moran served as one of
two members of the Office of the President. He served as Treasurer of MedChem
from May 1991 to May 1993. Mr. Moran also served as Controller of MedChem from
September 1990 to May 1991. Previously, Mr. Moran served as Corporate
Manufacturing Controller at Instron Corporation, a manufacturer of materials
testing instrumentation, from January 1988 to August 1990. Mr. Moran received
a B.S. in Business Administration and an M.B.A. from Babson College.
Dr. Kuo was appointed Vice President of Technical and Clinical Affairs of
the Company in August 1996. He served as Vice President of Research and
Development from February 1993 to January 1996 and as Vice President of
Technical Affairs from January 1996 to August 1996. He also served as Vice
President of Research and Development of MedChem from July 1992 to May 1993,
Director of Basic Research from September 1989 to July 1992, Senior Chemist
from 1986 to 1989 and Research Chemist from 1984 to 1986. Dr. Kuo received an
M.S. and a Ph.D. from the State University of New York at Stony Brook.
Mr. Kinney was appointed Vice President of Operations of the Company in
January 1996. From July 1996 to September 1996 he served as one of two members
of the Office of the President. He served as Director of Technology from
January 1995 to January 1996 and Manager, Analytical Laboratory from 1994 to
1995. He
43
<PAGE>
also served as a consultant to the Company and MedChem from 1991 to 1994. Mr.
Kinney received a B.S. from Southeastern Massachusetts University, an M.S.
from Northeastern University and is currently pursuing a Ph.D. from the
University of Massachusetts.
Mr. Ross joined the Company in December 1996 as Vice President Sales and
Marketing from Gliatech, Inc., where he also served as Vice President of
Marketing and Sales and was responsible for worldwide commercialization of
anti-adhesion and related therapeutic technologies. Before joining Gliatech in
1995, Mr. Ross was Business Director of biological reconstruction with
Genetics Institute from 1992 to 1995. From 1985 to 1992, he held several
marketing and sales positions with the Zimmer division of Bristol-Myers Squibb
Company. Mr. Ross has a B.A. in Political Science from Dickinson College and
an M.B.A. from the University of Rochester.
Ms. Freddo joined the Company in May 1997 as Vice President, Quality Systems
and Regulatory Affairs. Prior to joining the Company, Ms. Freddo was with U.S.
Medical Products, Inc., where she was Director, Quality Systems, Regulatory
Affairs, Operations and ISO Management Representative. From 1991 to 1996, she
was employed by or served as a consultant to Johnson & Johnson Medical, Inc.
overseeing ISO 9001 compliance and other quality assurance programs. Ms.
Freddo has a B.A. in Biology from the State University of New York at Geneseo
and Master's Degrees in Microbiology and Business Administration from the
University of South Florida.
DIRECTORS
Dr. Swann is a founder of the Company and was appointed Chairman of the
Board in February 1993. In February 1996, he was appointed Chief Scientific
Officer of the Company. Previously, Dr. Swann served as President of the
Company and Chief Executive Officer. He has served on the Board of Directors
of the Company since February 1992. He served in various capacities with
MedChem from 1970 through 1993 including Chairman, Chief Executive Officer and
Chief Scientific Officer. From 1970 to 1987, Dr. Swann was a Biochemist at
Shriners Burn Institute (Boston Unit), serving from 1984 to 1987 as Director
of Research. In addition, Dr. Swann has held numerous research and teaching
positions at Massachusetts General Hospital, Harvard College and Harvard
Medical School. Dr. Swann received a B.S. with honors from Reading University
in England, an M.S. from Cornell University, and a Ph.D. from Leeds
University.
Dr. Bower joined the Board of Directors of the Company in February 1993. He
has held various positions at the Harvard University Graduate School of
Business Administration since 1963. He was named Donald Kirk David Professor
of Business Administration at the Harvard Business School in 1972, served as
Chairman of the Doctoral Programs and Director of Research from 1989 to 1995,
and as Senior Associate Dean for External Relations from 1985 to 1989. Dr.
Bower received an A.B. from Harvard University and an M.B.A. and a D.B.A. from
the Harvard Business School. He is a director of the Brown Group, Inc., ML Lee
Funds I and II, New America High Income Fund, and Sonesta International Hotels
Corporation.
Dr. Davidson joined the Board of Directors of the Company in February 1993.
He has been the Chairman of the Department of Biochemistry at Georgetown
University Medical School since April 1988. Prior to this position, he was the
Chairman of the Department of Biological Chemistry at The Milton S. Hershey
Medical Center of the Pennsylvania State University from October 1967 to April
1988. Dr. Davidson also served as Associate Dean for Education at the Milton
S. Hershey Medical Center from November 1975 to January 1987. Dr. Davidson
received a B.S. in Chemistry from the University of California, Los Angeles,
and a Ph.D. in Biochemistry from Columbia University.
Mr. Donaldson joined the Board of Directors in February 1993. He is
currently President of Biomorphics Group. He served as Chairman of the Board
of the Kevlin Corporation from August 1995 to March 1996 and served as a
director from 1993 to 1996. Mr. Donaldson was Vice President of the Company
from February 1992
44
<PAGE>
until February 1993. He served in various capacities for MedChem from November
1986 to June 1994, including Chief Executive Officer, President and Chief
Operating Officer. Mr. Donaldson received a B.A. from Harvard University and
an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth
College.
Mr. McKay joined the Board of Directors in May 1995. He is currently a
general partner of Axiom Venture Partners Limited Partnership, a venture
capital firm. He is also a general partner of Connecticut Seed Ventures
Limited Partnership, a venture capital firm. Prior to Axiom, Mr. McKay was
Director of Venture Capital Investments at Connecticut General Insurance
Company and a scientist at the Avco-Everett Research Laboratory. Mr. McKay is
also a director of Open Solutions, Inc., CoStar Corporation and Sabre
Communications, Inc. Mr. McKay received a B.S. in Physics from the University
of New Hampshire and an M.B.A. from the Whittemore School of Business at the
University of New Hampshire.
Dr. Sadow joined the Board of Directors in December 1995. He is currently
Chairman of the Board of Cortex Pharmaceuticals, Inc. and Cholestech Corp. Dr.
Sadow is also a director of Penederm, Inc., Trega Biosciences, Inc. From 1971
through 1992, Dr. Sadow served as President and Chief Executive Officer,
Director and later, Chairman of the Board of Boehringer Ingelheim Corporation.
He was also a member of the Board of Directors of the Pharmaceutical
Manufacturers Association and Chairman of the Pharmaceutical Manufacturers
Association Foundation. Dr. Sadow received a B.S. from the Virginia Military
Institute, an M.S. from the University of Kansas and a Ph.D. from the
University of Connecticut.
Mr. Wheeler joined the Board of Directors of the Company in February 1993.
He is currently the President of Wheeler & Co., a private investment firm.
Between 1993 and February 1996 he was Managing Director and a director of
Copley Real Estate Advisors and President, Chief Executive Officer and a
director of Copley Properties, Inc., a publicly traded real estate investment
trust. He was the Chairman and Chief Executive Officer of Hancock Realty
Investors, which manages an equity real estate portfolio, from 1991 to
February 1993. Prior to this position, he was an Executive Vice President of
Bank of New England Corporation from 1990 to 1991. Mr. Wheeler received a B.S.
in Engineering from the University of Virginia, an M.S. in Nuclear Engineering
from the University of Michigan and an M.B.A. from the Harvard Business
School.
BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors is divided into three classes: Class I,
consisting of Messrs. Bower and Davidson, with a term expiring in 2000; Class
II, consisting of Messrs. Donaldson, McKay and Sadow, with a term expiring in
1998; and Class III, consisting of Messrs. Engle, Swann and Wheeler, with a
term expiring in 1999. Each class of directors serves for a three-year term
with one class of directors being elected by the Company's stockholders at
each annual meeting.
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
auditors and the Board. The Audit Committee makes recommendations to the Board
relative to the selection of the Company's independent accountants, confers
with the Company's independent accountants regarding the scope, method and
result of the audit of the Company's books and records, reports the same to
the Board and establishes and monitors policy relative to non-audit services
provided by the independent accountants in order to ensure their independence.
The current Audit Committee members are Mr. Donaldson, Dr. Bower and Mr.
Wheeler.
The Company has a standing Compensation Committee of the Board of Directors,
which makes recommendations to the Board regarding compensation issues with
respect to the officers of the Company. Non-employee director members of the
Compensation Committee recommend grants of stock options under the Company's
stock option plans. The current members of the Compensation Committee are Dr.
Davidson, Dr. Bower, Mr. Wheeler and Mr. McKay.
45
<PAGE>
BOARD COMPENSATION
During the fiscal year ending August 31, 1996, each director who was not an
employee of the Company was entitled to receive a director's fee of $10,000
per year. Pursuant to elections by each non-employee director, in lieu of the
$10,000 director's fee, the Company issued 10,000 stock options to purchase
Common Stock with an exercise price of $3.125. All non-employee directors are
reimbursed for expenses incurred in attending meetings of the Board of
Directors and any committees thereof.
Non-employee directors are also entitled to participate in the Company's
1993 Director Stock Option Plan (the "Directors' Plan"). Under the terms of
the Directors' Plan, each non-employee director, upon his or her initial
election to the Board of Directors, is entitled to receive the grant of an
option to purchase 4,500 shares of Common Stock. Each option granted under the
Directors' Plan has, or will have, an exercise price equal to the fair market
value of the Common Stock on the date of grant. Options granted under the
Directors' Plan will become exercisable in equal annual installments over a
three-year period, but will automatically accelerate upon a "Change in Control
of the Company" (as defined in the Directors' Plan) which, subject to certain
exceptions, shall be deemed to occur in the event that (i) a person becomes
the beneficial owner of 20% or more of the combined voting power of the
Company's then outstanding securities, (ii) individuals who constituted the
Board of Directors on April 26, 1993, and subsequent directors approved by
such persons, cease to constitute at least a majority of the Board of
Directors, (iii) the Company engages in certain mergers, consolidations or
recapitalizations or (iv) the stockholders approve a plan of complete
liquidation or an agreement for the sale of all or substantially all of the
Company's assets. The term of each option granted under the Directors' Plan is
ten years, provided that, in general, an option may be exercised only while
the director continues to serve as a director of the Company or within 90 days
thereafter.
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the last three completed
fiscal years and the transition fiscal year, for the Company's Chief Executive
Officer during fiscal 1996, the Company's two most highly compensated current
executive officers (other than the Chief Executive Officer) and two former
executive officers, whose cash compensation exceeded $100,000 in fiscal 1996
(the Chief Executive Officer and such other executive officers are hereinafter
referred to as the "Senior Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
--------------- ---------------------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY OPTIONS COMPENSATION(2)
------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
David A. Swann, Ph.D....... 1996(3) $ 38,365 168,750(4) $ 3,118
Chairman, Former President 1996(5) 103,010 168,750(4) 5,150
and Former Chief 1995 162,115 106,000(6) 18,239
Executive Officer 1994 210,750 355,500(7) 4,497
Sean F. Moran.............. 1996(3) 128,654 30,000(8) 13,863
Vice President of Finance, 1996(5) 120,000 -- 6,000
Chief Financial Officer, 1995 111,139 20,000 11,557
Clerk and Treasurer 1994 107,200 91,500(9) 5,360
Jing-wen Kuo, Ph.D. ....... 1996(3) 108,462 10,000(10) 11,173
Vice President of 1996(5) 105,000 -- 5,250
Technical 1995 97,090 30,000 10,105
and Clinical Affairs 1994 93,588 48,250(11) 4,385
Robert S. DuFresne.........
Former President and 1996(3) 102,409 -- 4,577
Former Chief Operating 1996(5) 161,255 -- 6,865
Officer 1995 19,615 180,000 --
Bernard P. Sullivan........ 1996(3) 133,846 -- 6,692
Former Senior Vice 1996(5) 129,231 -- 6,462
President of Operations 1995 118,126 20,000 11,906
1994 117,294 46,000(12) 5,865
</TABLE>
- ----------
(1) The Company did not pay any bonuses for its 1994, 1995 and 1996 fiscal
years and for the period from January 1, 1996 to December 31, 1996.
(2) For the period January 1, 1996 to December 31, 1996 and the 1995 fiscal
year, constitutes matching contributions to the Company's 401(k) Plan
together with the Company's discretionary contribution to the 401(k) Plan
and for all other periods constitutes the Company's matching
contributions to the 401(k) Plan.
(3) Represents compensation for the period January 1, 1996 to December 31,
1996, the Company's new fiscal year end.
(4) As part of the amended employment agreement dated February 1, 1996,
options to purchase a total of 168,750 shares of Common Stock were
granted that vest over a 27 month period. These options expire on
February 1, 2006.
(5) Represents compensation for the period September 1, 1995 to August 31,
1996, the Company's former fiscal year end.
(6) Includes options to purchase 86,000 shares of Common Stock in lieu of
three months compensation.
(7) Includes 60,000 stock options granted under the Stock Option Plan during
the Company's 1994 fiscal year and options to purchase 295,500 shares of
Common Stock granted during previous fiscal years, all of which were
repriced effective as of August 12, 1994.
47
<PAGE>
(8) Includes options to purchase 30,000 shares of Common Stock granted under
the stock option plan during the period January 1, 1996 to December 31,
1996.
(9) Includes options to purchase 30,000 shares of Common Stock granted under
the Stock Option Plan during the Company's 1994 fiscal year and options
to purchase 61,500 shares of Common Stock during previous fiscal years,
all of which were repriced effective as of August 12, 1994.
(10) Includes options to purchase 10,000 shares of Common Stock granted under
the stock option plan during the period January 1, 1996 to December 31,
1996.
(11) Includes options to purchase 10,000 shares of Common Stock granted under
the Stock Option Plan during the Company's 1994 fiscal year and options
to purchase 38,250 shares of Common Stock during the previous years all
of which were repriced effective as of August 12, 1994.
(12) Includes options to purchase 15,000 shares of Common Stock under the
Stock Option Plan during the Company's 1994 fiscal year and options to
purchase 31,000 shares of Common Stock granted during previous fiscal
years, all of which were repriced effective as of August 12, 1994.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made to each of the Senior Executives during the sixteen-month
period ended December 31, 1996, consisting of the fiscal year ended August 31,
1996 and the four-month transitional year ended December 31, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS MARKET
SECURITIES GRANTED TO EXERCISE PRICE
UNDERLYING EMPLOYEES IN PRICE PER ON DATE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR SHARE OF GRANT DATE
- ---- --------------- ------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
David A. Swann, Ph.D. .. 168,750(1) 22.8% $ .50 $4.25 2/01/06
Sean F. Moran........... 30,000(2) 4.0 4.75 4.75 9/04/06
Jing-wen Kuo, Ph.D. .... 10,000(2) 1.3 4.75 4.75 9/04/06
</TABLE>
- ----------
(1) As part of his amended employment agreement, Dr. Swann received options to
purchase 168,750 shares of Common Stock which vest over 27 months. These
options expire on February 1, 2006.
(2) The exercisability of each option automatically accelerates upon a "Change
in Control of the Company" (as defined in the Stock Option Plan). These
options vest in three equal annual installments commencing on the first
anniversary of grant and continuing on the next two succeeding
anniversaries of such date.
48
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning exercises of
stock options during the sixteen-month period ended December 31, 1996,
consisting of the fiscal year ended August 31, 1996 and the four-month
transitional year ended December 31, 1996 by each of the Senior Executives and
the number and value of options held by each of the Senior Executives as of
December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF FY-END FY-END(1)
SHARES ---------------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ---------------------- -----------------
<S> <C> <C> <C> <C>
David A. Swann, Ph.D. .. -- -- 579,750/100,000 $936,976/$325,000
Robert S. DuFresne...... 10,000 $32,343 50,000/0 56,250/0
Bernard P. Sullivan..... 24,038 52,295 48,167/13,333 56,687/20,000
Sean F. Moran........... 9,000 35,355 91,867/43,333 103,487/20,000
Jing-wen Kuo, Ph.D. .... 16,799 59,758 41,750/30,000 49,969/30,000
</TABLE>
- ----------
(1) Based on the fair market value of the Common Stock on December 31, 1996 of
$3.75 per share, less the option exercise price.
EMPLOYMENT AGREEMENTS
Dr. Swann is a party to an employment agreement with the Company which was
entered into on April 29, 1993. The employment agreement with Dr. Swann was
amended on February 1, 1996. The amended agreement is for a term ending May 3,
1998 and entitles Dr. Swann to a salary of $2,000 per month, stock options for
168,750 shares of Common Stock, accelerated vesting with respect to existing
options to acquire 151,875 shares of Common Stock, benefits and bonuses at the
discretion of the Board.
Mr. Engle is a party to an employment agreement with the Company which
commenced September 26, 1996. Under the agreement, Mr. Engle is entitled to an
annual base salary of $200,000, a grant of stock options for 250,000 shares of
Common Stock vesting in equal installments over four years, benefits and
performance bonuses upon attainment of objectives determined by the Board. If
Mr. Engle's employment is terminated without cause, the agreement entitles him
to severance in the amount of six months base salary and six months medical
benefits. In the event of a constructive termination due to a "hostile" change
of control, Mr. Engle will receive severance of 12 months salary (and medical
benefits) if he is not retained in a substantially equivalent position.
Mr. DuFresne, the Company's former President and Chief Operating Officer,
entered into an employment agreement with the Company in July 1995 which
provided a base salary of $170,000, a grant of 180,000 stock options vesting
over a period of three years and benefits and bonuses at the discretion of the
Board. The agreement was terminated effective August 1, 1996 pursuant to a
letter agreement the terms of which entitled Mr. DuFresne to continue
receiving his base salary of $170,000 until January 31, 1997, and to receive
paid medical benefits.
Mr. Sullivan, the Company's former Senior Vice President of Operations
entered into an employment agreement with the Company in April 1993 for a
five-year term. The agreement entitled Mr. Sullivan to receive an initial base
salary of $117,294 plus bonuses and benefits at the discretion of the Board.
Mr. Sullivan's employment agreement was terminated effective February 5, 1996.
Mr. Sullivan entered into a consulting agreement with the Company effective
February 6, 1996 to February 5, 1997. The agreement entitled Mr. Sullivan to a
salary of $120,000 during the term of the agreement and to certain benefits
and expenses.
49
<PAGE>
1993 STOCK OPTION PLAN
The Company's Stock Option Plan was initially adopted by the Board of
Directors on March 3, 1993 and was subsequently approved by the Company's
stockholders. The Stock Option Plan permits the grant of incentive stock
options ("Incentive Stock Options") meeting the requirements of Section 422 of
the Internal Revenue Code of 1986 (the "Code") and options not meeting such
requirements ("Non-qualified Stock Options"), as well as outright grants of
Common Stock. Grants may be made to employees, officers or directors of, or
consultants or advisors to, the Company. Prior to October 28, 1997, the Stock
Option Plan provided for the grant of options to acquire up to 2,000,000
shares of Common Stock. On October 28, 1997, the Company amended the Stock
Option Plan to reserve an additional 1,000,000 shares of Common Stock for
issuance under the Stock Option Plan, and granted to certain executive
officers and employees options to acquire 235,000 shares of Common Stock at an
exercise price of $7.625 per share, vesting over a four-year period. Such
grants are subject to the completion of this offering and stockholder approval
of the amendment to the Stock Option Plan. The amendment to the Plan will be
submitted for stockholders' approval at the Company's next annual meeting of
stockholders. As of October 31, 1997, options to purchase 1,871,495 shares
were outstanding at a weighted average exercise price of $3.68 per share.
The Stock Option Plan is administered by the Board of Directors which may
delegate its authority to the Compensation Committee. Subject to the
provisions of the Stock Option Plan, the Board or Compensation Committee has
full power to determine the eligible individuals to whom grants will be made
and the specific terms of each grant, including the exercise price and the
vesting schedule. Members of the Board may be granted options or outright
grants of Common Stock under the Stock Option Plan.
The purchase price per share of stock deliverable upon the exercise of an
option will be determined by the Board of Directors at the time of grant;
provided, however, that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value of such stock at
the time of grant of such option, or less than 110% of such fair market value
in the case of Incentive Stock Options awarded to a 10% stockholder.
Each option and all rights thereunder will expire on such date as is set
forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date will not be later than ten years after the
date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Stock Option Plan. Each
option granted under the Stock Option Plan will be exercisable either in full
or in installments at such time or times and during such period as shall be
set forth in the agreement evidencing such option, subject to the provisions
of the Stock Option Plan. Unless sooner terminated, the Stock Option Plan
shall terminate, with respect to Incentive Stock Options, upon the earlier of
(i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on which
all shares available for issuance under the Stock Option Plan shall have been
issued pursuant to the exercise of options granted under the Stock Option Plan
or cancelled. Unless sooner terminated, the Stock Option Plan will terminate
with respect to options which are not Incentive Stock Options on the date
specified in (ii) above. If the date of termination is determined under (i)
above, then options outstanding on such date will continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options. Options granted under the Stock Option Plan will automatically
accelerate and become exercisable upon a "Change in Control of the Company"
(as defined in the Stock Option Plan).
50
<PAGE>
CERTAIN TRANSACTIONS
On March 1, 1996 the Company sold 1,455,000 shares of Common Stock in a
private placement, at a price per share of $2.75 resulting in net proceeds to
the Company of approximately $3.5 million. In connection with the sale of
Common Stock, the Company issued warrants to Leerink, Swann, Garrity, Sollami,
Yaffe and Wynn, Inc. ("Leerink Swann & Company"), the placement agent, for
146,664 shares of Common Stock exercisable at $3.00 per share and 57,036
shares of Common Stock exercisable at $4.00 per share. The Company paid
Leerink Swann & Company $320,000 as placement agent fees in connection with
the private placement. In August 1997, the Company granted demand registration
rights to Leerink Swann & Company with respect to shares of Common Stock which
may be acquired upon exercise of such warrants. L. Eric Swann, an officer,
director and shareholder of Leerink Swann & Company, is the son of David A.
Swann, Chairman of the Board of Directors of the Company.
On May 17, 1995, the Company sold 120,970 shares of Series A Preferred Stock
in a private placement at a price of $20.00 per share, resulting in net
proceeds to the Company of approximately $2.2 million. In connection with the
sale of the Series A Preferred Stock, the Company also issued warrants to the
holders of Series A Preferred Stock to purchase 60,485 additional shares of
Series A Preferred Stock at an exercise price of $20.00 per share. Axiom
Venture Partners Limited Partnership acquired 100,000 shares of such Series A
Preferred Stock and 50,000 of such warrants. In connection with its investment
in the Company and pursuant to the terms of the Shareholders' Agreement, Axiom
nominated and the Board of Directors elected Samuel McKay, a general partner
of the general partner of Axiom, as a member of the Company's Board of
Directors. Axiom subsequently nominated and the Board of Directors elected
Harvey Sadow as an additional member of the Company's Board of Directors.
Substantially all of the remaining outstanding shares of Series A Preferred
Stock and warrants were issued to directors and executive officers of the
Company, including 5,000 shares of Series A Preferred Stock and 2,500 warrants
to each of Jonathan Donaldson and Steven Wheeler, Directors of the Company,
3,800 shares of Series A Preferred Stock and 1,900 warrants to David Swann,
the Chairman and Chief Scientific Officer of the Company, 2,000 shares of
Series A Preferred Stock and 1,000 warrants to Joseph Bower, a Director of the
Company, 1,200 shares of Series A Preferred Stock and 600 warrants to Eugene
Davidson, a Director of the Company, 750 shares of Series A Preferred Stock
and 375 warrants to Alan Ezekowitz, a former Director of the Company and a
member of the Company's Scientific Advisory Board, 700 shares of Series A
Preferred Stock and 350 warrants to Sean Moran, the Company's Vice President
of Finance and Administration, Chief Financial Officer, Treasurer and Clerk,
and 20 shares of Series A Preferred Stock and ten warrants to Jing-wen Kuo,
the Company's Vice President of Technical and Clinical Affairs.
On March 17, 1997, the Company made a loan of $75,000 to J. Melville Engle,
President and Chief Executive Officer of the Company which is payable upon the
earlier of March 11, 2002 or 120 days after the termination of Mr. Engle's
employment with the Company for any reason. The loan accrues current interest
at a rate of 6%, payable on a monthly basis.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
voting stock as of October 27, 1997 and as adjusted to reflect the sale of the
shares of Common Stock offered hereby of (i) each director, (ii) each Senior
Executive, (iii) each person which is known by the Company to beneficially own
5% or more of its voting stock and (iv) all current directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect
to such shares.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP AFTER
OFFERING UPON
SHARES TO BE EXERCISE IN FULL
BENEFICIAL OWNERSHIP SOLD UPON OF UNDERWRITERS'
BENEFICIAL OWNERSHIP AFTER EXERCISE OF OVERALLOTMENT
BEFORE OFFERING OFFERING(2)(3)(4) UNDERWRITERS' OPTION(5)
------------------------ SHARES ----------------------- OVERALLOTMENT -----------------
SHARES(2) PERCENT(3) OFFERED(4) SHARES PERCENT OPTION(5) SHARES PERCENT
--------- ---------- ---------- ------------ ---------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors(1)
David A. Swann, Ph.D.... 809,795(6) 10.8% -- 809,795 8.1% 80,000 729,795 7.3%
Joseph L. Bower......... 75,520(7) 1.1 -- 75,520 * -- 75,520 *
Eugene A. Davidson,
Ph.D. ................. 62,440(8) * -- 62,440 * -- 62,440 *
Jonathan D. Donaldson... 170,670(9) 2.5 -- 170,670 1.8 12,600 158,070 1.7
J. Melville Engle....... 64,980(10) * -- 64,980 * 6,400 58,580 *
Samuel F. McKay......... 1,452,390(11) 21.1 500,000 952,390 10.2 105,300 847,090 9.0
Harvey S. Sadow,
Ph.D. ................. 14,000(12) * -- 14,000 * -- 14,000 *
Steven E. Wheeler....... 120,570(13) 1.7 -- 120,570 1.3 12,000 108,570 1.2
Other Senior Executives
Sean F. Moran........... 114,801(14) 1.7 -- 114,801 1.2 -- 114,801 1.2
Jing-wen Kuo, Ph.D...... 43,907(15) * -- 43,907 * 4,300 39,607 *
Robert S. DuFresne...... -- (16) -- -- -- -- -- -- --
Bernard P. Sullivan..... -- (17) -- -- -- -- -- -- --
Shawn Kinney............ 34,266(18) * -- 34,266 * -- 34,266 *
5% Stockholders
Axiom Venture Partners
Limited Partnership.... 1,452,390(19) 21.1 500,000 952,390 10.2 105,300 847,090 9.0
All current directors
and executive officers
as a group (15
persons)............... 2,989,400(20) 37.4 500,000 2,489,400 23.7 225,000 2,264,400 21.6
</TABLE>
- ----------
* Less than 1%.
(1) The address of Samuel F. McKay is c/o Axiom Venture Partners, City Place
II, 17th Floor, 185 Asylum Street, Hartford, Connecticut 06103. The
address of all other Directors and Senior Executives is c/o Anika
Therapeutics, Inc., 236 West Cummings Park, Woburn, MA 01801.
(2) The number of shares deemed beneficially owned includes shares of Common
Stock (a) beneficially owned as of October 27, 1997, (b) subject to
receipt upon conversion of shares of Series A Preferred Stock outstanding
as of October 27, 1997 and (c) subject to receipt upon exercise of Series
A Preferred Stock Subscription Warrants ("Warrants") outstanding as of
October 27, 1997 (assuming cashless exercise) and conversion of the
resulting shares of Series A Preferred Stock. The inclusion of any shares
of stock deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares. Any reference below to shares
subject to outstanding stock options held by the person in question
refers to stock options that are currently exercisable within 60 days
after October 27, 1997. Each outstanding Warrant is exercisable for one
share of Series A Preferred Stock, and all 10,485 outstanding Warrants
are currently exercisable in full.
52
<PAGE>
(3) All percentages have been determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934.
(4) Assumes no exercise of the Underwriters' overallotment option.
(5) Assumes exercise in full of the underwriters' overallotment option.
Certain members of senior management of the Company will sell shares of
Common Stock solely in connection with the exercise of the underwriters'
overallotment option.
(6) This amount includes 30,055 shares owned by the wife of Dr. Swann, 50,625
shares owned jointly by Dr. Swann and his wife, 13,217 shares held by
three trusts established by Dr. Swann for the benefit of his children,
12,509 shares allocated to Dr. Swann's account under the Anika
Therapeutics, Inc. Employee Savings, Retirement Plan (the "401(k) Plan")
and 5,515 shares of Series A Preferred Stock. This amount also includes
648,083 shares subject to outstanding stock options.
(7) This amount includes 39,500 shares subject to outstanding stock options
and 2,902 shares of Series A Preferred Stock.
(8) This amount includes 39,500 shares subject to outstanding stock options
and 1,741 shares of Series A Preferred Stock.
(9) This amount includes 94,100 shares subject to outstanding stock options
and 7,257 shares of Series A Preferred Stock.
(10) This amount includes 2,480 shares allocated to Mr. Engle's account under
the 401(k) Plan and 62,500 shares subject to outstanding stock options.
(11) Represents 145,139 shares of Series A Preferred Stock (see Note 17
hereto). Mr. McKay, Alan Mendleson and Martin Chanzit are the general
partners (the "Axiom General Partners") of Axiom Venture Associates
Limited Partnership, the general partner of Axiom, and share voting and
investment power with respect to such shares. The Axiom General Partners
disclaim beneficial ownership of such shares except to the extent of each
partner's proportionate pecuniary interest therein.
(12) This amount includes 13,000 shares subject to outstanding stock options.
(13) This amount includes 39,500 shares subject to outstanding stock options
and 7,257 shares of Series A Preferred Stock.
(14) This amount includes 12,103 shares allocated to Mr. Moran's account under
the 401(k) Plan and 92,533 shares subject to outstanding stock options
and 1,016 shares of Series A Preferred Stock.
(15) This amount includes 10,279 shares allocated to Dr. Kuo's account under
the 401(k) Plan, 33,333 shares subject to outstanding stock options and
30 shares of Series A Preferred Stock.
(16) Mr. DuFresne was employed as President of the Company until August 1,
1996.
(17) Mr. Sullivan was employed as Senior Vice President of Operations until
February 5, 1996.
(18) This amount includes 4,766 shares allocated to Mr. Kinney's account under
the 401(k) Plan and 29,500 shares subject to outstanding stock options.
(19) This amount includes 145,139 shares of Series A Preferred Stock. Axiom
owns approximately 83% of the issued and outstanding Series A Preferred
Stock.
(20) This amount includes 43,198 shares in the aggregate allocated to the
accounts of the executive officers under the 401(k) Plan, 1,116,549
shares subject to outstanding stock options and 170,857 shares of Series
A Preferred Stock (see Notes 10 and 17 above).
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's Restated Articles of Organization (the "Articles of
Organization") authorize the issuance of up to 15,000,000 shares of Common
Stock, $.01 par value per share, and 2,000,000 shares of undesignated
preferred stock (the "Preferred Stock") issuable in series by the Board of
Directors of which 750,000 have been designated as Series A Preferred Stock.
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Articles of Organization and the
Company's Amended and Restated By-laws (the "By-laws"), copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part. The Articles of Organization and By-laws have been adopted by the
stockholders and the Board of Directors of the Company.
Common Stock. Holders of Common Stock are entitled to one vote per share on
all matters to be voted on by stockholders. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a plurality of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to the rights of the holders of Preferred
Stock. The holders of Common Stock have no preemptive rights.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor, subject to any preferential dividend rights of any
outstanding Preferred Stock.
Upon the dissolution or liquidation of the Company, holders of Common Stock
will be entitled to receive all assets of the Company available for
distribution to its stockholders, subject to any preferential rights of the
then outstanding Preferred Stock.
There are no redemption or sinking fund provisions with respect to the
Common Stock. All outstanding shares of Common Stock, including the shares
offered hereby, are, or will be upon completion of this offering, fully paid
and non-assessable and subject to any preferential dividend rights of any
outstanding Preferred Stock.
The Company's By-laws provide that the number of directors shall be fixed by
vote of the stockholders or the Board of Directors. The directors, other than
those who may be elected by the holders of any Preferred Stock, are divided
into three classes, as nearly equal in number as possible, with each class
serving for a three-year term, except with respect to the initial term of each
class of directors. Subject to the rights of the holders of any Preferred
Stock to elect directors or remove any director whom the holders of such stock
had the right to elect, any director of the Company may be removed from office
for cause by the affirmative vote of at least three-fourths of the then issued
and outstanding capital stock which would be eligible to be cast by
stockholders in the election of such director.
Warrants. As of September 30, 1997 a total of 146,664 shares of Common Stock
were issuable upon exercise of outstanding warrants at an exercise price of
$3.00 and 57,036 shares of Common Stock were issuable upon exercise of
outstanding warrants at an exercise price of $4.00 per share. For a
description of these warrants, see "Certain Transactions."
Undesignated Preferred Stock. The Board of Directors of the Company is
authorized as set forth in the Articles of Organization, without further
action of the stockholders of the Company, to issue up to 1,250,000 shares of
undesignated Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon. Any such Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. The issuance of Preferred Stock could
have the effect of making it more difficult for a third-party to acquire, or
of discouraging a third-party from acquiring or seeking to acquire, a
significant portion of the outstanding stock of the Company.
54
<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF ORGANIZATION AND BY-LAWS
General. A number of provisions of the Articles of Organization and the By-
laws concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Board of Directors
to issue shares of Preferred Stock and to set the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their best
interests). To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Common Stock, which may result from
actual or rumored takeover attempts, may be inhibited.
The Articles of Organization provide for the Board of Directors to be
divided into three classes, as nearly equal in size as possible, of directors
serving staggered three-year terms. As a result, approximately one-third of
the Board of Directors will be elected each year. In addition, the Articles of
Organization provide that shareholders may remove a director for cause by the
vote of the holders of three-fourths of the issued and outstanding capital
stock then entitled to vote at an election of directors. This provision, when
coupled with the provision of the Articles of Organization and the By-laws
authorizing only the Board of Directors to fill vacant directorships, will
preclude shareholders from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with their own nominees, and will make more
difficult, and therefore may discourage, a proxy contest to change control of
the Company. These provisions, together with the ability of the Board to issue
Preferred Stock without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption of control by
stockholders, even if such removal or assumption would be beneficial to
stockholders of the Company. In addition, these provisions could discourage or
make more difficult a merger, tender offer or proxy contest, even if they
could be favorable to the interests of stockholders, and could potentially
depress the market price of the Common Stock.
Meetings of Stockholders. The Company's By-laws provide that a special
meeting of stockholders may be called by the President or the Chairman of the
Board of Directors. The Company's By-laws provide that only those matters set
forth in the notice of the special meeting may be considered or acted upon at
that special meeting. In addition, the Company's By-laws set forth certain
advance notice, informational requirements and time limitations on any
director nomination or any new business which a stockholder wishes to propose
for consideration at an annual meeting of stockholders.
No Stockholder Action by Written Consent. The Articles of Organization
provide that any action required or permitted to be taken by the stockholders
of the Company at an annual or special meeting of stockholders must be
effected at a duly called meeting and may not be taken or effected by a
written consent of stockholders in lieu thereof.
Indemnification and Limitation of Liability. The Articles of Organization of
the Company provide that directors and officers of the Company shall be
indemnified by the Company against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of the Company. The
Articles of Organization of the Company also provide that the right of
directors and officers to indemnification shall not be exclusive of any other
right now possessed or hereafter acquired under any by-law, agreement, vote of
stockholders or otherwise.
Amendment of By-laws. The Articles of Organization provide that the By-laws
may be amended or repealed by the Board of Directors or by the stockholders.
Except with respect to any provision which requires action by the
stockholders, an amendment or repeal of the By-laws by the Board of Directors
requires the affirmative vote of a majority of the directors then in office.
Such action by the stockholders requires the affirmative vote of the holders
of at least a majority of shares of each class of capital stock at the time
outstanding and entitled to vote with respect to such amendment or repeal at
an annual meeting of stockholders or a special meeting called for such
purpose.
55
<PAGE>
Ability to Adopt Shareholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares to implement a shareholder rights plan. A shareholder rights plan
typically creates voting or other impediments to discourage persons seeking to
gain control of the Company by means of a merger, tender offer, proxy contest
or otherwise if such change in control is not determined to be in the best
interests of the Company and its stockholders. The Board of Directors is not
aware of any attempt to obtain control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 9,381,879 shares of
Common Stock outstanding (assuming exercise of all outstanding warrants to
acquire Series A Preferred Stock), excluding shares issuable upon exercise of
stock options outstanding at September 30, 1997 granted pursuant to the Stock
Option Plan and to the Directors' Plan. Of the total shares outstanding,
8,123,051 shares (including the 3,000,000 shares sold in this offering) will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by affiliates of the Company,
which will be subject to the limitations of Rule 144 under the Securities Act.
All of the remaining 1,258,828 shares outstanding (the "Restricted Shares")
may be sold only pursuant to an effective registration statement filed by the
Company or an applicable exemption, including an exemption under Rule 144
under the Securities Act. Certain holders of such shares have registration
rights, as described below.
In general, Rule 144 as currently in effect provides that any person (or
persons whose shares are aggregated), including a person who may be deemed an
"affiliate" of the Company (as defined under the Securities Act), whose
Restricted Shares have been fully paid for and held for at least one year from
the later of the date of issuance by the Company or acquisition from an
affiliate of the Company, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of (i) the average weekly
trading volume in the over-the-counter market during the four calendar weeks
preceding the date on which notice of such sale is filed with the Securities
and Exchange Commission (the "Commission") or (ii) 1% of the shares of Common
Stock then outstanding (approximately 93,819 shares immediately after this
offering). Sales under Rule 144 are also subject to certain other restrictions
regarding the manner of sale, required notice and availability of public
information concerning the Company. In addition, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement.
As of October 31, 1997, 3,000,000 shares of Common Stock were reserved for
issuance under the Stock Option Plan (assuming approval by stockholders at the
next annual meeting thereof of an amendment to the Stock Option Plan to
reserve an additional 1,000,000 shares of Common Stock for issuance
thereunder) of which 1,871,495 shares were issuable upon the exercise of
outstanding stock options (of which 235,000 are subject to stockholder
approval of the amendment to the Stock Option Plan), and 40,000 shares of
Common Stock were reserved for issuance under the Directors' Plan, of which
22,500 shares were issuable upon the exercise of outstanding stock options.
"See Management -- 1993 Stock Option Plan" and "-- Board Compensation". On
June 4, 1993, the Company filed a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock reserved for issuance
under the Stock Option Plan and the Directors' Plan. On June 19, 1996, the
Company filed a Registration Statement on Form S-8 under the Securities Act to
register additional shares of Common Stock reserved for issuance under the
Stock Option Plan. Shares of Common Stock issued upon the exercise of options
under either plan generally are available for sale in the open market, subject
to Rule 144 limitations with respect to affiliates, and subject to the lock-up
arrangements described below.
56
<PAGE>
LOCK-UP AGREEMENTS
The Company and its directors, officers and certain of its principal
stockholders holding in the aggregate, upon completion of the offering,
1,279,880 shares of Common Stock have agreed that they will not, without the
prior written consent of Furman Selz LLC, agree to sell, contract to sell or
otherwise dispose of any shares of Common Stock of the Company for a period of
180 days after the date of this Prospectus, provided, however, that the
Company may grant stock options under the Stock Option Plan, or issue shares
upon the exercise of options granted under the Stock Option Plan or pursuant
to the Directors' Plan.
REGISTRATION RIGHTS
Pursuant to the Series A Preferred Stock Purchase Agreement dated May 17,
1995, upon conversion of Series A Preferred Stock to Common Stock, holders of
at least 50 percent of such converted shares (the "Registrable Securities")
may request that the Company effect a registration with respect to all or part
of the converted shares. In addition, if the Company shall determine to
register any of its securities for its own account, the Company shall include
in such registration, all the Registrable Securities specified in a request by
any holder of such securities.
Pursuant to a letter agreement dated August 27, 1997, Leerink Swann &
Company may for a period of one year following the date of the letter
agreement, request that the Company effect a registration with respect to
Common Stock issuable upon the exercise of warrants issued to Leerink Swann &
Company as placement agent in March 1996. See "Certain Transactions."
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives
Furman Selz LLC, Volpe Brown Whelan & Company, LLC and Leerink Swann & Company
(the "Representatives") have severally agreed to purchase from the Company and
the Selling Stockholders the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Furman Selz LLC..................................................
Volpe Brown Whelan & Company, LLC................................
Leerink Swann & Company..........................................
---------
Total........................................................ 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering, the public offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company and certain stockholders of the Company have granted the several
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 225,000 and 225,000, respectively,
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 450,000, and the Company and
such stockholders will be obligated, pursuant to the option, to sell such
shares to the Underwriters. The Underwriters may exercise such option only to
cover over-allotments, if any, made in connection with the sale of the Common
Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 3,000,000 shares of
Common Stock are being offered.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on Nasdaq immediately prior to
the commencement of sales in this offering in accordance with Rule 103 of
Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases
by a passive market maker on each day are limited to a specified percentage of
the passive market maker's average daily trading volume in the Common Stock
during a specified period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
Subject to applicable limitations, the Underwriters, in connection with this
offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject
58
<PAGE>
to applicable limitations, the Underwriters may also place bids or make
purchases on behalf of the underwriting syndicate to reduce a short position
created in connection with this offering. The Underwriters are not required to
engage in these activities and may end these activities at any time.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company and each of its directors and executive officers, the Selling
Stockholders and certain of its security holders, who in the aggregate will
hold, following this offering, 1,279,880 shares of Common Stock and options
and warrants to purchase 1,373,316 shares of Common Stock, have agreed that
they will not directly or indirectly, without the prior written consent of
Furman Selz LLC, offer, sell, offer to sell, contract to sell, or otherwise
dispose of any shares of Common Stock or securities exchangeable for or
convertible into Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may issue, and grant options to purchase,
shares of Common Stock under its current stock option plan and other currently
outstanding options.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Leerink Swann & Company, co-manager of the offering, commenced operations in
1995 and has not previously managed or co-managed any public offerings of
securities. Leerink Swann & Company has been a member of a public offering
underwriting syndicate on seven occasions. Leerink Swann & Company holds
warrants for 146,664 shares of Common Stock exercisable at $3.00 per share and
57,036 shares of Common Stock exercisable at $4.00 per share. L. Eric Swann,
an officer, director and shareholder of Leerink Swann & Company, is the son of
David A. Swann, Chairman of the Board of Directors of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Certain legal matters related to this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP. As of the date of this
Prospectus, a total of 2,691 shares of Series A Preferred Stock and 1,250
Warrants were beneficially owned by a partner of Goodwin, Procter & Hoar LLP.
EXPERTS
The financial statements of Anika Therapeutics, Inc. as of and for the nine-
month period ended September 30, 1997, as of and for the four-month
transitional year ended December 31, 1996, and for the year ended August 31,
1996, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Dependence on Patents and Proprietary Technology" and "Business -- Patents
and Proprietary Rights" have been reviewed and approved by Hamilton, Brook,
Smith & Reynolds, P.C., patent counsel to the Company, as experts on such
matters, and are included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room
59
<PAGE>
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a web site
(http:///www.sec.gov) containing reports, proxy and information statements and
other information regarding registrants that file such material electronically
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Company has filed with the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a Registration Statement (which shall include
all amendments, exhibits and schedules thereto) on Form SB-2 under the Act
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected and copies at prescribed rates at
the public reference facilities at the addresses set forth above, and are also
publicly available through the Commission's web site.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Anika Therapeutics, Inc.
Report of Independent Accountants as of and for the nine-month period
ended September 30, 1997, as of and for the four-month transitional
year ended December 31, 1996, and for the fiscal year ended August 31,
1996................................................................... F-2
Balance Sheets at September 30, 1997 and December 31, 1996.............. F-3
Statements of Operations for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996...................................... F-4
Statements of Stockholders' Equity for the nine-month period ended
September 30, 1997, the four- month transitional year ended December
31, 1996 and the fiscal year ended August 31, 1996..................... F-5
Statements of Cash Flows for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996...................................... F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
ANIKA THERAPEUTICS, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Anika Therapeutics, Inc.:
We have audited the accompanying balance sheets of Anika Therapeutics, Inc.
(the Company) as of September 30, 1997 and December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the nine-
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996 and the year ended August 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anika Therapeutics, Inc.
as of September 30, 1997 and December 31, 1996, and the results of its
operations and its cash flows for the nine-month period ended September 30,
1997, the four-month transitional year ended December 31, 1996 and the year
ended August 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 22, 1997
F-2
<PAGE>
ANIKA THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF,
------------------------
SEPTEMBER DECEMBER
30, 1997 31, 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,055,045 $ 2,704,665
Accounts receivable............................... 1,020,825 539,004
Inventories....................................... 2,733,363 2,481,646
Prepaid expenses.................................. 525,666 306,537
----------- -----------
Total current assets............................ 7,334,899 6,031,852
----------- -----------
Property and equipment.............................. 3,879,615 3,865,330
Less accumulated depreciation....................... 3,246,606 3,046,286
----------- -----------
Net property and equipment...................... 633,009 819,044
----------- -----------
Loan receivable from officer........................ 75,000 --
Long term deposits.................................. 87,765 68,765
----------- -----------
Total Assets.................................... $ 8,130,673 $ 6,919,661
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 781,617 $ 550,314
Accrued expenses.................................. 1,167,512 1,055,234
Deferred revenue.................................. 200,000 200,000
----------- -----------
Total current liabilities....................... 2,149,129 1,805,548
----------- -----------
Advance rent payment................................ 117,015 142,775
Redeemable convertible preferred stock; $.01 par
value: authorized 750,000 shares; issued and
outstanding 130,211 shares and 126,259 shares,
respectively; at cost of $20.00 per share plus
accrued dividends.................................. 2,705,563 2,602,527
Stockholders' equity:
Undesignated preferred stock; $.01 par value:
authorized 1,250,000 shares; no shares issued and
outstanding...................................... -- --
Common stock; $.01 par value: authorized
15,000,000 shares; issued and outstanding
5,123,051 shares and 4,930,719 shares,
respectively..................................... 51,231 49,307
Additional paid-in capital........................ 12,195,385 11,693,070
Accumulated deficit............................... (9,087,650) (9,373,566)
----------- -----------
Total stockholders' equity...................... 3,158,966 2,368,811
----------- -----------
Total Liabilities and Stockholders' Equity...... $ 8,130,673 $ 6,919,661
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net sales............................. $5,961,723 $ 1,212,041 $ 4,612,918
Cost of sales......................... 3,015,952 1,308,625 4,472,214
---------- ----------- -----------
Gross profit (loss)............... 2,945,771 (96,584) 140,704
Operating expenses:
Research and development............ 1,477,093 1,310,330 1,634,640
Selling, general and
administrative..................... 1,271,733 1,308,583 1,469,257
---------- ----------- -----------
Total operating expenses.......... 2,748,826 2,618,913 3,103,897
---------- ----------- -----------
Income (loss) from operations ...... 196,945 (2,715,497) (2,963,193)
Interest income, net................ (105,230) (57,898) (114,314)
---------- ----------- -----------
Income (loss) before income taxes..... 302,175 (2,657,599) (2,848,879)
Income taxes.......................... 16,259 -- --
---------- ----------- -----------
Net income (loss)................. $ 285,916 $(2,657,599) $(2,848,879)
========== =========== ===========
Earnings (loss) per common share and
common share equivalents............. $ 0.03 $ (0.56) $ (0.76)
========== =========== ===========
Common share and common share
equivalents outstanding.............. 6,357,978 4,905,382 4,052,596
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL UNEARNED TOTAL
----------------- PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31,
1995................... 3,291,475 $32,915 $ 7,378,514 $ -- $(3,867,088) $ 3,544,341
Exercise of common stock
options................ 74,804 748 158,752 -- -- 159,500
Issuance of common stock
to 401(k) plan......... 19,447 194 79,176 -- -- 79,370
Dividend on redeemable
preferred stock........ -- -- (224,605) -- -- (224,605)
Issuance of common stock
(net of expenses)...... 1,455,000 14,550 3,527,035 -- -- 3,541,585
Unearned stock option
compensation........... -- -- 632,813 (468,750) -- 164,063
Net loss................ -- -- -- -- (2,848,879) (2,848,879)
--------- ------- ----------- -------- ----------- -----------
Balance, August 31,
1996................... 4,840,726 48,407 11,551,685 (468,750) (6,715,967) 4,415,375
--------- ------- ----------- -------- ----------- -----------
Exercise of common stock
options................ 83,733 837 193,049 -- -- 193,886
Issuance of common stock
to 401(k) plan......... 6,260 63 27,381 -- -- 27,444
Dividend on redeemable
preferred stock........ -- (79,045) -- -- (79,045)
Unearned stock option
compensation........... -- -- -- 468,750 -- 468,750
Net loss................ -- -- -- -- (2,657,599) (2,657,599)
--------- ------- ----------- -------- ----------- -----------
Balance, December 31,
1996................... 4,930,719 49,307 11,693,070 -- (9,373,566) 2,368,811
--------- ------- ----------- -------- ----------- -----------
Exercise of common stock
options................ 161,567 1,616 454,661 -- -- 456,277
Issuance of common
stock.................. 30,765 308 150,690 -- -- 150,998
Dividend on redeemable
preferred stock........ -- -- (103,036) -- -- (103,036)
Net income.............. -- -- -- -- 285,916 285,916
--------- ------- ----------- -------- ----------- -----------
Balance, September 30,
1997................... 5,123,051 $51,231 $12,195,385 $ -- $(9,087,650) $ 3,158,966
========= ======= =========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE
MONTHS FOUR MONTHS FISCAL YEAR
ENDED, ENDED, ENDED,
SEPT. 30, DEC. 31, AUG. 31,
1997 1996 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 285,916 $(2,657,599) $(2,848,879)
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization.......... 200,320 129,827 352,209
Impairment of leasehold improvements... -- 375,924 200,000
Amortization of unearned stock
compensation.......................... -- 468,750 164,063
Common stock issued to 401(k) plan and
Board of Directors.................... 150,998 27,444 79,370
Other long-term liabilities............ (25,760) (57,225) (520,757)
Changes in operating assets and
liabilities:
Accounts receivable................... (481,821) 92,912 (440,940)
Inventories........................... (251,717) 32,634 778,136
Prepaid expenses...................... (219,129) 195,672 (183,247)
Loan receivable from officer.......... (75,000) -- --
Accounts payable and accrued
expenses............................. 343,582 364,230 786,365
---------- ----------- -----------
Net cash used for operating
activities.......................... (72,611) (1,027,431) (1,633,680)
---------- ----------- -----------
Cash flows used for investing activities:
Long term deposits...................... (19,000) (68,765) --
Additions to property and equipment..... (14,286) (44,048) (413,752)
---------- ----------- -----------
Net cash used for investing
activities.......................... (33,286) (112,813) (413,752)
---------- ----------- -----------
Cash flows provided by financing
activities:
Proceeds from issuance of common stock
(net).................................. -- -- 3,541,585
Expenses from issuance of preferred
stock.................................. -- -- (27,293)
Proceeds from exercise of stock
options................................ 456,277 193,886 159,500
Payments on long-term debt.............. -- -- (800,000)
---------- ----------- -----------
Net cash provided by financing
activities.......................... 456,277 193,886 2,873,792
---------- ----------- -----------
Increase (decrease) in cash and cash
equivalents......................... 350,380 (946,358) 826,360
Cash and cash equivalents at beginning of
period.................................. 2,704,665 3,651,023 2,824,663
---------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $3,055,045 $ 2,704,665 $ 3,651,023
========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest.................. $ 2,771 -- $ 42,222
========== =========== ===========
Supplemental disclosure of non cash
items:
Repayment of debt through future
deferred sublease payments............. $ -- $ -- $ 200,000
Dividend on redeemable preferred stock.. $ 103,036 $ 79,045 $ 224,605
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Anika Therapeutics, Inc. (the Company) develops, manufactures and
commercializes therapeutic products and devices intended to promote the
protection and healing of bone, cartilage and soft tissue. 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 has been developing HA and HA based
products since 1983. The Company's currently marketed products consist of
ORTHOVISC(R), which is an HA product used in the treatment of some forms of
osteoarthritis in humans and HYVISC(R), which is an HA product used in the
treatment of equine osteoarthritis. ORTHOVISC is currently approved for
marketing in Canada and Europe; in the U.S. ORTHOVISC is currently limited to
investigational use only. The Company manufactures AMVISC(R) and AMVISC
Plus(R), which are HA products used as viscoelastic supplements in ophthalmic
surgery, for Chiron Vision, a subsidiary of Chiron Corporation. The Company is
currently developing INCERT(R), which is an HA based product designed for use
in the prevention of post-surgical adhesions. In addition, the Company is
collaborating with Orquest, Inc. to develop OSSIGEL(TM), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
Commencing on December 31, 1996, the Company changed its fiscal year end
from August 31 to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Anika became an independent company in May 1993 when MedChem Products, Inc.
("MedChem"), distributed 3,154,812 shares of outstanding Anika common stock to
MedChem stockholders as a dividend.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and investments with original
maturities of three months or less.
Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and redeemable convertible preferred stock
approximates fair value because of the short term maturity of these items.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
F-7
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
The Company recognizes revenue on product sales when the products are
shipped and the customer takes ownership. The Company records advance payments
for products as deferred revenue and records the revenue when the product is
shipped.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-
line method over the estimated useful lives of the respective assets, as
follows:
<TABLE>
<S> <C>
Machinery and equipment......................................... 5-10 years
Furniture and fixtures.......................................... 5 years
Leasehold Improvements.......................................... 4-10 years
</TABLE>
Amortization on leasehold improvements is calculated using the straight-line
method over the shorter of the lease term or estimated life of the asset.
Impairment of Long-Lived Assets and Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121), on September 1, 1996. This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
During the four-month transitional year ended December 31, 1996 and the
fiscal year ended August 31, 1996 the Company recorded losses on impairment
for certain leasehold improvements of approximately $376,000 and $200,000,
respectively. The losses resulted from relocating the corporate offices and
the Company's unsuccessful attempts to obtain sublease income sufficient
enough to recover the amortization of the improvements.
Research and Development
Research and Development costs are expensed as incurred.
Earnings Per Common Share and Common Share Equivalents
Earnings per common share and common share equivalents is computed based on
the weighted average number of common and dilutive common equivalent shares
outstanding. Fully diluted earnings per share, when not determined to be
antidilutive, is computed using the most dilutive assumptions and by adjusting
the primary earnings per share data for the potential effect of the conversion
of the Series A Redeemable Convertible Preferred Stock.
The previously reported calculation of loss per common share and common
share equivalents for the fiscal year ended August 31, 1996 did not include
the dividend on Series A Redeemable Convertible Preferred Stock in the
calculation of net loss. Accordingly, the previously reported loss per common
share and common share equivalents of $0.70 has been adjusted to reflect the
preferred stock dividend resulting in a loss per common share and common share
equivalents of $0.76 for the fiscal year ended August 31, 1996.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
F-8
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax bases. Deferred tax assets and liabilities are measured using enacted
rates in effect for the year in which those temporary differences are expected
to be recovered or settled.
Stock Based Compensation
Prior to August 31, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25. "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On September 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, SFAS 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net earnings (loss)
disclosures for employee stock option grants made in fiscal 1996 and future
years as if the fair-value-based method defined in SFAS 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure of SFAS 123 (see note 8).
Significant Customers
Chiron Vision and its contract with the Company to purchase AMVISC and
AMVISC Plus, accounted for 84%, 94% and 89% of total net sales for the nine-
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996 and the fiscal year ended August 31, 1996, respectively. In
addition, another customer and its contract with the Company to purchase
ORTHOVISC(R) accounted for 10% of total net sales for the nine-month period
ended September 30, 1997.
Concentration of Credit Risks
The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. The Company has established guidelines
relative to diversification and maturities that maintain safety and liquidity.
To date, the Company has not experienced any losses on its cash equivalents
and money market funds.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials................................... $ 588,407 $ 691,826
Work in process................................. 2,144,956 1,780,964
Finished goods.................................. -- 8,856
---------- ----------
Total......................................... $2,733,363 $2,481,646
========== ==========
</TABLE>
4. PROPERTY & EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Machinery and equipment........................ $2,190,415 $2,188,463
Leasehold improvements......................... 1,408,325 1,397,907
Furniture and fixtures......................... 280,875 278,960
---------- ----------
Total........................................ $3,879,615 $3,865,330
========== ==========
</TABLE>
F-9
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LOAN RECEIVABLE FROM OFFICER
Loan receivable consists of a loan to an officer of the Company made on March
17, 1997. The entire balance is due at the earlier of the end of five years or
at the termination of the officer's employment. Interest accrues at an annual
rate of 6% and is payable monthly over the term of the loan.
6. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Accrued compensation............................ $ 250,569 $ 308,496
Other accrued expenses.......................... 916,943 746,738
---------- ----------
Total......................................... $1,167,512 $1,055,234
========== ==========
</TABLE>
7. LEASE OBLIGATIONS
The Company leases two facilities with one lease expiring in February 2001and
the other in October 2001. One facility was vacated and is currently being
partially sublet. These subleases are accounted for as operating leases. Net
rental payments in connection with the leases, totaled $264,691 for the nine
month period ended September 30, 1997, $115,074 for the four-month transitional
year ended December 31, 1996 and $369,928 for the fiscal year ended August 31,
1996. Future minimum lease payments under the operating leases and sublease
income for the years ending September 30 are as follows:
<TABLE>
<CAPTION>
LEASE SUBLEASE NET
PAYMENTS INCOME PAYMENTS
---------- -------- ----------
<S> <C> <C> <C>
1998........................................ $ 417,175 $ 52,412 $ 364,763
1999........................................ 433,556 53,311 380,245
2000........................................ 450,756 54,883 395,873
2001........................................ 244,918 55,548 189,370
2002........................................ 7,464 4,629 2,835
---------- -------- ----------
Total..................................... $1,553,869 $220,783 $1,333,086
========== ======== ==========
</TABLE>
F-10
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTION PLAN
In 1993, the Company adopted the Anika Therapeutics, Inc. Stock Option Plan
(the "Plan") and reserved 1,000,000 shares of Anika common stock for the grant
of stock options for employees, officers, directors, consultants and advisors
of the Company. In addition, the Company also established the Directors Stock
Option Plan (the "Directors Plan") and reserved 40,000 shares for the Board of
Directors. On March 21, 1995 the Company's Board of Directors approved an
increase in the number of shares reserved for grant under the Plan by
1,000,000 to 2,000,000 shares and the Company's stockholders approved such an
increase at the Annual Meeting of Stockholders held on January 10, 1996.
Combined option activity for both plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVG EXERCISE
PRICE PER
SHARES SHARE
--------- ------------
<S> <C> <C>
Balance at September 1, 1995....................... 1,346,072 $2.55
Granted.......................................... 302,750 1.69
Canceled......................................... (146,391) 2.83
Exercised........................................ (74,804) 2.13
--------- -----
Balance at August 31, 1996......................... 1,427,627 2.36
Granted.......................................... 435,500 4.91
Canceled......................................... -- --
Exercised........................................ (83,732) 2.35
--------- -----
Balance at December 31, 1996....................... 1,779,395 2.99
Granted.......................................... 33,000 5.48
Canceled......................................... (14,333) 2.42
Exercised........................................ (161,567) 2.82
--------- -----
Balance at September 30, 1997...................... 1,636,495 $3.06
========= =====
</TABLE>
Generally, options vest in varying installments up to four years after the
date of grant and have an expiration date no later than ten years after the
date of grant. The price range of options exercisable as of September 30,
1997, December 31, 1996 and August 31, 1996 was from $2.25 to $4.75, $1.067 to
$2.625 and $1.383 to $4.781, respectively. Options for 1,636,495 shares were
exercisable at September 30, 1997.
During 1996, options for 302,750 shares of its $.01 par value common stock
were granted by the Company. The Company recorded deferred compensation of
$632,813 on options for 168,750 shares to account for the difference between
the market value of the stock at the time of grant and exercise price of the
options.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the plan. Accordingly, no compensation cost has been recognized
in the accompanying financial statements for its fixed stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for grants under this plan consistent with
the methodology of SFAS 123, the Company's net income (loss) for the nine
month period ended September 30, 1997, the four-month transitional year ended
December 31, 1996, and the fiscal year ended August 31, 1996 would have
changed to the pro forma amounts as follows:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) reported........ $285,916 $(2,657,599) $(2,848,879)
Pro forma net loss................ $(43,876) $(2,765,290) $(3,162,717)
======== =========== ===========
</TABLE>
F-11
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted-average fair value of stock options granted during
the nine month period ended September 30, 1997, the four-month transitional
year ended December 31, 1996, and the fiscal year ended August 31, 1996 was
$5.48, $4.91, and $1.69, respectively, estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants: no dividend yield for all three years; expected
volatility of 56.15%, 57.8% and 57.9%, respectively; risk-free interest rates
of 6.0% for all periods; and expected lives of six years.
Pro forma net loss reflects only options granted in the nine month period
ended September 30, 1997, the four month transitional year ended December 31,
1996, and the fiscal year ending August 31, 1996. Therefore, the full impact
of compensation cost for stock options under SFAS 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost is
reflected over the options' vesting period of up to four years, and
compensation cost for options granted prior to September 1, 1995 is not
considered.
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On May 17, 1995, the Company issued 120,970 shares of Series A Preferred
Stock ("Series A stock") at a selling price of $20.00 per share for a total
consideration of $2,235,642, net of offering costs.
Each share of the Series A stock is convertible into 10 shares of common
stock at any time at the option of the holder. The Series A stock may be
converted into common stock, at the Company's option, upon closing of a public
offering if the proceeds to the Company are at least $20,000,000 and the sale
price per common share is at least $6.00. The stock contains provisions to
adjust the conversion ratio in the event of certain dilutive and other
transactions.
In addition, each share of the Series A stock is entitled to receive an
annual dividend on May 1 of each year, at a rate of $1.80 per share, payable
in additional shares of Series A stock, with the number of dividend shares
determined by the price of Anika's underlying common stock. The Company may
elect to pay the dividend in cash if certain financial covenants are met.
During each consecutive ninety day period in which the average quarterly price
of Anika's common stock remains above $6.00 per share, no dividend will
accrue. As of June 5, 1997, the Company ceased accruing dividends. For the
period May 1, 1996 to April 30, 1997 the Company issued 3,952 additional
shares of Series A stock to preferred Shareholders as a dividend payment. For
the period May 17, 1995 through April 30, 1996, Anika issued 5,289 additional
shares of Series A stock to the preferred shareholders as a dividend payment.
The total recorded values of the dividend payment were $227,266 and $208,227,
respectively. For the nine months ended September 30, 1997, the four month
transitional year ended December 31, 1996 and the fiscal year ended August 31,
1996, accrued dividends payable were $24,628, $158,737 and $79,693,
respectively.
The outstanding balance of Series A stock will be redeemed at $20.00 per
share plus accrued dividends at the option of the holder in three equal
installments beginning on May 17, 2000. The Company has the option to redeem
the Series A stock on or after May 17, 2000 if the common stock price is in
excess of $10.00 and a certain trading volume requirement is met.
The holders of the Series A stock are entitled to liquidation preference
over the common shareholders at $20.00 per share plus accrued dividends. Each
share of the Series A stock has voting rights equal to the number of common
shares into which each share of preferred is convertible at the time as such
vote. In addition, the holders of the Series A stock are entitled to certain
representation on the Company's Board of Directors based upon the number of
shares outstanding.
10. COMMON STOCK
In March, 1996 the Company completed a financing involving the private
placement of 1,455,000 shares of newly issued common stock to institutional
and private accredited investors. Total gross proceeds were
F-12
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$3,986,700 and net proceeds to the Company after fees and expenses were
$3,541,585. In addition, the Company granted certain registration rights and
filed a registration statement with the Securities and Exchange Commission
that was declared effective by the Securities and Exchange Commission on May
23, 1996. The proceeds from the private placement were used to repay a
$1,000,000 debt obligation and for general working capital purposes.
11. WARRANTS
In connection with the sale of Series A Redeemable Convertible Preferred
Stock ("Series A stock"), the Company issued warrants to the holders of Series
A stock to purchase 60,485 shares of Series A stock, exercisable at $20.00 per
share. The warrants expire on May 17, 2000. If the price of the Company's
common stock is in excess of $6.00 per share for a consecutive ninety day
period, the Company can require the exercise of the warrants. At October 22,
1997, the notice for the mandatory exercise of the warrants by the Company was
sent in accordance with this provision.
In connection with the private placement of newly issued common stock in
March, 1996, the Company issued warrants to Leerink, Swann, Garrity, Sollami,
Yaffe and Wynn, Inc., ("Leerink Swann & Company"), for 146,664 shares of
common stock exercisable at $3.00 per share and warrants for 57,036 shares of
common stock exercisable at $4.00 per share. L. Eric Swann, a partner of
Leerink, Swann & Company, is the son of David A. Swann, Chairman of the Board
of Directors of the Company.
12. EMPLOYEE BENEFIT PLAN
Full-time employees are eligible to participate in the Company 401(k)
savings plan. Employees may elect to contribute a percentage of their
compensation to the plan, and the Company will make matching contributions up
to a limit of 5% of an employee s compensation. In addition, the Company can
make annual discretionary contributions. For the nine month period ended
September 30, 1997, the four-month transitional year ended December 31, 1996,
and the fiscal year ended August 31, 1996, the Company's matching
contributions and any discretionary contributions to the plan were in the form
of Anika common stock. The Company's total 401(k) savings plan expense for
each respective period listed above was $107,248, $27,444 and $79,370,
respectively.
13. INCOME TAXES
Deferred tax assets, net of any valuation allowance, and liabilities arising
from temporary differences, income tax credit carryforwards and loss
carryforwards are measured by using tax rates expected to be in effect when
they reverse or are realized. The components of the net deferred tax asset are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL YEAR
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER AUGUST 31,
1997 31, 1996 1996
------------- ----------- -----------
<S> <C> <C> <C>
Gross deferred tax assets:
Depreciation......................... $ 737,061 $ 636,386 $ 461,151
Accrued expenses & other............. 234,234 186,201 149,368
Inventory loss reserve............... 89,301 35,430 158,969
Non-qualified stock option
amortization........................ 188,767 103,822 66,069
Uniform capitalization............... 82,996 62,861 50,754
Net operating loss carryforward...... 2,883,667 3,295,569 2,267,960
Credit carryforward.................. 203,347 154,347 18,388
----------- ----------- -----------
Gross deferred tax assets.............. 4,419,373 4,474,616 3,172,659
Less: valuation allowance............ (4,419,373) (4,474,616) (3,172,659)
----------- ----------- -----------
Net deferred tax asset................. $ -- $ -- $ --
=========== =========== ===========
</TABLE>
F-13
<PAGE>
ANIKA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense was $16,259 for the nine month period ended September 30,
1997 and zero for the four month transitional year ended December 31, 1996 and
the fiscal year ended August 31, 1996, respectively, and differs from the
amounts computed by applying the U.S. Federal income tax rate of thirty-four
percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS FOUR MONTHS FISCAL
ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, AUGUST 31,
1997 1996 1996
------------- ------------ ----------
<S> <C> <C> <C>
Computed expected tax (benefit)
expense............................... $102,739 $ (903,584) $ (968,619)
State tax (benefit) expense (net of
federal benefit)...................... 18,946 (166,631) (178,323)
Nondeductible expenses................. 2,428 517 1,638
Increase in credit carryforward........ (49,000) (219,361) (9,200)
Other.................................. (61,617) 5,335 149
Change in valuation allowance related
to income tax benefit................. 2,763 1,283,724 1,154,355
-------- ---------- ----------
Tax expense............................ $ 16,259 $ -- $ --
======== ========== ==========
</TABLE>
The valuation allowance for deferred tax assets was $4,419,373 at September
30, 1997, a decrease of $55,243 over the balance of $4,474,616 at December 31,
1996. The valuation allowance for deferred tax assets was $4,474,616 at
December 31, 1996 an increase of $1,301,957 over the balance of $3,172,659 at
August 31, 1996. Subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets will be allocated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Income tax benefit........................................ $4,399,238
Additional paid in capital................................ 20,135
----------
$4,419,373
==========
</TABLE>
The Company has total Federal and state net operating losses of $7,098,910
and $6,886,255 for the nine months ended September 30, 1997, respectively.
The Federal net operating losses will begin to expire beginning 2008. The
state net operating losses will begin to expire in 1997. However, if changes
in the Company's stock ownership exceed 50% of the value of the Company Stock
during any three-year period, the utilization of the federal net operating
loss and credit-carryforwards may be subject to limitations.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 18
Use of Proceeds.......................................................... 18
Price Range of Common Stock and Dividend Policy.......................... 19
Capitalization........................................................... 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 29
Management............................................................... 43
Certain Transactions..................................................... 51
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF ANIKA APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
FURMAN SELZ
VOLPE BROWN WHELAN & COMPANY
LEERINK SWANN & COMPANY
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Massachusetts corporation. Reference is made to Chapter
156B, Section 13 of the Massachusetts Business Corporation Law (the "MBCL"),
which enables a corporation in its original articles of organization or an
amendment thereto to eliminate or limit the personal liability of a director
for monetary damages for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to
Sections 61 and 62 of the MBCL (providing for liability of directors for
authorizing illegal distributions and for making loans to directors, officers
and certain shareholders) or (iv) for any transaction from which a director
derived an improper personal benefit.
Reference also is made to Chapter 156B, Section 67 of the MBCL, which
provides that a corporation may indemnify directors, officers, employees and
other agents and persons who serve at its request as directors, officers,
employees or other agents of another organization or who serve at its request
in any capacity with respect to any employee benefit plan, to the extent
specified or authorized by the articles of organization, a by-law adopted by
the stockholders or a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. Such indemnification
may include payment by the corporation of expenses incurred in defending a
civil or criminal action or proceeding in advance of the final disposition of
such action or proceeding, upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under Section 67 which undertaking may be accepted
without reference to the financial ability of such person to make repayment.
Any such indemnification may be provided although the person to be indemnified
is no longer an officer, director, employee or agent of the corporation or of
such other organization or no longer serves with respect to any such employee
benefit plan. No indemnification shall be provided, however, for any person
with respect to any matter as to which he shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation or to the extent that such
matter relates to service with respect to any employee benefit plan, in the
best interests of the participants or beneficiaries of such employee benefit
plan.
The Articles of Organization of the Company (see Exhibit 3.1) provide for
indemnification of the officers and directors of the Company to the full
extent permitted by applicable law.
The Company and its directors and officers currently carry liability
insurance.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee............................................ $ 8,233
NASD Filing Fee................................................. 3,217
Nasdaq National Market Listing Fee.............................. 40,955
Accounting Fees and Expenses.................................... 50,000
Legal Fees and Expenses......................................... 275,000
Printing Expenses............................................... 100,000
Blue Sky Qualification Fees and Expenses (including attorney's
fees).......................................................... 5,000
Miscellaneous................................................... 17,595
--------
Total......................................................... $500,000
========
</TABLE>
- ----------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq National
Market fees, are in each case estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from the registration requirements of the Securities
Act, by reason of Section 4(2) thereof, based on the private nature of the
transactions and the financial sophistication of the purchasers, all of whom
had access to complete information concerning the Company and acquired the
securities for investment and not with a view to the distribution thereof.
(1) In February 1996, the Company sold 1,455,000 shares of Common Stock
in a private placement, at a price per share of $2.75 per share, and in
connection therewith also issued warrants to Leerink, Swann, Garrity,
Sollami, Yaffe and Wynn, Inc., the placement agent, for 146,664 shares of
Common Stock at $3.00 per share and 57,036 shares of Common Stock at $4.00
per share, in reliance upon the exemption from registration under Section
4(2) of the Securities Act and Regulation D promulgated thereunder.
(2) In May, 1995, the Company sold 120,970 shares of Preferred Stock in a
private placement for a purchase price of $20 per share, and in connection
therewith also issued warrants to the holders of Preferred Stock to
purchase 60,485 additional shares of Preferred Stock at an exercise price
of $20 per share, in reliance upon the exemption from registration under
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
ITEM 27. EXHIBITS
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement.
<TABLE>
<C> <S>
**1.1 Form of Underwriting Agreement.
+3.1 Amended and Restated Articles of Organization of Anika
Therapeutics, Inc. ("Anika") as amended.
+++3.2 Certificate of Vote of Directors Establishing A Series of
Convertible Preferred Stock.
+++++++3.3 Amendment to Amended and Restated Articles of Organization of
Anika, as amended.
+++++++3.4 By-Laws of Anika, as amended.
4.1 Form of Stock Certificate.
5.1 Legal Opinion of Goodwin, Procter & Hoar LLP.
+*10.1 Settlement Agreement dated January 11, 1991 among MedChem
Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia Inc.,
Dr. Endre Balazs and IOLAB corporation.
+*10.2 Third Amendment to Distribution Agreement dated as of January
11, 1991 between Anika and IOLAB Corporation, as amended.
++10.3 Fourth Amendment to Distribution Agreement dated as of August 1,
1994 between Anika and IOLAB Corporation, as amended.
++*10.4 Supply Agreement dated as of August 1, 1994 between Anika and
IOLAB Corporation.
+*10.5 Sponsored Research Agreement dated as of June 18, 1992 between
Tufts University and Anika, as amended.
+10.6 Form of TMJ Agreement dated as of April 29, 1993 between Anika
and MedChem.
+10.7 Form of Sublease Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.8 Form of Tax Matters Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.9 Form of Plan and Agreement of Distribution dated as of April 29,
1993 between MedChem and Anika.
10.10 1993 Stock Option Plan, as amended.
++++++++10.11 1993 Directors Stock Option Plan.
+*10.12 License Agreement dated as of July 22, 1992 between Tufts
University and Anika, as amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
+++10.13 Series A Preferred Stock Purchase Agreement by and among the
Purchasers Listed on Schedule 1 thereto and Anika, dated as of May
17, 1995.
+++10.14 Shareholders' Agreement by and among Anika and the Stockholders
listed on Schedule 1 thereto, dated as of May 17, 1995.
+++10.15 Form of Stock Subscriptions Warrant to Purchase Series A Preferred
Stock of Anika.
++++10.16 Lease dated March 10, 1995 between Cummings Properties and Anika.
+++++10.17 Amended and Restated Employment Agreement with David A. Swann,
dated as of February 1, 1996.
+++++10.18 Non-Disclosure and Non-Competition Agreement with David A. Swann,
dated as of February 1, 1996.
+++++10.19 Non-Statutory Stock Option Agreement with David A. Swann, dated as
of February 1, 1996.
++++++10.20 Resignation and Consulting Agreement dated February 16, 1996
between Anika and Mr. Sullivan.
+++++10.21 Portion of Form of Stock Purchase Agreement dated as of March 1,
1996 containing undertaking by the Company to register shares of
Common Stock.
+++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to
146,664 shares of Common Stock.
(ii) Warrant Agreement dated as of April 1, 1996 relating to
57,036 shares of Common Stock.
**10.23 Letter Agreement dated as of August 27, 1997 between the Company
and Leerink Swann & Company relating to Registration Rights.
++++++10.24 Employment Agreement dated September 24, 1996 between Anika and
Mr. Engle.
**10.25 Promissory note for $75,000 dated as of March 17, 1997 from J.
Melville Engle to the Company.
***10.26 Exclusive Distribution Agreement dated as of November 7, 1997
between Anika and Zimmer, Inc.
**11.1 Statement of Computation of Per Share Earnings.
23.1 Consent of Independent Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1)
**23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
**27.1 Financial Data Schedule.
</TABLE>
- ----------
*Confidential treatment granted as to certain portions of this Exhibit.
**Previously filed.
***Previously filed and confidential treatment granted as to certain
portions of this Exhibit.
+ Incorporated by reference to Exhibits to the Registration Statement
of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993.
++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1994 as filed on November 23, 1994.
+++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the
quarterly period ended May 31, 1995 as filed by Anika on July 29,
1995.
++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1995 as filed on November 28, 1995
+++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the
quarterly period ended February 29, 1996 as filed on April 15, 1996.
++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the
year ended August 31, 1996 as filed on November 27, 1996.
+++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the
quarterly period ended November 30, 1996 as filed on January 14,
1997.
++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No.
0-21326) as filed on April 28, 1993.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), Anika Therapeutics, Inc. certifies that it has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Boston, Massachusetts, on the 24th day of
November, 1997.
Anika Therapeutics, Inc.
/s/ J. Melville Engle
By: _________________________________
J. MELVILLE ENGLE
PRESIDENT (PRINCIPAL EXECUTIVE
OFFICER) AND DIRECTOR
Pursuant to the requirements of the Securities Act, Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITY DATE
Chairman of the Board
_________________________________ November
DAVID A. SWANN 1997
* Director
_________________________________ November 24,
JOSEPH L. BOWER 1997
* Director
_________________________________ November 24,
EUGENE A. DAVIDSON 1997
Director November
_________________________________ 1997
JONATHAN D. DONALDSON
* Director
_________________________________ November 24,
SAMUEL MCKAY 1997
* Director
_________________________________ November 24,
HARVEY SADOW 1997
* Director
_________________________________ November 24,
STEVEN E. WHEELER 1997
/s/ J. Melville Engle President (Principal
_________________________________ Executive Officer) and November 24,
J. MELVILLE ENGLE Director 1997
/s/ Sean F. Moran Vice President of Finance
_________________________________ and Treasurer (Principal November 24,
SEAN F. MORAN Financial and Accounting 1997
Officer)
/s/ Sean F. Moran
*By: ____________________________
SEAN F. MORAN, ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
**1.1 Form of Underwriting Agreement.
+3.1 Amended and Restated Articles of Organization of Anika
Therapeutics, Inc. ("Anika") as amended.
+++3.2 Certificate of Vote of Directors Establishing A Series of
Convertible Preferred Stock.
+++++++3.3 Amendment to Amended and Restated Articles of
Organization of Anika, as amended.
+++++++3.4 By-Laws of Anika, as amended.
4.1 Form of Stock Certificate.
5.1 Legal Opinion of Goodwin, Procter & Hoar LLP.
+*10.1 Settlement Agreement dated January 11, 1991 among MedChem
Products, Inc., ("MedChem"), Kabi Pharmacia AB, Pharmacia
Inc., Dr. Endre Balazs and IOLAB corporation.
+*10.2 Third Amendment to Distribution Agreement dated as of
January 11, 1991 between Anika and IOLAB Corporation, as
amended.
++10.3 Fourth Amendment to Distribution Agreement dated as of
August 1, 1994 between Anika and IOLAB Corporation, as
amended.
++*10.4 Supply Agreement dated as of August 1, 1994 between Anika
and IOLAB Corporation.
+*10.5 Sponsored Research Agreement dated as of June 18, 1992
between Tufts University and Anika, as amended.
+10.6 Form of TMJ Agreement dated as of April 29, 1993 between
Anika and MedChem.
+10.7 Form of Sublease Agreement dated as of April 29, 1993
between Anika and MedChem.
+10.8 Form of Tax Matters Agreement dated as of April 29, 1993
between Anika and MedChem.
+10.9 Form of Plan and Agreement of Distribution dated as of
April 29, 1993 between MedChem and Anika.
10.10 1993 Stock Option Plan, as amended.
++++++++10.11 1993 Directors Stock Option Plan.
+*10.12 License Agreement dated as of July 22, 1992 between Tufts
University and Anika, as amended.
+++10.13 Series A Preferred Stock Purchase Agreement by and among
the Purchasers Listed on Schedule 1 thereto and Anika,
dated as of May 17, 1995.
+++10.14 Shareholders' Agreement by and among Anika and the
Stockholders listed on Schedule 1 thereto, dated as of
May 17, 1995.
+++10.15 Form of Stock Subscriptions Warrant to Purchase Series A
Preferred Stock of Anika.
++++10.16 Lease dated March 10, 1995 between Cummings Properties
and Anika.
+++++10.17 Amended and Restated Employment Agreement with David A.
Swann, dated as of February 1, 1996.
+++++10.18 Non-Disclosure and Non-Competition Agreement with David
A. Swann, dated as of February 1, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+++++10.19 Non-Statutory Stock Option Agreement with David A. Swann,
dated as of February 1, 1996.
++++++10.20 Resignation and Consulting Agreement dated February 16,
1996 between Anika and Mr. Sullivan.
+++++10.21 Portion of Form of Stock Purchase Agreement dated as of
March 1, 1996 containing undertaking by the Company to
register shares of Common Stock.
+++++10.22 (i) Warrant Agreement dated as of April 1, 1996 relating to
146,664 shares of Common Stock.
(ii) Warrant Agreement dated as of April 1, 1996 relating
to 57,036 shares of Common Stock.
**10.23 Letter Agreement dated as of August 27, 1997 between the
Company and Leerink Swann & Company relating to
Registration Rights.
++++++10.24 Employment Agreement dated September 24, 1996 between Anika
and Mr. Engle.
**10.25 Promissory note for $75,000 dated as of March 17, 1997 from
J. Melville Engle to the Company.
***10.26 Exclusive Distribution Agreement dated as of November 7,
1997 between Anika and Zimmer, Inc.
**11.1 Statement of Computation of Per Share Earnings.
23.1 Consent of Independent Accountants.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit
5.1)
**23.3 Consent of Hamilton, Brook, Smith & Reynolds, P.C.
**27.1 Financial Data Schedule.
</TABLE>
- ----------
*Confidential treatment granted as to certain portions of this Exhibit.
**Previously filed.
***Previously filed and confidential treatment granted as to certain
portions of this Exhibit.
+ Incorporated by reference to Exhibits to the Registration Statement
of Form 10 (File No. 0-21326) filed by Anika on March 5, 1993.
++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1994 as filed on November 23, 1994.
+++ Incorporated by reference to Exhibits to Anika's Form 10-Q/A for the
quarterly period ended May 31, 1995 as filed by Anika on July 29,
1995.
++++ Incorporated by reference to Exhibits to Anika's Form 10-K for the
fiscal year ended August 31, 1995 as filed on November 28, 1995
+++++ Incorporated by reference to Exhibits to Anika's Form 10-Q for the
quarterly period ended February 29, 1996 as filed on April 15, 1996.
++++++ Incorporated by reference to Exhibits to Anika's Form 10-KSB for the
year ended August 31, 1996 as filed on November 27, 1996.
+++++++ Incorporated by reference to Exhibits to Anika's Form 10-QSB for the
quarterly period ended November 30, 1996 as filed on January 14,
1997.
++++++++ Incorporated by reference to Exhibits to Anika's Form 10/A (File No.
0-21326) as filed on April 28, 1993.
<PAGE>
SEE LEGEND ON REVERSE SIDE EXHIBIT 4.1
COMMON STOCK
NUMBER SHARES
AC
------- -------
ANIKA RESEARCH, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
SEE REVERSE FOR
CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 035255 10 8
Is the owner of
- --------------------------------------------------------------------------------
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
ANIKA RESEARCH, INC.
NAME CHANGED TO ANIKA THERAPEUTICS, INC.
CERTIFICATE OF STOCK
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate and the shares of Common Stock represented hereby are
received and are subject to the laws of the Commonwealth of Massachussets and to
the Articles of Organization and the Bylaws of the Corporation all as from time
to time amended, and the owner of this certificate by accepting the same
expressly assents thereto. This certificate is not valid unless countersigned by
the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and a
facsimle of its corporate seal to be hereunto affixed.
Dated ANIKA RESEARCH, INC.
/s/ Sean Moran [SEAL APPEARS HERE] /s/ David A. Swann
TREASURER ANIKA RESEARCH, INC. CHAIRMAN OF THE BOARD
SEAL 1992
COMMONWEALTH OF
MASSACHUSETTS
COUNTERSIGNED AND REGISTERED:
CONTINENTIAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
ANIKA RESEARCH, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ________ _________
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
COM PROP -- as community property _______________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer
_______________________
unto
____________________________________________________________________________
_____________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _____________________________________________________________________
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated 19
_________________ __
--------------------------------------
Signature of record holder
NOTICE: THE SIGNATURE OF THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
SIGNATURE(S) GUARANTEED:
______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNION WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
November 20, 1997
Anika Therapeutics, Inc.
236 West Cummings Park
Woburn, MA 01801
Ladies and Gentlemen:
Re: Registration Statement on Form SB-2
This opinion is delivered in our capacity as counsel to Anika Therapeutics,
Inc. (the "Company") in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, of a Registration Statement on Form SB-2 (the "Registration
Statement") relating to 3,450,000 shares of Common Stock, par value $.01 per
share (the "Registered Shares"), including 450,000 shares which the
underwriters have an option to purchase solely for the purpose of covering
over-allotments ("Over-allotment Shares"). Of the 3,450,000 Registered Shares,
2,725,000 (including 225,000 Over-allotment Shares) are to be sold by the
Company (the "Company Shares") and 725,000 are to be sold by certain Selling
Stockholders (the "Selling Stockholder Shares") to the several underwriters
(the "Underwriters") of which Furman Selz LLC, Volpe Brown Whelan & Company
LLC and Leerink Swan & Company are the representatives (the "Representatives")
pursuant to an Underwriting Agreement (the "Underwriting Agreement") to be
entered into between the Company and the Representatives of the Underwriters.
As counsel for the Company, we have examined the form of the proposed
Underwriting Agreement being filed as an exhibit to the Registration
Statement, the Company's Restated Articles of Organization, as amended, and
the Company's By-laws, each as presently in effect, and such records,
certificates and other documents of the Company as we have deemed necessary or
appropriate for the purposes of this opinion.
Based on the foregoing, we are of the opinion that (A) when (i) the
Underwriting Agreement is completed (including the insertion therein of
pricing terms) and executed by the Company and on behalf of the Underwriters,
and (ii) the Registered Shares are sold to the Underwriters and paid for
pursuant to the terms of the Underwriting Agreement, the Company Shares will
be duly authorized, legally issued, fully paid and non-assessable by the
Company under the Business Corporation Law of The Commonwealth of
Massachusetts (the "MBCL"), and (B) the Selling Stockholder Shares are duly
authorized, legally issued, fully paid and non-assessable by the Company under
the MBCL.
We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the
caption "Legal Matters," and to the inclusion of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
Goodwin, Procter & Hoar llp
<PAGE>
EXHIBIT 10.10
ANIKA THERAPEUTICS, INC.
1993 STOCK OPTION PLAN, AS AMENDED
March 3, 1993
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Anika Therapeutics,
Inc. (the "Company") and its shareholders the benefits arising from capital
stock ownership by employees, officers and directors of, and consultants or
advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success and to provide
options to holders of options to purchase the capital stock of MedChem Products,
Inc. ("MedChem") in connection with the distribution of shares of the Company's
Common Stock ("Common Stock") by MedChem. Except where the context otherwise
requires, the term "Company" shall include the parent and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code"). Those provisions of the Plan which make express reference to Section
422 shall apply only to Incentive Stock Options (as that term is defined in the
Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Outright Grant of Shares. The Board of Directors is also authorized to
make outright grants of shares of Common Stock of the Company in all
circumstances in which the Board of Directors deems such grants appropriate,
subject to such terms, conditions or vesting limitations as from time to time
determined by the Board of Directors.
(c) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock and issue shares upon exercise of such options as provided in the Plan.
The Board shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board of Directors shall be liable for any action
or determination under the Plan made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")), delegate any or all of its powers under the
Plan to a committee (the "Committee") which consists solely of two or more
Non-Employee Directors (as defined in Rule 16b-3) appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee.
(d) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class of employees to whom Incentive Stock Options
may
<PAGE>
be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine.
(b) MedChem Products, Inc. Notwithstanding the foregoing paragraph, non-
statutory options may also be granted under the Plan to persons who hold options
to purchase shares of Common Stock of MedChem as of the date on which MedChem
distributes the shares of Common Stock of the Company it holds to its
stockholders pursuant to the terms of the Plan and Agreement of Distribution to
be entered into between MedChem and the Company (the "MedChem Optionees").
(c) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors
or (ii) by two or more directors having full authority to act in the matter,
each of whom shall be a Non-Employee Director. For the purposes of the Plan, a
director shall be deemed to be a Non-Employee Director only if such person
qualifies as a Non-Employee Director within the meaning of Rule 16b-3, as such
term is interpreted from time to time.
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan is 3,000,000 shares. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall (i)
the total number of shares issued pursuant to the exercise of Incentive Stock
Options under the Plan, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence or (ii) the total number of shares issued
pursuant to the exercise of options by Reporting Persons, on a cumulative basis,
exceed the maximum number of shares authorized for issuance under the Plan
exclusive of shares made available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, provided,
however, that in the case of an Incentive Stock Option, the exercise price shall
not be less than 100% of the fair market value of such stock, as determined by
the Board of Directors, at the time of grant of such option, or less than 110%
of such fair market value in the case of options described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means (including, without limitations
by delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with applicable laws and regulations
(including, without limitation, the provisions of Rule 16b-3 and Regulation T
promulgated by the Federal Reserve Board) or (iii) by any combination of such
methods of payment. The fair market value
2
<PAGE>
of any shares of the Company's Common Stock or other non-cash consideration
which may be delivered upon exercise of an option shall be determined by the
Board of Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as shall be
set forth in the applicable option agreement, except that, in the case of an
Incentive Stock Option, such date shall not be later than ten years after the
date on which the option is granted and, in all cases, options shall be subject
to earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee; provided, however, that non-statutory options may be
transferred pursuant to a qualified domestic relations order (as defined in Rule
16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or, in the case of a MedChem Optionee, with MedChem or, (ii)
the death or disability of the optionee. Such periods shall be set forth in the
agreement evidencing such option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the
Plan shall; at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value of
one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate fair market value (determined as of
the respective date or dates of grant) of more than $100,000.
3
<PAGE>
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the Company
(or within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a non-statutory option under the
Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is transferred
by will or the laws of descent and distribution within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ of
the Company, the Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an employee because of
such disability (or within such lesser period as may be specified in the
applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless
4
<PAGE>
such listing, registration, qualification, consent or approval, or satisfaction
of such condition shall have been effected or obtained on conditions acceptable
to the Board of Directors. Nothing herein shall be deemed to require the Company
to apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation any rights to
receive dividends or non-cash distributions with respect to such shares) until
the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment would cause the Plan to
fail to comply with Section 422 of the Code or with Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may in its discretion, take
any one or more of the following actions, as to outstanding options: (i) provide
that such options shall be assumed, or equivalent options shall be substituted,
by the acquiring or succeeding corporation (or an affiliate thereof), provided
that any such options substituted for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, (ii) upon written notice to the
optionees, provide that all unexercised options will terminate immediately prior
to the consummation of such transaction unless exercised by the optionee within
a specified period following the date of such notice, (iii) in the event of a
merger under the terms of which holders of the Common Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
5
<PAGE>
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or, in the case of a MedChem Optionee, by MedChem or interfere in
any way with the right of the Company or, in the case of a MedChem Optionee,
MedChem at any time to terminate such employment or to increase or decrease the
compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option
6
<PAGE>
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled options or (ii) the amendment of the terms of any and
all outstanding options under the Plan to provide an option exercise price per
share which is higher or lower than the then current exercise price per share of
such outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options granted under the
Plan. Unless sooner terminated in accordance with Section 16, the Plan shall
terminate with respect to options which are not Incentive Stock Options on the
date specified in (ii) above. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Change in Control.
Notwithstanding any other provision of the Plan and except as otherwise
provided in the relevant option agreement, in the event of a "Change in Control
of the Company" (as defined below) the exercise dates of all options then
outstanding shall be accelerated in full and any restrictions on exercising
outstanding options issued pursuant to the Plan prior to any given date shall
terminate. For purposes of the Plan, a "Change in Control of the Company" shall
occur or be deemed to have occurred only if any of the following events occur:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the
Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; (ii) individuals who, as of the
date hereof, constitute the Board (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms
are used in Rule
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14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; (iii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets. Notwithstanding the foregoing, the Board of Directors
of the Company may, in its sole discretion, by a resolution adopted by a
majority of the Incumbent Board prior to the occurrence of any of the events
otherwise constituting a Change in Control of the Company, declare that such
event will not constitute a Change in Control of the Company for the purposes of
the Plan. If such resolution is adopted, such event shall not constitute a
Change in Control of the Company for any purpose of the Plan.
Adopted by the Board of Directors on March 3, 1993.
Amended by the Board of Directors on April 26, 1993.
Approved by the Stockholders on April 26, 1993.
Amended by the Board of Directors on March 21, 1995.
Approved by the Stockholders on January 10, 1996.
Amended by the Board of Directors on October 1, 1996.
Amended by the Board of Directors on October 28, 1997.
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EXHIBIT 23.1
The Board of Directors
Anika Therapeutics, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick llp
Boston, Massachusetts
November 21, 1997
