<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15 (d) of the
- ------ Securities Exchange Act of 1934
For quarterly period ended March 31, 1998
----------------------------------
- ------- Transition report under Section 13 or 15 (d) of the
Exchange Act
For the transition period from to
------------- ---------------
Commission file number 000-21326
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Anika Therapeutics, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Massachusetts 04-3145961
- ------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
236 West Cummings Park, Woburn, Massachusetts 01801
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(Address of Principal Executive Offices)
(781) 932-6616
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, If Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ -----
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
On May 8, 1998, 9,951,957 shares of common stock, par value $0.01
per share, were outstanding.
Transitional Small Business Disclosure Format(check one): Yes No x
---- ----
<PAGE>
This Form 10-QSB 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. 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 are
discussed throughout this Form 10-QSB and are discussed in the section
entitled "Certain Factors Affecting Future Operating Results" of this
Form 10-QSB.
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ANIKA THERAPEUTICS, INC.
<TABLE>
<CAPTION>
Balance Sheets as of, (Unaudited) March 31, 1998 December 31, 1997
- ---------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $22,363,689 $22,679,820
Accounts receivable 2,723,562 1,918,293
Inventories 2,792,707 2,541,552
Prepaid expenses 452,418 610,364
------------------------------------------------------------------------
Total current assets 28,332,376 27,750,029
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Property and equipment 4,650,948 4,138,365
Less accumulated depreciation 3,402,053 3,325,321
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Net property and equipment 1,248,895 813,044
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Loan receivable due from officer 75,000 75,000
Long term deposits 195,575 111,265
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Total Assets $29,851,846 $28,749,338
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $747,271 $967,986
Accrued expenses 1,194,662 1,253,154
Deferred revenue 200,000 200,000
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Total current liabilities 2,141,933 2,421,140
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Advance rent payment 90,680 103,912
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
9,916,458 shares and 9,691,091
shares, respectively 99,165 96,911
Additional paid-in capital 32,912,191 32,156,504
Accumulated deficit (5,392,123) (6,029,129)
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Total stockholders' equity 27,619,233 26,224,286
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Total Liabilities and
Stockholders' Equity $29,851,846 $28,749,338
===========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,754,419 $1,927,350
Cost of sales 1,343,472 1,019,413
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Gross profit 1,410,947 907,937
Operating expenses:
Research and development 502,979 323,115
Selling, general and administrative 535,986 394,421
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Total operating expenses 1,038,965 717,536
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Income from operations 371,982 190,401
Interest income, net 292,100 30,384
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Income before income taxes 664,082 220,785
Income taxes 27,076 4,416
- -------------------------------------------------------------------------
Net income $637,006 $216,369
=========================================================================
Basic earnings per share $0.06 $0.03
===== =====
Shares used for computing basic earnings per share 9,841,481 4,991,744
Diluted earnings per share $0.06 $0.02
===== =====
Shares used for computing diluted earnings
per share 10,863,410 7,369,156
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three months ended,
March 31,
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $637,006 $216,369
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization 76,732 77,998
Common stock issued to 401(k) plan - 65,350
Changes in operating assets and liabilities:
Accounts receivable (805,269) (170,439)
Loan receivable due from officer - (75,000)
Inventories (251,155) 5,080
Prepaid expenses 157,946 (61,966)
Accounts payable and accrued expenses (279,208) (346,036)
Other long-term liabilities (13,232) (4,617)
- ----------------------------------------------------------------------------
Net cash used for operating activities (477,180) (293,261)
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Cash flows used for investing activities:
Long term deposits (84,310) -
Additions to property and equipment (512,583) (24,669)
- ----------------------------------------------------------------------------
Net cash used for investing activities (596,893) (24,669)
- ----------------------------------------------------------------------------
Cash flows provided by financing activities:
Expenses from issuance of common stock (25,988) -
Proceeds from exercise of stock options and
warrants 783,930 205,131
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Net cash provided by financing
activities 757,942 205,131
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Decrease in cash and cash equivalents (316,131) (112,799)
Cash and cash equivalents at beginning of period 22,679,820 2,704,665
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $22,363,689 $2,591,866
============================================================================
Supplemental disclosure of non cash items:
Dividend on redeemable preferred stock - $58,960
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Continued)
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 ,
which is an HA product used in the treatment of some forms of
osteoarthritis ("OA") in humans and HYVISC , 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 limited to investigational
use only. The Company manufactures AMVISC (1) and AMVISC Plus ,
which are HA products used as viscoelastic supplements in
ophthalmic surgery, for Bausch & Lomb Surgical, a subsidiary
of Bausch & Lomb, Inc. The Company is currently developing
INCERT , 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 , an injectable formulation of basic fibroblast growth
factor combined with HA designed to accelerate the healing of
bone fractures.
1) AMVISC and AMVISC Plus are registered trademarks of Bausch & Lomb
Surgical. ORTHOVISC and HYVISC are registered trademarkes of the Company.
Ossigel is a trademark of Orquest.
<PAGE>
(2) Basis of Presentation
The accompanying financial statements have been prepared by
the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the
opinion of the Company, these financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the
Company as of March 31, 1998, the results of operations for
the three months ended March 31, 1998 and 1997 and the cash
flows for the three months ended March 31, 1998 and 1997.
The accompanying financial statements and related notes should
be read in conjunction with the Company's annual financial
statements filed with the Annual Report on Form 10-KSB for the
year ended December 31, 1997. The results of operations for
the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
(3) Earnings Per Share
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings per Share, which
establishes standards for computing and presenting earnings
per share, simplifying previous standards and making them
comparable to international earnings per share standards.
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding
during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of common
shares and dilutive potential common shares outstanding during
the period. Under the treasury stock method, the unexercised
options are assumed to be exercised at the beginning of the
period or at issuance, if later. The assumed proceeds are
then used to purchase common shares at the average market
price during the period.
The following illustrates a reconciliation of the numerator
and denominator for the three months ended March 31, 1998 and
1997 basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
For the three months
ended March 31, 1998
---------------------------------------------
<S> <C> <C> <C>
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net income $637,006
Basic EPS
Income available to
common stockholders $637,006 9,841,481 $.06
======== ========= ====
Effect of Dilutive Securities
Warrants and options 1,021,929
-------- ---------
Diluted EPS
Income available to
common stockholders $637,006 10,863,410 $.06
======== ========== ====
For the three months
ended March 31, 1997
----------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Net income $216,369
Less: Redeemable convertible
preferred stock dividend (58,960)
--------
Basic EPS
Income available to
common stockholders $157,409 4,991,744 $.03
======== ========= ====
Effect of Dilutive Securities
Warrants and options 1,114,822
Redeemable convertible
preferred stock dividend 157,409 1,262,590
-------- ---------
Diluted EPS
Income available to
common stockholders $216,369 7,369,156 $.02
======== ========= ====
</TABLE>
(4) Significant Customers
Sales of AMVISC to Bausch & Lomb Surgical, accounted for 82%
and 88% of total product revenue for the three months ended
March 31, 1998 and 1997, respectively.
(5) Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive
Income, effective January 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income
and its components in financial statements. Comprehensive
income is the total of net income and all other nonowner
changes in equity including items such as unrealized holding
gains/losses on securities classified as available for sale,
foreign currency translation adjustments and minimum pension
liability adjustments. The Company had no such items for the
three months ended March 31, 1998 and 1997 and therefore
comprehensive income and net income are the same.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis or Plan of
Operations
This Form 10-QSB 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. 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 are discussed throughout
this Form 10-QSB and are discussed in the section entitled
"Certain Factors Affecting Future Operating Results" of this
Form 10-QSB.
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, which is an HA product used in the treatment of
some forms of osteoarthritis in humans, and HYVISC, 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 and
AMVISC Plus, which are HA products used as viscoelastic
supplements in ophthalmic surgery, for Bausch & Lomb Surgical.
The Company is currently developing INCERT, 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 , an injectable
formulation of basic fibroblast growth factor combined with HA
designed to accelerate the healing of bone fractures.
<PAGE>
Results of Operations
Net sales for the three months ended March 31, 1998 totalled
$2,754,000, an increase of $827,000, or 43%, over the
$1,927,000 in net sales recorded for the same period last
year. The increase was attributable to increased sales of
AMVISC products and ORTHOVISC. Unit sales of AMVISC products
and ORTHOVISC increased by 14% and 283%, respectively.
The Company's gross profit as a percentage of net sales was
51.2% for the three months ended March 31, 1998, versus 47.1%
for the same period last year. The increase is attributable
to an increase in sales of ORTHOVISC which has a higher gross
margin than AMVISC sales.
Research and development expenses for the three months ended
March 31, 1998 increased by $180,000, or 55.7%, to $503,000
from $323,000 for the same period last year. The increase for
the three months ended March 31, 1998 is primarily
attributable to development expenses for INCERT and regulatory
expenses for the ORTHOVISC Pre-Market Approval application.
Selling, general and administrative expenses for the three
months ended March 31, 1998 increased by $142,000, or 36.0%,
to $536,000 from $394,000 for the same period last year. The
increase is due to additional staffing and salary increases.
Interest income, net for the three months ended March 31, 1998
increased by $262,000 to $292,000 due to an increase in the
cash balance on hand as a result of the Company's underwritten
public offering of Common Stock completed in December 1997.
The Company had an average cash balance on hand for the three
months ended March 31, 1998 and 1997 of $22,612,363 and
$2,491,078, respectively.
Liquidity and Capital Resources
In December 1997, the Company completed a secondary public
offering of 2,725,000 shares of Common Stock that raised net
proceeds of approximately $17 million.
At March 31, 1998, the Company had cash and cash equivalents
of $22,364,000 and working capital of $26,190,000. The Company
believes that cash from operations and its cash on hand will
be sufficient to meet its operating requirements for at least
the next 24 months. 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.
<PAGE>
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. The Company's estimate of the time period
for which cash from operations and its cash on hand will be
adequate to fund the Company's operating requirements 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 10-QSB generally.
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. 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. In January 1998, the Company sent
a notice for the mandatory exercise of the warrants in
accordance with the warrant provisions, all warrants were
converted into common stock and the Company received $668,136.
<PAGE>
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1934. 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 following:
History of Losses; Uncertainty of Future Profitability.
The Company incurred through the year ended December 31, 1996
annual operating losses since its inception in May 1993 and
had an accumulated deficit of approximately $5.4 million as of
March 31, 1998. 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
achieved profitability for the three months ended March 31,
1998 and the year ended December 31, 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.
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.
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.
<PAGE>
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 has submitted a PMA for ORTHOVISC and it
was accepted for filing by the FDA in February 1998. 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.
<PAGE>
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 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.
<PAGE>
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, QSR 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.
<PAGE>
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.
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
Bausch & Lomb Surgical under a non-exclusive fixed price,
five-year supply agreement which contains stated minimum
annual purchase obligations and terminates on December 31,
2001. Since January 1, 1997, Bausch & Lomb Surgical 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 Bausch
& Lomb Surgical 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.
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.
<PAGE>
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 Company's products on acceptable terms
would have a material adverse effect on the Company's
business, financial condition and results of operations.
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.
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.
<PAGE>
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.
<PAGE>
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 has been
granted a Notice of Allowance from the U.S. Patent Office for
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.
<PAGE>
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 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.
<PAGE>
Pursuant to the AMVISC supply contract the Company has granted
Bausch & Lomb Surgical 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 Bausch
& Lomb Surgical will continue to use the Company to
manufacture AMVISC and AMVISC Plus. If Bausch & Lomb Surgical
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. 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 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.
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.
<PAGE>
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.
<PAGE>
Need for Additional Funds; Liquidity. The Company anticipates
that its cash and cash equivalents of approximately $22.4
million on March 31, 1998 will be adequate to fund its
operations for an additional 24 months. 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 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.
<PAGE>
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.
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.
<PAGE>
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.
Risks' Relating to International Operations. Approximately
18% of the Company's net sales for the three months ended
March 31, 1998 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.
<PAGE>
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.
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 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.
<PAGE>
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K:
The Company filed a report on Form 8-K and 8-A/12B on
April 7, 1998 notifying the SEC that Anika Therapeutics,
Inc.'s Board of Directors had adopted a Shareholders
Right Agreement.
The Company also filed a report on Form 8-K on May 12,
1998 notifying the SEC that Anika Therapeutics, Inc. had
a change in certifying accountants.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANIKA THERAPEUTICS, INC.
DATE: May 15, 1998 BY: /s/ J. Melville Engle
---------------------
J. Melville Engle
Chief Executive Officer
DATE: May 15, 1998 BY: /s/ Sean F. Moran
--------------------
Sean F. Moran
Chief Financial Officer
