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 September 30, 1998
-------------------------------
______ Transition report under Section 13 or 15 (d) of the
Exchange Act
For the transition period from __________ to _____________
Commission file number 000-21326
-------------------------------------
Anika Therapeutics, Inc.
- -----------------------------------------------------------------
(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
- -------------------------------------------------------------
(Address of Principal Executive Offices)
(781) 932-6616
- ---------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
_______________________________________________________________
(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 November 12, 1998, 9,991,943 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, September 30, 1998 December 31, 1998
- -----------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,675,504 $22,679,820
Short-term investments 11,519,904 -
Accounts receivable 2,278,835 1,918,293
Inventories 3,275,274 2,541,552
Prepaid expenses 349,198 610,364
- -----------------------------------------------------------------------------
Total current assets 30,098,715 27,750,029
- -----------------------------------------------------------------------------
Property and equipment 6,104,053 4,138,365
Less accumulated depreciation 3,684,062 3,325,321
- -----------------------------------------------------------------------------
Net property and equipment 2,419,991 813,044
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Notes receivable from officers 134,000 75,000
Long term deposits 178,400 111,265
- -----------------------------------------------------------------------------
Total Assets $32,831,106 $28,749,338
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $724,571 $967,986
Accrued expenses 1,029,770 1,253,154
Deferred revenue 200,000 200,000
- -----------------------------------------------------------------------------
Total current liabilities 1,954,341 2,421,140
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Advance rent payment 63,704 103,912
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
9,964,256 shares in 1998 and 9,691,091
shares in 1997. 99,642 96,911
Additional paid-in capital 34,490,237 32,156,504
Deferred compensation (1,327,203) -
Accumulated deficit (2,449,615) (6,029,129)
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Total stockholders' equity 30,813,061 26,224,286
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Total Liabilities and Stockholders
Equity $32,831,106 $28,749,338
=============================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product revenue $3,179,901 $1,534,301 $9,030,286 $5,811,723
Licensing payments - 50,000 1,500,000 150,000
- ------------------------------------------------------------------------------
Total revenue 3,179,901 1,584,301 10,530,286 5,961,723
Cost of sales 1,425,270 808,741 4,333,311 3,015,952
- ------------------------------------------------------------------------------
Gross profit 1,754,631 775,560 6,196,975 2,945,771
Operating expenses:
Research and
development 492,935 644,836 1,384,445 1,477,093
Selling, general
and administrative 869,228 441,313 2,109,442 1,271,733
- ------------------------------------------------------------------------------
Total operating
expenses 1,362,163 1,086,149 3,493,887 2,748,826
- ------------------------------------------------------------------------------
Income (loss)
from operations 392,468 (310,589) 2,703,088 196,945
Interest income, net 367,586 45,428 978,154 105,230
- ------------------------------------------------------------------------------
Income (loss)
before provision
for income
taxes 760,054 (265,161) 3,681,242 302,175
Provision for income taxes 19,001 2,335 101,728 16,259
- ------------------------------------------------------------------------------
Net income
(loss) $741,053 ($267,496) $3,579,514 $285,916
==============================================================================
Basic earnings (loss)
per share $0.07 ($0.05) $0.36 $0.04
===== ======= ===== =====
Shares used for
computing basic EPS 9,960,502 5,079,464 9,931,313 5,058,337
========= ========= ========= =========
Diluted earnings (loss)
per share $0.07 ($0.05) $0.32 $0.02
===== ======= ===== =====
Shares used for computing
diluted EPS 11,316,539 5,079,464 11,153,554 7,376,029
========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ANIKA THERAPEUTICS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended,
September 30,
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,579,514 $285,916
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 358,741 200,320
Amortization of deferred compensation 162,857 -
Common stock issued to 401(k) plan and
Board of Directors - 150,998
Provision for doubtful accounts 50,000 -
Changes in operating assets and liabilities:
Accounts receivable (410,542) (481,821)
Inventories (733,722) (251,717)
Prepaid expenses 261,166 (219,129)
Accounts payable and accrued expenses (466,799) 343,582
Other long-term liabilities (40,208) -
- -----------------------------------------------------------------------------
Net cash provided by (used for)
operating activities 2,761,007 28,149
- -----------------------------------------------------------------------------
Cash flows used for investing activities:
Notes receivable from officers (59,000) (75,000)
Purchases of short-term investments (11,519,904) -
Long term deposits (67,135) (19,000)
Purchases to property and equipment (1,965,688) (14,286)
- ------------------------------------------------------------------------------
Net cash used in investing
activities (13,611,727) (108,286)
- ------------------------------------------------------------------------------
Cash flows provided by financing activities:
Expenses from issuance of common stock (105,832) -
Proceeds from exercise of stock options 952,236 456,277
- -----------------------------------------------------------------------------
Net cash provided by financing
activities 846,404 456,277
- -----------------------------------------------------------------------------
(Decrease)increase in cash and cash equivalents (10,004,316) 376,140
Cash and cash equivalents at beginning of period 22,679,820 2,704,665
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of period $12,675,504 $3,080,805
=============================================================================
Supplemental disclosure of cash flow information:
Cash paid for interest - $2,771
========== ========
Supplemental disclosure of non cash items:
Dividend on redeemable preferred stock - $103,036
========== ========
</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 a HA product used in the treatment of some forms of
osteoarthritis ("OA") in humans and HYVISCr, which is a 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. Anika has granted ORTHOVISC distribution rights to
Zimmer, Inc. for the territories of United States, Canada,
select Asian markets, Latin America and most of Europe. 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 a 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 trademarks 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 September 30, 1998, the results
of operations for the three and nine months ended September
30, 1998 and 1997 and the cash flows for the nine months
ended September 30, 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 nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for
the full year.
(3) Earnings Per Share
The Company follows the provisions of 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. Diluted net loss per share is
the same as basic net loss per share as the impact of
potential common shares is antidilutive.
The following illustrates a reconciliation of the numerator
and denominator for the three and nine months ended
September 30, 1998 and 1997 for basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, 1998 ended September 30, 1998
-------------------------------- --------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net income $741,053 $3,579,514
Basic EPS
Income
available
to common
stock-
holders $741,053 9,960,502 $.07 3,579,514 9,931,313 $.36
-------- --------- ---- -------- --------- -----
Effect of
Dilutive
Securities
Warrants
and
options 1,356,037 1,222,241
Diluted EPS
Income
available
to common
stock-
holders $741,053 11,316,539 $.07 $3,579,514 11,153,554 $.32
-------- ---------- ---- --------- ---------- -----
</TABLE>
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, 1997 ended September 30, 1997
---------------------------------- ------------------------------------
Income(loss) Shares Per-Share Income(loss) Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Net income
(loss) ($267,496) $285,917
Dividend on
Preferred
Stock - 103,035
Basic EPS
Income
available to
common
stock-
holders ($267,496) 5,079,464 ($.05) $182,882 5,058,337 $.04
=========== ========= ====== ======== =========
Effect of
Dilutive
Securities
Warrants
and
options - 2,317,692
--------- ---------
Diluted EPS
Income
available
to common
stock-
($267,496) 5,079,464 ($.05) $182,882 7,376,029 $.02
========== ========= ====== ======== ========= ====
</TABLE>
(4) Significant Customers
Sales of AMVISC products to Bausch & Lomb Surgical, accounted
for 70% and 88% of total product revenue for the nine months
ended September 30, 1998 and 1997, respectively. Sales of
AMVISC products to Bausch & Lomb Surgical accounted for 59%
and 87% of total revenue for the three months ended September
30, 1998 and 1997, respectively.
Sales of ORTHOVISC products to one customer accounted for 22%
of total product revenue sales for the three months ended
1998. In addition, sales of ORTHOVISC products to another
customer accounted for 20% and 13% of total product revenue
for the three months ended September 30, 1998 and 1997,
respectively. This same customer also accounted for 18% and
15% of total product revenue for the nine months ended
September 30, 1998 and 1997, respectively.
<PAGE>
(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
nine months ended September 30, 1998 and 1997 and therefore
comprehensive income and net income are the same.
(6) New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging instruments. It requires that an
entity recognize all derivatives as either assets or
liabilities in the statement of financial position and
measure those instruments at fair value. This statement
applies to all entities and is effective for all fiscal
quarters beginning after June 15, 1999. Initial application
of this Statement should be as of the beginning of an
entity's fiscal quarter. As of September 30, 1998 and during
the quarter then ended, the Company did not hold any
derivative instruments or have any hedging activities. The
Company does not expect adoption of this Statement to have a
significant impact on its financial position or results of
operations.
(7) Notes Receivable from Officers
Note receivable from an officer consists of two loans made to
an officer of the Company in March 1997 and July 1998. The
loan amounts are due at the earlier of the end of five years
from the date of the note or at the termination of the
officer's employment. Interest accrues at the annual rate of
6% and 5.54%, respectively and is payable monthly over the
term of the loans.
(8) Subsequent Event
In October 1998, the Company received a letter from the U.S.
Food and Drug Administration's (FDA) Center for Devices and
Radiological Health stating that the company's premarket
approval (PMA) application for ORTHOVISC, was not approvable
and that additional clinical data would be required to
demonstrate the effectiveness of ORTHOVISC. The FDA letter
recommended that Anika consult with the agency on the design
of a new study and stated that clinical and other data from
the initial PMA submission may be incorporated to support a
future PMA submission. Also, in October 1998, the
Therapeutics Goods Administration of Australia issued an
initial decision to deny approval of an ORTHOVISC submission.
<PAGE>
(9) Stock Repurchase Plan
In October 1998, the Board of Directors had approved a stock
repurchase plan under which the Company is authorized to
purchase up to $4,000,000 of Anika stock, with the total
number of shares purchased not to exceed 9.9 percent of the
total issued and outstanding shares. Under the plan, shares
may be repurchased from time to time and in such amounts as
market conditions warrant and subject to regulatory
considerations.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Financial
Condition and Results 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. Anika has
granted ORTHOVISC distribution rights to Zimmer, Inc. for the
territories of United States, Canada, select Asian markets,
Latin America and most of Europe. 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
Product Revenue. Product revenue for the three months ended
September 30, 1998 totaled $3,180,000, an increase of
$1,646,000, or 107% over the $1,534,000 in product revenue
recorded for the comparable period last year. The increase
in product revenue for the three months ended September 30,
1998 was attributable to increased sales of AMVISC products
and ORTHOVISC. Unit sales of AMVISC products and ORTHOVISC
for the three months ended September 30, 1998 increased by
40% and 567%, respectively, over the comparable period of
last year. At September 30, 1997, the Company had $1.0
million of AMVISC and ORTHOVISC customer back orders that
were not shipped in September 1997 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. Product revenue for the nine months ended
September 30, 1998 totalled approximately $9,030,000, an
increase of $3,218,000, or 55% over the $5,812,,000 in
product revenue recorded for the nine months ended September
30, 1997. The increase in product revenue for the nine
months ended September 30, 1998 was attributable to increased
sales of AMVISC products and ORTHOVISC. Unit sales of AMVISC
products and ORTHOVISC for the nine months ended September
30, 1998 increased by 17% and 362%, respectively, over the
comparable period of last year.
Licensing Payments. Revenue from licensing payments
increased to $1,500,000 for the nine months ended September
30, 1998 from $150,000 for the comparable periods in the
prior year. In June 1998, the Company received a non-
refundable $1,500,000 licensing payment from Zimmer, Inc. for
the granting of ORTHOVISC European and Latin American
distribution rights.
Gross Profit. The Company's gross profit from Product
Revenue as a percentage ofd 48.1% for the comparable periods
last year. The improvement in gross margin for the three and
nine months ended September 30, 1998 was attributable to
increased sales of ORTHOVISC which has a higher gross margin
than AMVISC.
Research and Development Expenses. Research and development
expenses for the three months ended September 30, 1998
decreased by $152,000, or 24%, to $493,000 from $645,000 for
the same period last year. For the nine months ended
September 30, 1998 research and development expenses
decreased by $93,000 or 6% to $1,384,000 from $1,477,000 for
the same period last year. The decrease is a result of a
reduction in spending on clinical trials which was partially
offset by the expense of additional staff. The Company
expects research and development expenses for the fourth
quarter of 1998 will be greater than the third quarter of
1998 due to INCERT development expenses and additional
clinical trial costs associated with ORTHOVISC.
<PAGE>
Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the three months
ended September 30, 1998 increased by $428,000, or 97%, to
$869,000 from $441,000 for the same period last year.
Selling, general and administrative expenses for the nine
months ended September 30, 1998 increased by 66% to
$2,109,000 from $1,272,000 in the prior year. The increase
in selling, general and administrative expenses for the three
and nine months ended September 30, 1998 was due to
additional staffing, salary increases and deferred
compensation expense from stock options. The Company expects
that selling, general and administrative expenses for the
fourth quarter of 1998 will approximate the third quarter
of 1998.
Interest Income. Interest income, net for the nine months
ended September 30, 1998 increased by $873,000 to $978,000
due to interest income earned from an increase in the cash
balance on hand as a result of the Company's public offering
of Common Stock completed in December 1997. The Company had
an average cash balance on hand for the first nine months of
1998 and 1997 of $22,980,000 and $2,612,000, respectively.
Liquidity and Capital Resources
In December 1997, the Company completed a public offering of
2,725,000 shares of its Common Stock that resulted in net
proceeds of approximately $17 million.
At September 30, 1998, the Company had cash equivalents and
short-term investments of $24,195,000 and working capital of
$28,144,000. 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. Expenditures
required to fund the ORTHOVISC clinical trial will adversely
impact the Company's financial results in 1999, however the
Company believes that the combination of revenues from its
international ORTHOVISC business and the AMVISC product line
should be sufficient to fund its operations during 1999
including expenses related to the clinical trial. In
addition, funds may be used to purchase up to $4,000,000 of
Anika stock under the stock repurchase plan with the total
number of shares purchased not to exceed 9.9 percent of the
total issued and outstanding. 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 "Certain Factors Affecting Operating Results" 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
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>
Year 2000 disclosure
The statements in the following section include "Year 2000
readiness disclosure" within the meaning of the Year 2000
Information and Readiness Disclosure Act.
Many existing computer programs and databases use two digits
to identify a year in the date field (i.e., 98 would
represent 1998). These programs and databases were designed
and developed without considering the impact of the upcoming
millennium. If not corrected, many computer systems could
fail or create erroneous results relating to the Year 2000.
The Company has begun assessing its information systems to
verify Year 2000 readiness. The Company relies upon
microprocessor-based personal computers, mainframes and
commercially available applications software. The Company
has recently put into service the microprocessor-based
personal computers with applications software which
according to literature supplied with the software is Year
2000 compliant. The Company intends to test the
applications software to verify compliance. The Company is
also in the process of upgrading its mainframe computer
hardware and software. The Company's present mainframe
computer system runs only financial applications.
Installation of the upgraded hardware and software is
expected to occur in 1999 and all of the software packages
under review by the Company are reported to be Year 2000
compliant. Management will verify Year 2000 compliance of
the mainframe computer as soon as installation and testing
have been completed.
The Company has begun to discuss Year 2000 readiness with
its material supply and service vendors. To date, those
vendors and suppliers that have been contacted have
indicated that their hardware and software will be Year 2000
compliant in time frames that meet the Company's
requirements. However, the Company intends to continue to
assess its exposure to Year 2000 noncompliance on the part
of any of its material vendors and suppliers.
<PAGE>
The Company believes that the current personal computer
software applications and modifications to its mainframe
system will allow it to be Year 2000 compliance in a timely
manner. The Company does not anticipate that it will incur
material expenses to make the internal computer system Year
2000 compliant and believes that the Year 2000 issue will
not pose significant operational problems for the Company's
system. There can be no assurance, however, that the
Company's internal systems or those of third parties will be
compliant in a timely manner. The failure of internal
systems or third parties to be Year 2000 compliant in a
timely manner could have a material adverse effect on the
Company's business, financial conditions, and results of
operations. The Company currently does not have any
contingency plan in the event Year 2000 compliance cannot be
achieved in a timely manner.
The preceding "Year 2000 Readiness Disclosure" contains
various forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and the
Section 27A Securities Act of 1933. These forward-looking
statements represent the Company's beliefs or expectations
regarding future events. When used in the "Year 2000
Readiness Disclosure", the words "believes," "expects,"
"estimates" and similar expressions are intended to identify
forward looking statements. Forward looking statements
include, without limitation, the Company's expectations as
to when it will complete the installation and testing its
internal systems; its estimated cost of achieving Year 2000
readiness; and the Company's belief that its internal
systems will be Year 2000 compliant in a timely manner. All
forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ
materially from the projected results.
Factors that may cause these differences include, but are
not limited to, the availability of qualified personnel and
other information technology resources; the ability to
identify and remediate all date sensitive lines of computer
code or to replace embedded computer chips in affected
systems or equipment; and the actions of third parties with
respect to Year 2000 problems.
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 $2.4 million as
of September 30, 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 nine months ended
September 30, 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.
<PAGE>
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.
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 (including
a requirement that the Company conduct additional clinical
trials) 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.
<PAGE>
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 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. The Company
submitted a PMA for ORTHOVISC in December 1997. In October
1998, the Company received a letter from the FDA stating
that the Company's PMA application for ORTHOVISC, was not
approvable and that additional clinical data would be
required to demonstrate the effectiveness of ORTHOVISC. The
FDA letter recommended that Anika consult with the agency on
the design of a new study and stated that clinical and other
data from the initial PMA submission may be incorporated to
support a future PMA submission. The Company plans to meet
with the FDA and submit an IDE for additional ORTHOVISC
clinial trial. Also, in October 1998, the Therapeutics
Goods Administration of Australia issued an initial decision
to deny approval of an ORTHOVISC submission. As a result of
the FDA action, the Company will need to successfully design
and complete an additional clinical trial or trials to
demonstrate the effectiveness of ORTHOVISC. There can be no
assurance that such a trial or trials can be completed in a
timely manner or at all or, if completed, that the results
of such a trial will produce data supporting the
effectiveness of ORTHOVISC. Even if the Company is able to
successfully design and complete additional clinical trials
and the results thereof support the effectiveness of
ORTHOVISC, there can be no assurance that the Company will
receive FDA or other regulatory approval of ORTHOVISC, or
that such approval will be obtained in a timely manner or
without the need for additional clinical trials.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 may also 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 This agreement
was subsequently amended in June 1998 to expand the
territories to also include Europe and Latin America. While
the agreement provides for future payments to the Company of
up to $23.5 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 had the right
to terminate the agreement on August 1, 1998 if certain
specified events occurred prior to that date and upon payment
to Anika of $1.0 million in cash. The agreement was not
terminated by Zimmer on August 1, 1998. Zimmer has other
termination rights under the agreement including the right to
terminate if ORTHOVISC is not approved by the FDA by January
1, 2001 and if Zimmer sales of ORTHOVISC fail to meet the
minimums specified in the contract for two consecutive years
beginning in 1998. There can be no assurance that any of
these events will not occur, or, if any such event does not
occur, that Zimmer will not elect to terminate the agreement.
Any such termination is likely to 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
operation 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 ORTHOVISC, 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. In addition, additional
clinical trials are necessary to demonstrate the efficacy of
ORTHOVISC. 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.
<PAGE>
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.
<PAGE>
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
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
Need for Additional Funds; Liquidity. The Company
anticipates that its cash equivalents and short-term
investments of approximately $24.2 million on September 30,
1998 will be adequate to fund its operations for an
additional 24 months. Expenditures required to fund the
ORTHOVISC clinical trial will adversely impact the Company's
financial results in 1999, however the Company believes that
the combination of revenues from its international ORTHOVISC
business and the AMVISC product line should be sufficient to
fund its operations during 1999 including expenses related to
the clinical trial. In addition, funds may be used to
purchase up to $4,000,000 of Anika stock under the stock
repurchase plan with the total number of shares purchased not
to exceed 9.9 percent of total issued and outstanding. 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
25% of the Company's product net sales for the nine months
ended September 30, 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.
<PAGE>
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.
<PAGE>
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, a Shareholder's Right Plan, 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, and without further stockholder
approval, preferred stock with rights and privileges which
could be senior to the Common Stock. 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 2. Changes in Securities and Use of Proceeds
401(k) disclosure
On January 1, 1998, the Company began offering its Common
Stock to its employees through the Anika Therapeutics, Inc.
Company Stock Fund ("Company Stock Fund") under its Employee
Savings and Retirement (401(k)) Plan (the "Plan"). From
January 1, 1998 to September 30, 1998, approximately 11,052
shares of Common Stock were purchased for the account of 25
employees at prices ranging from $8.00 to $17.00. The Common
Stock was purchased on the open market by an independent
agent and held by the Plan. Such transactions were
completed without an effective registration statement or
exemption from registration. The Company intends to file a
registration statement on Form S-8 with respect to the
offering and sale of its Common Stock under the Company
Stock Fund as soon as reasonably practicable.
Item 5. Other Information
In October 1998, the Company received a letter from the U.S.
Food and Drug Administration's (FDA) Center for Devices and
Radiological Health stating that the company's premarket
approval (PMA) application for ORTHOVISC, was not approvable
and that additional clinical data would be required to
demonstrate the effectiveness of ORTHOVISC. The FDA letter
recommended that Anika consult with the agency on the design
of a new study and stated that clinical and other data from
the initial PMA submission may be incorporated to support a
future PMA submission. Also, in October 1998, the
Therapeutics Goods Administration of Australia issued an
initial decision to deny approval of an ORTHOVISC submission.
As a result of the FDA action, the Company will need to
successfully design and complete an additional clinical
trial or trials to demonstrate the effectiveness of
ORTHOVISC. There can be no assurance that such a trial or
trials can be completed in a timely manner or at all or, if
completed, that the results of such a trial will produce
data supporting the effectiveness of ORTHOVISC. Even if the
Company is able to successfully design and complete
additional clinical trials and the results thereof support
the effectiveness of ORTHOVISC, there can be no assurance
that the Company will receive FDA or other regulatory
approval of ORTHOVISC, or that such approval will be
obtained in a timely manner or without the need for
additional clinical trials.
<PAGE>
Stock Repurchase Plan
In October 1998, the Board of Directors had approved a stock
repurchase plan under which the Company is authorized to
purchase up to $4,000,000 of Anika stock, with the total
number of shares purchased not to exceed 9.9 percent of the
total issued and outstanding shares. Under the plan, shares
may be repurchased from time to time and in such amounts as
market conditions warrant and subject to regulatory
considerations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
<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: November 16,1998 BY:/s/ J. Melville Engle
---------------------
J. Melville Engle
Chief Executive Officer
DATE: November 16,1998 BY: /s/ Sean F. Moran
----------------------
Sean F. Moran
Chief Financial Officer
