UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-21326

Anika Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Massachusetts		04-3145961
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

160 New Boston Street, Woburn, Massachusetts		01801
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (781) 932-6616

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. At July 29, 2005 there were 10,482,560 outstanding shares of Common Stock, par value $.01 per share.

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Anika Therapeutics, Inc.

Consolidated Balance Sheets

(Unaudited)

	June 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	39,930,000		$	39,339,000
Accounts receivable, net of reserves of $23,000 at June 30, 2005 and December 31, 2004	2,744,000			2,354,000
Inventories	4,037,000			4,227,000
Current portion deferred income taxes	1,824,000			1,824,000
Prepaid expenses and other current assets	616,000			1,339,000
Total current assets	49,151,000			49,083,000

Property and equipment, at cost	10,675,000			10,349,000
Less: accumulated depreciation	(9,617,000		)	(9,394,000		)
	1,058,000			955,000

Long-term deposits	143,000			143,000
Deferred income taxes	9,357,000			9,357,000
Total assets	$	59,709,000		$	59,538,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	381,000		$	791,000
Accrued expenses	1,458,000			2,041,000
Deferred revenue	3,112,000			4,116,000
Total current liabilities	4,951,000			6,948,000
Long-term deferred revenue	20,250,000			22,227,000
Total liabilities	25,201,000			29,175,000
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and outstanding at June 30, 2005 and December 31, 2004	—			—
Common stock, $.01 par value; 30,000,000 shares authorized, 10,482,560 and 10,257,472 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively	105,000			103,000
Additional paid-in capital	34,243,000			32,639,000
Retained earnings (accumulated deficit)	160,000			(2,379,000		)
Total stockholders’ equity	34,508,000			30,363,000
Total liabilities and stockholders’ equity	$	59,709,000		$	59,538,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Anika Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004

Product revenue	$	4,084,000	$	5,690,000	$	9,761,000	$	11,259,000
License, milestone and contract revenue	2,936,000		572,000		4,550,000		1,144,000
Total revenue	7,020,000		6,262,000		14,311,000		12,403,000
Cost of product revenue	2,117,000		2,442,000		5,111,000		5,163,000
Gross profit	4,903,000		3,820,000		9,200,000		7,240,000
Operating expenses:
Research and development	1,461,000		1,125,000		2,660,000		2,032,000
Selling, general and administrative	1,475,000		1,407,000		2,767,000		2,715,000
Total operating expenses	2,936,000		2,532,000		5,427,000		4,747,000
Income from operations	1,967,000		1,288,000		3,773,000		2,493,000
Interest income	275,000		80,000		487,000		126,000
Income before income tax expense (benefit)	2,242,000		1,368,000		4,260,000		2,619,000
Income tax expense (benefit)
Provision for income taxes	905,000		603,000		1,721,000		1,107,000
Benefit from release of valuation allowance	—		—		—		(7,039,000		)
Net income	$	1,337,000	$	765,000	$	2,539,000	$	8,551,000

Basic net income per common share	$	0.13	$	0.08	$	0.25	$	0.85
Shares used to calculate basic net income per common share	10,391,538		10,060,866		10,330,883		10,024,138
Diluted net income per common share	$	0.12	$	0.07	$	0.22	$	0.75
Shares used to calculate diluted net income per common share	11,537,538		11,396,116		11,425,292		11,333,899

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Anika Therapeutics, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended

(Unaudited)

	June 30, 2005			June 30, 2004

Cash flows from operating activities:
Net income	$	2,539,000		$	8,551,000
Adjustments to reconcile net income to net cash used by operations:
Depreciation	223,000			337,000
Deferred income taxes	—			(9,472,000		)
Tax benefit related to stock option plans	1,105,000			73,000
Changes in operating assets and liabilities:
Accounts receivable	(390,000		)	(272,000		)
Inventories	190,000			(122,000		)
Prepaid expenses and other current assets	723,000			(914,000		)
Accounts payable	(410,000		)	238,000
Accrued expenses	(583,000		)	71,000
Deferred revenue	(2,981,000		)	19,642,000
Net cash provided by operating activities	416,000			18,132,000

Cash flows from investing activities
Purchase of property and equipment	(326,000		)	(228,000		)
Restricted cash	—			818,000
Net cash (used in) provided by investing activities	(326,000		)	590,000

Cash flows from financing activities
Proceeds from exercise of stock options	501,000			222,000
Net cash provided by financing activities	501,000			222,000

Increase in cash and cash equivalents	591,000			18,944,000
Cash and cash equivalents at beginning of period	39,339,000			14,592,000

Cash and cash equivalents at end of period	$	39,930,000		$	33,536,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANIKA THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business

Anika Therapeutics, Inc. (“Anika” or 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’s currently marketed products consist of ORTHOVISC®, which is an HA product used in the treatment of some forms of osteoarthritis in humans, CoEase^TM, STAARVISC™-II, and ShellGel^TM, each an injectable ophthalmic viscoelastic HA product, and HYVISC®, which is an HA product used in the treatment of equine osteoarthritis. In February 2004, the Company received marketing approval from the U.S. Food and Drug Administration (FDA) for ORTHOVISC. ORTHOVISC became available for sale in the U.S. on March 1, 2004 and has been approved for sale and marketed internationally since 1996. HYVISC is marketed in the U.S. through Boehringer Ingelheim Vetmedica, Inc. The Company manufactures AMVISC® and AMVISC® Plus, HA viscoelastic supplement products used in ophthalmic surgery, for Bausch & Lomb Incorporated.

The Company is subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with FDA government regulations and approval requirements as well as the ability to grow the Company’s business.

2. Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States. In the opinion of management, these consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the financial position of the Company as of June 30, 2005 and the results of its operations and its cash flows for the six months ended June 30, 2005 and 2004.

The accompanying consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, 2004. The results of operations for the six and three months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005 or any future periods.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned subsidiary, Anika Securities, Inc. (a Massachusetts Securities Corporation).

Cash and Cash Equivalents

Cash and cash equivalents consists of cash and highly liquid investments with original maturities of 90 days or less.

Financial Instruments

SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, marketable securities, accounts receivable, and accounts payable. The estimated fair value of the Company’s financial instruments approximates their carrying values.

Revenue Recognition

The Company’s revenue recognition policies are in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

The Company recognizes revenue from the sales of products it manufactures upon confirmation of regulatory compliance and shipment to the customer as long as there is (1) persuasive evidence of an arrangement, (2) delivery has occurred and risk of loss has passed, (3) the sales price is fixed or determinable and (4) collection of the related receivable is probable. Amounts billed or collected prior to recognition of revenue are classified as deferred revenue. When determining whether risk of loss has transferred to customers on product sales or if the sales price is fixed or determinable the Company evaluates both the contractual terms and conditions of its distribution and supply agreements as well as its business practices.

In December 2004, the Company entered into a multi-year supply agreement (the 2004 B&L Agreement) with Bausch & Lomb for viscoelastic products used in ophthalmic surgery. Under the new agreement, which extends through December 31, 2010, and supersedes the supply contract (the 2000 B&L Agreement) that was set to expire December 2007, the Company continues to be the exclusive global supplier (other than with respect to Japan) for AMVISC and AMVISC Plus to Bausch & Lomb. Prior to entering into the 2004 B&L Agreement sales to Bausch & Lomb were made under the 2000 B&L Agreement. Under the terms of the 2000 B&L Agreement the price applicable for all units sold to Bausch & Lomb in a calendar year was dependent on the total unit volume of sales of certain ophthalmic products during the year. Since the price was not fixed and determinable, the Company deferred the portion of revenue that was subject to retroactive price adjustment, until the ultimate amount earned was known. Under the 2000 B&L Agreement, during the quarter and six months ended June 30, 2004, the Company deferred $337,000 and $633,000, respectively, related to sales to Bausch & Lomb which were subject to possible retroactive price adjustments under the 2000 B&L Agreement. The 2004 B&L Agreement retroactively applied to sales from the beginning of 2004. As a result, in the fourth quarter of 2004, the Company applied the unit pricing terms under the 2004 B&L Agreement to its 2004 Bausch & Lomb sales activity. By applying this new pricing to 2004 transactions, the Company recognized $761,000 of revenue which was previously deferred during the first nine months of 2004 and rebated $252,000 to Bausch & Lomb.

In July 2004 the Company entered into an exclusive worldwide development and commercialization agreement (the OrthoNeutrogena Agreement) for our CTA products with OrthoNeutrogena, a division of Ortho-McNeil Pharmaceuticals, Inc., an affiliate of Johnson & Johnson. This arrangement includes up front payments, funding of ongoing development activities, milestones upon achievement of predefined goals, and in addition, the Company will receive payments for supply of CTA

products and royalties on sales. The Company believes this is a multiple element arrangement that falls under the scope of EITF
00-21. Under the EITF 00-21 framework, in order to account for an element as a separate unit of accounting, the element must have stand-alone value and there must be objective and reliable evidence of fair value of the undelivered elements. While this arrangement includes several elements, the Company believes that two separate units of accounting exist (a combined license and development unit and a manufacturing unit) under the EITF 00-21 model.

The Company accounts for the combined license and development unit using the performance based revenue recognition model whereby the Company recognizes revenue as efforts are expended, limited to the amount of non-refundable cash received. Under this arrangement, the Company received non-refundable upfront fees of $1,000,000 and reimbursement for approximately $1,305,000 of costs which were incurred prior to the effective date of the OrthoNeutrogena Agreement. The Company treats both these amounts as upfront fees and recognizes these fees over the expected term of the license and development unit. In addition to the upfront fees, the Company receives reimbursement of pre-approved development costs as incurred. For the quarter and six months ended June 30, 2005 the Company recognized $2,249,000 and $3,167,000, respectively, as contract revenue under this arrangement pursuant to the performance-based method of revenue recognition.

In December 2003 the Company entered into a ten-year licensing and supply agreement (the OBI Agreement) with Ortho Biotech Products, L.P., a member of the Johnson & Johnson family of companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement, Ortho Biotech will perform sales, marketing and distribution functions and licensed the right to further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on the Company’s viscosupplementation technology. In support of the license, the OBI Agreement provides that Ortho Biotech will fund post-marketing clinical trials for new indications of ORTHOVISC. The Company received an initial payment of $2,000,000 upon entering into the OBI Agreement, a milestone payment of $20,000,000 in February 2004, as a result of obtaining FDA approval of ORTHOVISC and a milestone payment of $5,000,000 in December 2004 for planned upgrades to its manufacturing operations. The Company evaluated the terms of the OBI Agreement and determined that the upfront fee and milestone payments did not meet the conditions to be recognized separately from the supply agreement, therefore, it has deferred non refundable payments received of $27,000,000 which it is recognizing ratably over the expected term of the OBI Agreement, which is currently 10 years.

Accounts Receivable and Allowance for Doubtful Accounts:

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, requires that companies either recognize compensation expense for grants of stock options and other equity instruments based on fair value, or provide pro forma disclosure of net income (loss) and net income (loss) per share in the notes to the financial statements. At June 30, 2005, the Company has stock options outstanding under three stock-based compensation plans. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation cost has been recognized under SFAS 123 for the Company’s employee stock option plans. Had compensation cost for the awards under those plans been determined based on the grant date fair

values, consistent with the method required under SFAS 123, the Company’s net income and net income per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income
As reported	$	1,337,000		$	765,000		$	2,539,000		$	8,551,000
Add: Stock-based employee compensation expense included in reported net income (loss)	—			—			—			—
Deduct: Total stock-based employee compensation under the fair-value-based method for all awards, net of taxes	(184,000		)	(129,000		)	(330,000		)	(174,000		)

Pro forma net income	$	1,153,000		$	636,000		$	2,209,000		$	8,377,000
Basic net income per share
As reported	$	0.13		$	0.08		$	0.25		$	0.85
Proforma	$	0.11		$	0.06		$	0.21		$	0.84
Diluted net income per share
As reported	$	0.12		$	0.07		$	0.22		$	0.75
Proforma	$	0.10		$	0.06		$	0.19		$	0.74

Disclosures About Segments of an Enterprise and Related Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions regarding how to allocate resources and assess performance. The Company’s chief decision-making group consists of the chief executive officer and other officers of the Company. Based on the criteria established by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has one reportable operating segment, the results of which are disclosed in the accompanying consolidated financial statements. Substantially all of the operations and assets of the Company have been derived from and are located in the United States.

Product revenue by product group is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
ORTHOVISC^®	$	2,192,000	$	2,796,000	$	4,593,000	$	5,071,000
Ophthalmic Products	1,570,000		2,688,000		4,339,000		5,062,000
HYVISC^®	322,000		206,000		829,000		1,126,000
	$	4,084,000	$	5,690,000	$	9,761,000	$	11,259,000

Product revenue by significant customers as a percent of product revenues is as follows:

	Percent of Product Revenue Three Months Ended June 30,				Percent of Product Revenue Six Months Ended June 30,
	2005		2004		2005		2004
Pharmaren AG/Biomeks	39	%	19	%	28	%	14	%
Bausch & Lomb Incorporated	30	%	34	%	38	%	32	%
Boehringer Ingelheim Vetmedica	8	%	4	%	9	%	10	%
Ortho Biotech Products L.P.	6	%	26	%	11	%	26	%
Advanced Medical Optics	5	%	10	%	2	%	10	%
	88	%	93	%	88	%	92	%

As of June 30, 2005, two customers represented 65% of the Company’s accounts receivable balance and as of December 31, 2004, four customers represented 90% of the Company’s accounts receivable balance.

Revenues by geographic location in total and as a percentage of total revenues are as follows:

	Three Months Ended June 30,
	2005				2004
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
Geographic location:
United States	$	5,097,000	73	%	$	4,928,000	79	%
Turkey	1,586,000		22	%	1,086,000		17	%
Other/Europe	337,000		5	%	248,000		4	%
Total	$	7,020,000	100	%	$	6,262,000	100	%

	Six Months Ended June 30,
	2005				2004
	Revenue		Percent of Revenue		Revenue		Percent of Revenue
Geographic location:
United States	$	10,748,000	75	%	$	10,241,000	83	%
Turkey	2,733,000		19	%	1,614,000		13	%
Other/Europe	830,000		6	%	548,000		4	%
Total	$	14,311,000	100	%	$	12,403,000	100	%

Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS 151, Inventory Costs, which amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 are effective for the first annual reporting period beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In December 2004, the FASB, issued a revision to SFAS 123, Share-Based Payment, also known as SFAS 123(R), that amends existing accounting pronouncements for share-based payment transactions in

which an enterprise receives employee and certain non-employee services in exchange for (1) equity instruments of the enterprise or (2) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123(R) eliminates the ability to account for share-based compensation transactions using APB 25 and generally requires such transactions be accounted for using a fair-value-based method. SFAS 123(R)’s effective date would be applicable for awards that are granted, modified, become vested, or settled in cash in interim or annual periods beginning after June 15, 2005. SFAS 123(R) includes three transition methods: one that provides for prospective application and two that provide for retrospective application. In April 2005, the SEC issued a new rule allowing companies to implement SFAS 123(R) at the beginning of the next fiscal year, instead of the next reporting period that begins after June 15, 2005. As a result, the Company intends to adopt SFAS 123(R) prospectively commencing in the first quarter of the fiscal year ending December 31, 2006; it is expected that the adoption of SFAS 123(R) will cause us to record, as expense each quarter, a non-cash accounting charge approximating the fair value of such share based compensation meeting the criteria outlined in the provisions of SFAS 123(R).

In April 2005, the SEC issued Staff Accounting Bulletin 107, Shares-Based Payment, which expresses the SEC Staff’s views regarding the application of SFAS No. 123(R). At present, the Company has not evaluated the effect of this standard.

4. Earnings Per Share

The Company reports earnings per share in accordance with SFAS No. 128, Earnings per Share, which establishes standards for computing and presenting earnings (loss) per share. Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and the number of dilutive potential common share equivalents during the period. Under the treasury stock method, unexercised “in-the-money” stock 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. For periods where the Company has incurred a loss, dilutive net loss per share is equal to basic net loss per share.

Shares used in calculating basic and diluted earnings per share for the three and six months ended June 30, are as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2005	2004	2005	2004
Weighted average number of shares of common stock outstanding	10,391,538	10,060,866	10,330,883	10,024,138
Dilutive stock options	1,146,000	1,335,250	1,094,409	1,309,761
Shares used in calculating diluted earnings per share	11,537,538	11,396,116	11,425,292	11,333,899

Options to purchase approximately 10,125 and 36,625 shares were outstanding at the quarter and six months ended June 30, 2005, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price during the periods.

5. Inventories

Inventories consist of the following:

	June 30, 2005		December 31, 2004
Raw materials	$	1,772,000	$	1,842,000
Work-in-process	1,462,000		1,589,000
Finished goods	803,000		796,000
Total	$	4,037,000	$	4,227,000

Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.

6. Commitments and Contingencies - Guarantor Arrangements

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the product. The Company may also warrant that the products it manufactures do not infringe, violate or breach any U.S. patent or intellectual property rights, trade secret or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of or in any way connected with any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligence or acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure. Based on the Company’s historical activity in combination with its insurance policy coverage, the Company believes the accrued value of these indemnification agreements is minimal. The Company has no accrued warranties and has no history of claims.

7. Income Taxes

The Company records a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse.

The Company recorded a provision for taxes of $905,000 and $603,000 related to income for the quarters ended June 30, 2005 and 2004, respectively. The Company recorded a provision for taxes of $1,721,000 and $1,107,000 related to income for the six months ended June 30, 2005 and 2004, respectively. The effective tax rate for the provision in the quarter and six months ended June 30, 2005 was approximately 40%. The effective tax rate for the provision in the three months and six months ended June 30, 2004 was approximately 40% and 42%, respectively.

The Company achieved milestones under the OBI Agreement and received payments totaling $27,000,000 which the Company recognized as taxable income in 2004. As a result, the Company determined that it will be able to utilize all of its net operating loss and credit carry-forwards to offset part of its fiscal 2004 taxable income. In accordance with the Company’s revenue recognition policy, for financial statement purposes, the payments totaling $27,000,000 were deferred and are being recognized ratably over the expected ten-year term of the OBI Agreement. The Company recorded a deferred tax asset of $9,800,000 representing the approximate income tax effect of the timing difference of revenue recognition for financial statement purposes and for tax purposes related to these milestone payments as of December 31, 2004. Based on management’s expectations regarding future profitability, the Company released the valuation allowance previously established against its deferred tax assets and recorded a one-time income tax benefit of $7,039,000 in the six months ended June 30, 2004. As of June 30, 2005, management determined that it is more likely than not that the deferred tax assets will be realized and, therefore, a valuation allowance has not been recorded.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding:

•	our future sales and product revenues, including possible retroactive price adjustments and expectations of unit volumes or other offsets to price reductions;
•	our efforts to increase sales of ophthalmic viscoelastic products and support of the distribution of ORTHOVISC^® in the U.S. and internationally;
•	our manufacturing capacity and efficiency gains and work-in-process manufacturing operations;
•	the timing of, scope of and rate of patient enrollment for clinical trials;
•	development of possible new products, including plans to advance cosmetic tissue augmentation and post-surgical adhesion therapies into initial or additional human clinical trials;
•	the timing of and/or receipt of FDA or other regulatory approvals and/or reimbursement approvals of new or potential products;
•	negotiations with potential and existing partners, including our performance under any of our distribution or supply agreements or our expectations with respect to sales and milestones pursuant to such agreements;
•	the level of our revenue or sales in particular geographic areas and/or for particular products;
•	the market share for any of our products;
•	our profitability and margin improvements resulting from a higher margin product mix;
•	our expectations of the size of the U.S. and European markets for osteoarthritis of the knee;
•	our intention to increase market share for ORTHOVISC in international and domestic markets or otherwise penetrate growing markets for osteoarthritis of the knee;
•	our current strategy, including our corporate objectives and research and development and collaboration opportunities, including, without limitation, commencement, completion and evaluation of cosmetic tissue augmentation product and INCERT^® clinical trials;
•	our and OrthoNeutrogena’s performance under the license agreement for our cosmetic tissue augmentation product;
•	our ability to achieve performance and sales threshold milestones in our existing and future distribution and supply agreements;
•	our and Bausch & Lomb’s performance under our supply agreement for certain of our ophthalmic viscoelastic products;
•	our ability to successfully administer product recalls, including impact of our product rework on manufacturing operations, and potential recapturing of sales lost to the recall during the second half of 2005;
•	our expected tax rate and taxable revenues;
•	our ability and timing with respect to filling vacancies in senior management positions;
•	the rate at which we use cash, the amounts used, and the utilization of such cash; and
•	possible negotiations or re-negotiations with existing or new distribution or collaboration partners.

Furthermore, additional statements identified by words such as “will,” “likely,” “may,” “believe,” “expect,” “anticipate,” “intend,” “seek,” “designed,” “develop,” “would,” “future,” “can,” “could” and other expressions that are predictions of or indicate future events and trends and which do not relate to historical matters, also identify forward-looking statements. You should not rely on forward looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, including those factors described in the section titled “Risk Factors and Certain Factors Affecting Future Operating Results” in this Quarterly Report on Form 10-Q. These risks, uncertainties and other factors may cause our actual results, performance or achievement to be materially different from anticipated future results, performance or achievement, expressed or implied by the forward-looking statements. These forward looking statements are based upon the current assumptions of our

management and are only expectations of future results. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences, including those factors discussed herein and in the “Management’s Discussions and Analysis of Financial Condition and Results of Operations” beginning on page [13] of this Quarterly Report on form 10-Q, as well as the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2004 and in our press releases and other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, future events or other changes.

Management Overview

Anika Therapeutics 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. Our marketed products include therapies for the treatment of joint diseases such as osteoarthritis and viscoelastic products used in eye surgery. Products in development include chemically modified, cross-linked forms of HA to prevent surgical adhesions and for cosmetic tissue augmentation (CTA).

Our currently marketed products include ORTHOVISC®, an HA product used in the treatment of some forms of osteoarthritis in humans, and HYVISC®, an HA product used in the treatment of equine osteoarthritis. In the U.S., ORTHOVISC became available for sale on March 1, 2004 and is marketed by Ortho Biotech Products, L.P. and, commencing in the second quarter, DePuy Mitek, Inc., both Johnson & Johnson companies, under an exclusive license and supply agreement. Internationally, ORTHOVISC has been approved for sale and marketed since 1996 under various distribution and marketing agreements. HYVISC is marketed in the U.S. through an exclusive agreement with Boehringer Ingelheim Vetmedica, Inc. Our ophthalmic products include STAARVISC™-II, and ShellGel™, each an injectable ophthalmic viscoelastic HA product, distributed by STAAR Surgical Company, and Cytosol Ophthalmics, Inc., respectively. We also manufacture AMVISC® and AMVISC® Plus, HA viscoelastic supplement products used in ophthalmic surgery, for Bausch & Lomb Incorporated.

Osteoarthritis Business

We have marketed ORTHOVISC, our product for the treatment of osteoarthritis of the knee, internationally since 1996 through various distribution agreements. International sales of ORTHOVISC contributed 47% and 36%, respectively, of product revenue for the three and six months ended June 30, 2005 and increased 44% and 65% compared to the same three- and six-month periods of 2004. The increase was primarily due to increased market penetration in Turkey and Canada. We expect international sales to continue to grow in 2005 compared to 2004, although at a lower rate than the first six months of 2005, reflecting the increased market penetration in certain of our existing markets as well as anticipated expansion into new international markets.

We received marketing approval from the U.S. FDA in February 2004 for ORTHOVISC. Sales of ORTHOVISC were initiated in March 2004 by Ortho Biotech in the U.S. Sales of ORTHOVISC in the U.S. contributed 7% and 11%, respectively, of our product revenue for the three and six months ended June 30, 2005 and decreased 82% and 65% from the same three- and six-month periods of 2004. ORTHOVISC sales to Ortho Biotech in the first quarter and six months of 2004 included substantial initial stocking orders to build inventory in connection with the U.S. launch, and 2005 orders through June 30 have been significantly lower compared to 2004 periods as Ortho Biotech and DePuy Mitek continue to sell down its inventory position accumulated during fiscal 2004. As discussed above, in the second quarter of 2005,

DePuy Mitek commenced selling ORTHOVISC. DePuy Mitek is a developer, manufacturer and marketer of innovative medical devices for surgery, with a focus on sports medicine and soft tissue reconstruction. We have been informed that DePuy Mitek will focus its ORTHOVISC sales efforts on arthroscopists and orthopedic surgeons who typically see patients prior to a need for total knee replacement and Ortho Biotech will retain the primary responsibility for marketing ORTHOVISC to rheumatologists and other specialties. We provide no assurance that these efforts will have a material effect on ORTHOVISC sales.

Sales of ORTHOVISC to end-users grew slower than anticipated in 2004 as a result of a number of factors. We believe that a primary contributing factor to this slower growth has been reimbursement and lack of receiving assignment of a specific reimbursement code. The Healthcare Common Procedure Coding System (HCPCS) is a comprehensive and standardized coding system that describes classifications of like products that are medical in nature by category for the purpose of efficient claims processing. HCPCS codes are assigned by the Centers for Medicare and Medicaid Services (CMS). As is typical for a newly-introduced medical device, initial sales of ORTHOVISC were made without a unique reimbursement code and reimbursement submissions were made using a miscellaneous code. We believe that using the miscellaneous reimbursement code negatively impacted end-user sales of ORTHOVISC in 2004. Ortho Biotech, with our help, submitted an application to secure a unique reimbursement code for ORTHOVISC in March 2004. In November 2004, Ortho Biotech received a decision on the application which assigned a unique reimbursement code to be used by hospitals in an outpatient setting (the C code) which specifies a reimbursement dollar value. Use of the C code was effective January 2005. The CMS decision, however, did not assign a unique reimbursement code to be used in the physician office setting (the J code) because the application filed in March 2004 did not reflect the required six months of sales history. An application for a unique J code was submitted in January 2005 which, if assigned, will be effective in January 2006. We are working with the HCPCS committee and continue to seek a unique code for ORTHOVISC. In the meantime, reimbursements will continue under the miscellaneous code. There can be no assurance that ORTHOVISC will receive a unique J code. The effect on ORTHOVISC sales of not receiving a unique J code is uncertain and cannot currently be estimated.

In addition to milestone payments, the OBI Agreement provides for Ortho Biotech to pay us transfer fees, which are related to sales to Ortho Biotech, and royalty fees, which are tied to end-user sales. As a result of Ortho Biotech’s inventory buildup during 2004, we presently expect to experience a reduction in transfer fees, which may be offset by royalties as, and if, ORTHOVISC achieves desired market penetration. As a result of these factors, we did not ship any ORTHOVISC to Ortho Biotech in the fourth quarter of 2004 or the second quarter of 2005 and shipments in the first quarter of 2005 were below the comparable 2004 period level. We expect unit sales of ORTHOVISC to Ortho Biotech and DePuy Miteck in 2005 will continue to be below 2004 levels. However, we expect the negative impact on our revenues will be partially mitigated by increased royalties we receive on end-user sales, although the magnitude is uncertain.

Sales of HYVISC, our product for the treatment of equine osteoarthritis, contributed 8% to product revenue in both the three and six months ended June 30, 2005 and increased 56% and decreased 26% compared to the same three- and six-month periods of 2004, primarily due to timing of orders and shipping patterns. We expect sales of HYVISC to decrease modestly in 2005 compared to 2004 primarily due to distributor inventory replenishment patterns, although not as significantly as during the first half of 2005. We continue to look at other veterinary applications and opportunities to expand geographic territories.

Ophthalmic Business

Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. For the quarter ended June 30, 2005, sales of ophthalmic products contributed 38% of our product revenue reflecting a decrease in sales of ophthalmic products of 42% compared to second quarter of 2004. Sales to Bausch & Lomb accounted for 77% of ophthalmic sales for the second quarter of 2005 and contributed 30% of product revenue for the period. Our ophthalmic sales were significantly impacted as a result of a

voluntary product recall instigated by our discovery of defective vendor-supplied finished goods packaged with our HA viscoelastic product. This voluntary recall resulted in a decrease of $1,359,000 in sales of ophthalmic product for the three and six month periods of 2005. We anticipate that ophthalmic sales lost as a result of the recall will be recaptured during the remainder of 2005, primarily in the third quarter although additional recall related expenses will also be incurred. We expect ophthalmic product sales for 2005 to be below 2004 levels primarily due to the expiration of our agreement with Advanced Medical Optics partially offset by increased sales to Bausch & Lomb.

In December 2004, we entered into a multi-year supply agreement (the 2004 B&L Agreement) with Bausch & Lomb for viscoelastic products used in ophthalmic surgery. Under the new agreement, which extends through December 31, 2010, and superseded the supply contract (the 2000 B&L Agreement) that was set to expire December 31, 2007, we will continue to be the exclusive global supplier (other than with respect to Japan) for AMVISC and AMVISC Plus to Bausch & Lomb. The 2004 B&L Agreement also provides us with a right to negotiate to manufacture future surgical ophthalmic viscoelastic products developed by Bausch & Lomb, while Bausch & Lomb has been granted rights to commercialize certain future surgical ophthalmic viscoelastic products developed by us. The 2004 B&L Agreement applies to all products sold by us to Bausch & Lomb from the beginning of 2004, with a price increase January 1, 2005. Under the 2004 B&L Agreement, we are entitled to continue providing surgical viscoelastic products to our existing customers (e.g. STAAR Surgical Company, Cytosol Ophthalmics, Inc.) who currently receive such products from us.

Our distributor for CoEase, Advanced Medical Optics, completed the acquisition of the surgical ophthalmology business of Pfizer, Inc., in June 2004, which includes a competing line of viscoelastic products for use in ocular surgery. As a result, our agreement with Advanced Medical Optics expired according to its terms in June 2005. Sales to Advanced Medical Optics decreased 66% and 78% for the three and six months ended June 30, 2005 compared to the same periods last year and contributed less than 5% of product revenue for the quarter. Included in ophthalmic sales in the second quarter of 2005 is a one-time retroactive price adjustment of $198,000 pursuant to the terms of our agreement with Advanced Medical Optics. Sales to Advanced Medical Optics contributed 19% of ophthalmic product revenue and 10% of total product revenue for the year ended December 31, 2004.

Research and Development

Our current research and development efforts are focused on our chemically modified formulations of HA designed for longer residence time in the body. We initiated a U.S. pivotal clinical trial for our product for cosmetic tissue augmentation (CTA), a therapy for correcting dermal defects, including facial wrinkles, scar remediation and lip augmentation, in May 2004. The trial is designed to evaluate the effectiveness of CTA for correcting nasolabial folds and is being conducted by dermatologists and plastic surgeons at 10 centers throughout the U.S. Patient enrollment was completed during the third quarter of 2004 and patients will be monitored for 6 to 12 months following initial treatment. In the second quarter we completed our review of the clinical study primary end point results of our CTA product. We intend to file a PMA by the end of the third quarter, even though our strategic partner, OrthoNeutrogena, has instructed us not to file that PMA. Discussions with OrthoNeutrogena regarding this issue are ongoing. Under our agreement with OrthoNeutrogena, we are being reimbursed for the clinical trial expenses, subject to certain limitations, which amounts are included in contract revenue.

In April 2004 we initiated a pilot human clinical trial for INCERT^®-S, a chemically modified form of HA designed to act as a barrier to prevent internal tissue adhesion and scarring following spinal surgery. The clinical trial is being conducted at two centers in the U.K. Patient enrollment was concluded during the second quarter of 2005 with a total of 27 patients enrolled. We expect that the last patient will complete follow up at the end of September 2005.

Summary of Critical Accounting Policies; Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 3 in the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005.

Revenue Recognition.

Our revenue recognition policies are in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

We recognize revenue from the sales of products we manufacture upon confirmation of regulatory compliance and shipment to the customer as long as there is (1) persuasive evidence of an arrangement, (2) delivery has occurred and risk of loss has passed, (3) the sales price is fixed or determinable and (4) collection of the related receivable is probable. Amounts billed or collected prior to recognition of revenue are classified as deferred revenue. When determining whether risk of loss has transferred to customers on product sales or if the sales price is fixed or determinable we evaluate both the contractual terms and conditions of our distribution and supply agreements as well as our business practices.

Under the 2000 B&L Agreement, the price for units sold in a calendar year was dependent on total unit volume of sales to Bausch & Lomb and other customers of certain ophthalmic products during the year. Prices fluctuated based on sales levels, and interim quarters were subject to possible retroactive price adjustments when the actual annual unit volume for the year became known. Given the pricing in this arrangement was not fixed and was determined based on qualifying sales to multiple customers, we determined that we could not reliably estimate the rebate, and accordingly, we deferred the maximum rebate that could be due until the annual sales volume was known in the fourth quarter. Under the 2004 B&L Agreement, the pricing is based solely on ophthalmic products sold to Bausch & Lomb. While the unit prices will be discounted for those units in excess of cumulative minimum sales levels, no additional amounts will be rebated. The applicable discount will be measured quarterly, subject to adjustment based on cumulative annual thresholds. Factors we consider in developing our estimate include: (1) the discount will be based solely on sales activity with Bausch & Lomb who has been a long standing customer of our opthalmic products; (2) the homogenous nature of the products purchased under this arrangement; (3) our expected future activity with Bausch & Lomb based on historical experience and product forecasts provided by them; and (4) overall market demand for our opthalmic products.

In July 2004 the Company entered into an exclusive worldwide development and commercialization agreement (the OrthoNeutrogena Agreement) for our CTA products with the OrthoNeutrogena, a division of Ortho-McNeil Pharmaceuticals, Inc., an affiliate of Johnson & Johnson. This arrangement included up front payments, specified funding of ongoing development activities, milestones upon achievement of predefined goals, in addition, we will receive payments for supply of CTA products and royalties on sales. We believe this is a multiple element arrangement that falls under the scope of EITF 00-21. Under the EITF 00-21 framework, in order to account for an element as a separate unit of

accounting, the element must have stand-alone value and there must be objective and reliable evidence of fair value of the undelivered elements. While this arrangement includes several elements, we believe that two separate units of accounting exist (a combined license and development unit and a manufacturing unit) under the EITF 00-21 model.

We account for the combined license and development unit using the performance based revenue recognition model. Pursuant to this model, we estimate both the total revenues we expect to earn and the expense we expect to incur related to the license and development unit. We recognize revenue based on the proportion of effort expended to total estimated effort, limited to the amount of non-refundable cash received or receivable. Quarterly, we review our estimates of total revenue and expense related to the license and development unit. Actual revenue earned and/or expenses incurred may differ from our estimates and may have a material affect upon our future results of operations. During the second quarter of 2005, we reviewed and revised, as appropriate, our estimates of total revenue and total cost related to the license and development unit.

Under the OrthoNeutrogena Agreement, we received non-refundable upfront fees of $1,000,000 and reimbursement for approximately $1,305,000 of costs which we incurred prior to the inception date of this agreement. We have treated both these amounts as upfront fees that we will recognize over the expected term of the license and development unit. In addition to the upfront fees, we receive reimbursement of pre-approved development costs. For the quarter and six months ended June 30, 2005 we recognized $2,249,000 and $3,167,000, respectively, as contract revenue under this arrangement pursuant to the performance-based revenue recognition model.

In December 2003 the Company entered into a ten-year licensing and supply agreement (the OBI Agreement) with Ortho Biotech Products, L.P., a member of the Johnson & Johnson family of companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement, Ortho Biotech will perform sales, marketing and distribution functions and licensed the right to further develop and commercialize ORTHOVISC as well as other new products for the treatment of pain associated with osteoarthritis based on the Company’s viscosupplementation technology. In support of the license, the OBI Agreement provides that Ortho Biotech will fund post-marketing clinical trials for new indications of ORTHOVISC. The Company received an initial payment of $2,000,000 upon entering into the OBI Agreement, a milestone payment of $20,000,000 in February 2004, as a result of obtaining FDA approval of ORTHOVISC and a milestone payment of $5,000,000 in December 2004 for planned upgrades to our manufacturing operations. We evaluated the terms of the OBI Agreement and determined that the upfront fee and milestone payments did not meet the conditions to be recognized separately from the supply agreement, therefore, we have deferred non refundable payments $27,000,000 which we recognize ratably over the expected term of the OBI Agreement, which is currently estimated at 10 years. The actual term of the OBI Agreement may differ from our estimates and may have a material affect upon our future results of operations.

Reserve for Obsolete/Excess Inventory. Inventories are stated at the lower of cost or market. We regularly review our inventories and record a provision for excess and obsolete inventory based on certain factors that may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, inventory cycle time, regulatory requirements and significant changes in our cost structure. If ultimate usage varies significantly from expected usage or other factors arise that are significantly different than those anticipated by management, additional inventory write-down or increases in obsolescence reserves may be required.

We generally produce finished goods based upon specific orders or in anticipation of specific orders. As a result, we generally do not establish reserves against finished goods. Under certain circumstances we may purchase raw materials or manufacture work-in-process or finished goods inventory in anticipation of receiving regulatory approval for the use of the raw materials in our manufacturing process

or sale of the finished goods inventory. We evaluate the value of inventory on a quarterly basis and may, based on future changes in facts and circumstances, determine that a write-down of inventory is required in future periods.

Deferred tax assets. We record a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse.

In 2004, we achieved milestones under the OBI Agreement and received payments totaling $25,000,000 which we recognized as taxable income in 2004. As a result, we have determined that we will be able to utilize all of our net operating loss and credit carry-forwards in 2004 to offset part of our taxable income. In accordance with our revenue recognition policy, for financial statement purposes, the milestone payments totaling $25,000,000 were deferred and are being recognized ratably over the expected ten-year term of the OBI Agreement. We recorded a deferred tax asset of $9,100,000 representing the approximate income tax effect of the timing difference of revenue recognition for financial statement purposes and for tax purposes related to these milestone payments as of December 31, 2004. Based on management’s expectations regarding future profitability, we released the valuation allowance previously established against our deferred tax assets and recorded a one-time income tax benefit of $7,039,000 in the first quarter of 2004. As of June 30, 2005, management determined that it is more likely than not that the deferred tax assets will be realized and, therefore, a valuation allowance has not been recorded.

Results of Operations

Product revenue. Product revenue for the quarter ended June 30, 2005 was $4,084,000, a decrease of $1,606,000, or 28%, compared to $5,690,000 for the quarter ended June 30, 2004. Product revenue for the six months ended June 30, 2005 was $9,761,000, a decrease of $1,498,000, or 13%, compared to $11,259,000 for the six months ended June 30, 2004.

Three Months Ended June 30,
(in thousands)
					Increase (Decrease)
	2005		2004		$			%
Ophthalmic Products	$	1,570	$	2,688	$	(1,118	)	(42	)%
ORTHOVISC^®	2,192		2,796		(604		)	(22	)%
HYVISC^®	322		206		116			56	%
	$	4,084	$	5,690	$	(1,606	)	(28	)%

Six Months Ended June 30,
(in thousands)
					Increase (Decrease)
	2005		2004		$			%
Ophthalmic Products	$	4,339	$	5,062	$	(723	)	(14	)%
ORTHOVISC^®	4,593		5,071		(478		)	(9	)%
HYVISC^®	829		1,126		(297		)	(26	)%
	$	9,761	$	11,259	$	(1,498	)	(13	)%

The decrease in Ophthalmic product sales for the quarter and six months ended June 30, 2005 is primarily attributable to a voluntary product recall in early July resulting from our discovery of defective vendor-supplied finished goods packaged with our HA viscoelastic product, which reduced sales of ophthalmic product for the second quarter by $1,359,000. Sales to Bausch & Lomb decreased 37% and increased 4%, respectively, for the quarter and six months ended June 30, 2005 compared to the same period last year and contributed 30% and 38% of product revenue for the three and six months, respectively. Under the 2000 B&L Agreement, we deferred $337,000 and $633,000 of revenue in the three and six months of 2004, respectively. The 2004 B&L Agreement retroactively applied to sales from the beginning of 2004. As a

result, in the fourth quarter of 2004, the Company applied the unit pricing terms under the 2004 B&L Agreement to its 2004 Bausch & Lomb sales activity. By applying this new pricing to 2004 transactions, the Company earned $761,000 of revenue which was previously deferred during the first nine months of 2004 and rebated $252,000 to Bausch & Lomb. Under the 2004 B&L Agreement, pricing is based solely on ophthalmic products sold to Bausch & Lomb. While the unit prices will be discounted for those units in excess of cumulative minimum sales levels, no additional amounts will be rebated. The applicable discount will be measured quarterly, subject to adjustment based on cumulative annual thresholds.. Sales to Advanced Medical Optics decreased 66% and 78%, respectively, for the quarter and six months ended June 30, 2005 compared to the same periods last year and contributed less than 5% and 3% of product revenue for the quarter and six months, respectively. The decrease in sales to Advanced Medical Optics is attributable to Advanced Medical Optics’ acquisition of a competing line of viscoelastic products for use in ocular surgery. Our agreement with Advanced Medical Optics expired according to its terms in June 2005.

The decrease in ORTHOVISC sales for the three and six months ended June 30, 2005, is primarily due to lower unit sales in the U.S. to our distribution partners—Ortho Biotech and DePuy Mitek. This decrease was partially offset by continued robust international sales. U.S. sales of ORTHOVISC were 7% and 11%, respectively of product sales for the three and six months ended June 30, 2005 compared to 26% of product sales for each of the same periods last year. The decrease in unit sales was partially offset by an increase in royalty fees tied to end-user sales. International sales of ORTHOVISC increased 44% and 65%, respectively for the three and six months ended June 30, 2005 compared to the same periods last year. The increase in international sales for the quarter was primarily attributable to sales to our distributors in Turkey, and Canada reflecting increased market penetration by our distributors.

The increase in HYVISC sales for the three months ended June 30, 2005 and the decrease in HYVISC sales for the six months ended June 30, 2005 compared to the same periods last year are believed to be primarily attributable to distributor stocking patterns. HYVISC sales contributed 8% and 4% of product revenue for the quarter ended June 30, 2005 and 2004, respectively. HYVISC sales contributed 8% and 10% of product revenue for the six months ended June 30, 2005 and 2004, respectively.

Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the three and six months ended June 30, 2005 was $2,936,000 and $4,550,000, respectively, compared to $572,000 and $1,144,000 for the three and six months ended June 30, 2004. For the second quarter and first six months of 2005, licensing and milestone revenue includes the ratable recognition of the $27,000,000 in up-front and milestone payments from Ortho Biotech. These amounts are being recognized in income ratably over the ten-year expected life of the agreement, or $675,000 per quarter. As of June 30, 2004, $22,000,000 of the up-front and milestone payments had been received and $1,100,000 was included in income. Contract revenue was $2,249,000 and $3,167,000 for the three and six months ended June 30, 2005. Contract revenue consists of reimbursement of clinical and development costs from OrthoNeutrogena as well as development-related fees and milestones under the OrthoNeutrogena agreement recorded utilizing a performance-based method for revenue recognition.

Gross profit. Gross profit for the quarter ended June 30, 2005 was $4,903,000, or 70% of revenue, an increase of $1,083,000, or 28 %, from gross profit of $3,820,000, representing 61% of revenue, for the quarter ended June 30, 2004. Gross margin on product revenue was 48% for the quarter ended June 30, 2005 compared with 57 % for the quarter ended June 30, 2004. Gross profit for the six months ended June 30, 2005 was $9,200,000, or 64% of revenue, an increase of $1,960,000, or 27%, from gross profit of $7,240,000, representing 58 % of revenue, for the six months ended June 30, 2004. Gross margin on product revenue was 48% for the six months ended June 30, 2005 compared with 54% for the six months ended June 30, 2004. The increase in gross profit for the six months and quarter ended June 30, 2005, as compared with same period last year is attributable to the increase in licensing, milestone and contract revenue partially offset by the decrease in gross margin on product revenue. Gross margin on product revenue during the three and six month periods decreased primarily due to the ophthalmic product recall

discussed above which resulted in an inventory write-off of $179,000.

Research & development. Research and development expense for the quarter ended June 30, 2005 was $1,461,000 an increase of $336,000, or 30%, compared to $1,125,000 for the quarter ended June 30, 2004. Research and development expense for the six months ended June 30, 2005 was $2,660,000 an increase of $628,000, or 31%, compared to $2,032,000 for the six months ended June 30, 2004. Research and development expense includes costs associated with our in-house research and development efforts for the development of new medical applications for our HA-based technology, the management of clinical trials, and the preparation and processing of applications for regulatory approvals at various relevant stages of development. The increase in research and development expenses for the quarter is primarily attributable to expenditures associated with the pivotal clinical trial for our product for cosmetic tissue augmentation initiated in May 2004 and the pilot study for INCERT-S initiated in April 2004. The increase in research and development expense is also driven by engineering and scale-up activities in connection the CTA product.

Selling, general & administrative. Selling, general and administrative expenses for the quarter ended June 30, 2005 was $1,475,000, an increase of $68,000, or 5%, compared to $1,407,000 for the same period last year. Selling, general and administrative expenses for the six months ended June 30, 2005 was $2,767,000, an increase of $52,000 or 2% compared to $2,715,000 for the same period last year. Selling, general and administrative expenses for the three and six months increased primarily due to higher professional fees related to recruiting, accounting and auditing services.

Interest income. Interest income for the three and six months ended June 30, 2005 was $275,000 and $487,000, respectively an increase of $195,000, or 244%, and $361,000 or 287% compared to $80,000 and $126,000 for the same periods last year. The increase is primarily attributable to higher average balance in cash and cash equivalents combined with higher interest rates.

Income taxes. Provision for income taxes was $905,000 and $1,721,000 for the three and six months ended June 30, 2005 compared to $603,000 and $1,107,000 for the same periods last year. The effective tax rate for the six months ended June 30, 2005 was approximately 40%. As a result of the receipt of the $20,000,000 milestone payment in February 2004 from Ortho Biotech, the operating results and forecasted future income supported an assertion that ultimate realization of our deferred tax assets is more likely than not. Accordingly, we fully released the valuation allowance and recorded a one-time tax benefit of $7,039,000 which is reflected in the results of operations for the six months ended June 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2005, cash and cash equivalents totaled $39,930,000 compared to $39,339,000 at December 31, 2004. Working capital increased to $44,200,000 at June 30, 2005 compared to $42,135,000 as of the prior year end. We require cash to fund our operating expenses and to make capital expenditures. We expect that our requirement for cash to fund these uses will increase as the scope of our operations expands. Historically we have funded our cash requirements from available cash and investments on hand.

Cash provided by operating activities was $416,000 for the six months ended June 30, 2005 compared with $18,132,000 for the six months ended June 30, 2004. Cash provided by operating activities in the first six months of 2005 resulted primarily from net income of $2,539,000 and a tax benefit related to stock option plans of $1,105,000. This was partially offset by a decrease in accounts payable and accrued expenses of $993,000 and deferred revenue of $2,981,000. The decrease in accounts payable is the result of the timing of receipt and payment of invoices. The decrease in deferred revenue reflects the amortization of upfront and milestone payments from Ortho Biotech combined with recognition of revenue under a performance based revenue recognition model associated with upfront payments received from OrthoNeutrogena. Cash provided by operating activities for the six months ended June 30, 2004 primarily reflects an increase in deferred revenue of $19,642,000 due to a $20,000,000 milestone payment received from Ortho Biotech in February 2004 related to FDA approval of ORTHOVISC.

Cash used in investing activities was $326,000 for the six months ended June 30, 2005. Cash used in investing activities for 2005 reflects capital expenditures primarily for manufacturing and computer equipment. We expect to increase our capital expenditures in 2005 compared to 2004 primarily for upgrading and expanding our manufacturing and packaging equipment. Cash provided by investing activities was $590,000 from the release of restricted cash for the six months ended June 30, 2004.

Cash provided by financing activities of $501,000 and $222,000 for the six months ended June 30, 2005 and 2004, respectively, reflects the proceeds from the exercise of stock options.

We expect to incur approximately $3,000,000 on capital expenditures related to general facilities improvements, including manufacturing facility upgrade, and manufacturing equipment for the CTA product. Capital equipment related to the CTA product launch accounts for approximately $2,000,000 of the $3,000,000 expenditures. We expect that approximately $2,000,000 of the $3,000,000 capital expenditures will be incurred during the remainder of 2005, the balance is expected to be spent in the first half of 2006.

Recent Accounting Pronouncements

In December 2004, the FASB, issued a revision to SFAS 123, “Share-Based Payment,” also known as SFAS 123(R), that amends existing accounting pronouncements for share-based payment transactions in which an enterprise receives employee and certain non-employee services in exchange for (1) equity instruments of the enterprise or (2) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123(R) eliminates the ability to account for share-based compensation transactions using APB 25 and generally requires such transactions be accounted for using a fair-value-based method. SFAS 123(R)’s effective date would be applicable for awards that are granted, modified, become vested, or settled in cash in interim or annual periods beginning after June 15, 2005. SFAS 123(R) includes three transition methods: one that provides for prospective application and two that provide for retrospective application. In April 2005, the SEC issued a new rule allowing companies to implement SFAS 123(R) at the beginning of the next fiscal year, instead of the next reporting period that begins after June 15, 2005. As a result, we intend to adopt SFAS 123(R) prospectively commencing in the first quarter of the fiscal year ending December 31, 2006; it is expected that the adoption of SFAS 123(R) will cause us to record, as expense each quarter, a non-cash accounting charge approximating the fair value of such share based compensation meeting the criteria outlined in the provisions of SFAS 123(R).

In April 2005, the SEC issued Staff Accounting Bulletin 107, “Shares-Based Payment,” which expresses the SEC Staff’s views regarding the application of SFAS No. 123(R). At present, we have not evaluated the effect of this standard.

RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

Our business is subject to comprehensive and varied government regulation and, as a result, failure to obtain FDA or other governmental approvals for our products may materially adversely affect our business, results of operations and financial condition.

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 our new products on a timely basis if at all, or that FDA review will not involve delays that will adversely affect our 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 our product development process which may adversely affect approval of or delay an application or require additional expenditures by us. In the event our future products are regulated as human drugs or biologics, the FDA’s review process of such products typically would be substantially longer and more expensive than the review process to which they are currently subject as devices.

Our HA products under development, including a product for the cosmetic tissue augmentation market (CTA), and INCERT^®, a product designed to prevent surgical adhesions, have not obtained U.S. regulatory approval for commercial marketing and sale. We received Conformité Européenne marking (CE marking), a foreign regulatory approval for commercial marketing and sale, for INCERT in the third quarter of 2004. CTA has not received foreign regulatory approval for marketing and sale. We believe that these products will be regulated as Class III medical devices in the U.S. and will require a PMA prior to marketing. We cannot assure you that:

• we will begin or successfully complete clinical trials for these products;

• the clinical data will support the efficacy of these products;

• we will be able to successfully complete the FDA or foreign regulatory approval process, where required; or

• additional clinical trials will support a PMA application and/or FDA approval or foreign regulatory approval, where required, in a timely manner or at all.

We also cannot assure you that any delay in receiving FDA approvals will not adversely affect our competitive position. Furthermore, even if we do receive FDA approval:

• the approval may include significant limitations on the indications and other claims sought for use for which the products may be marketed;

• the approval may include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements; and

• meaningful sales may never be achieved.

We have previously disclosed our intention to file a PMA with respect to our CTA product by the end of the third quarter 2005. In the second quarter we completed our review of the clinical study primary end point results. Following this review, we reiterated our intent to file a PMA by the end of the third quarter. However, our strategic partner, OrthoNeutrogena, has instructed us not to file that PMA. Discussions with OrthoNeutrgena regarding this issue are ongoing. We cannot assure you that such discussions will be resolved in a manner that will provide for the filing of the PMA during the third quarter.

Once obtained, marketing approval can be withdrawn by the FDA for a number of reasons, including, among others, the failure to comply with regulatory standards, or the occurrence of unforeseen problems following initial approval. We may be required to make further filings with the FDA under certain circumstances. The FDA’s regulations require 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, and changes in performance or design specifications. Changes in manufacturing procedures or methods of manufacturing that may affect safety and effectiveness may be deemed approved after a 30-day notice unless the FDA requests a 135-day supplement. Our failure 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, may have a material adverse effect on our business, financial condition, and results of operations. The FDA could also limit or prevent the

manufacture or distribution of our products and has the power to require the recall of such products. Significant delay or cost in obtaining, or failure to obtain FDA approval to market products, any FDA limitations on the use of our products, or any withdrawal or suspension of approval or rescission of approval by the FDA could have a material adverse effect on our business, financial condition, and results of operations.

In addition, all FDA approved or cleared products manufactured by us must be manufactured in compliance with the FDA’s Good Manufacturing Practices (GMP) regulations and, for medical devices, the FDA’s Quality System Regulations (QSR). Ongoing compliance with QSR and other applicable regulatory requirements is enforced through periodic inspection by state and federal agencies, including the FDA. The FDA may inspect us and our facilities from time to time to determine whether we are in compliance with regulations relating to medical device and manufacturing companies, including regulations concerning manufacturing, testing, quality control and product labeling practices. We cannot assure you that we 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 we cannot assure you that the future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us. In addition, changes in the existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of our 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, we are subject to other existing and 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. We cannot assure you that we will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory approvals for any or all of our products or that we will be able to produce our 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. We cannot predict what impact, if any, such changes might have on our business.

The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and subject to unanticipated delays. We cannot assure you that approvals or clearances of our products will be granted or that we will have the necessary funds to develop certain of our products. Any failure to obtain, or delay in obtaining such approvals or clearances, could adversely affect our ability to market our products.

Substantial competition could materially affect our financial performance.

We compete with many companies, including, among others, 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 us. We also compete with academic institutions, governmental agencies and other research organizations that may be involved in research, development and commercialization of products. Because a number of companies are developing or have developed HA products for similar applications and have received FDA approval, the successful commercialization of a particular product will depend in part upon our ability to complete clinical studies

and obtain FDA marketing and foreign regulatory approvals prior to our competitors, or, if regulatory approval is not obtained prior to competitors, to identify markets for our products that may be sufficient to permit meaningful sales of our products. For example, we are aware of several companies that are developing and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have already obtained product approvals, submitted applications for approval or have commenced human clinical studies, either in the U.S. or in certain foreign countries. There exists major competing products for the use of HA in ophthalmic surgery. In addition, certain HA products for the treatment of osteoarthritis in the knee have received FDA approval before us and have been marketed in the U.S. since 1997, as well as select markets in Canada, Europe and other countries. In early 2004, the FDA approved two HA product for the treatment of facial wrinkles which has been marketed internationally since 1996. There can be no assurance that we will be able to compete against current or future competitors or that competition will not have a material adverse effect on our business, financial condition and results of operations.

We are uncertain regarding the success of our clinical trials.

Several of our products will require clinical trials to determine their safety and efficacy for U.S. and international marketing approval by regulatory bodies, including the FDA. We began a pilot human clinical trial in Europe for INCERT-S in April 2004 and initiated a pivotal clinical trial for our product for CTA in May 2004. There can be no assurance that we will successfully complete clinical trials of INCERT–S or our CTA product or that we will be able to successfully complete the regulatory approval process for either INCERT–S or our CTA product. In addition, there can be no assurance that we will not encounter additional problems that will cause us to delay, suspend or terminate the clinical trials. In addition, we cannot make any assurance that such clinical trials, if completed, will ultimately demonstrate these products to be safe and efficacious.

We are dependent upon marketing and distribution partners and the failure to maintain strategic alliances on acceptable terms will have a material adverse effect on our business, financial condition and results of operations.

Our success will be dependent, in part, upon the efforts of our marketing partners and the terms and conditions of our relationships with such marketing partners.

We cannot assure you that such marketing partners will not seek to renegotiate their current agreements on terms less favorable to us. Under the terms of the 2004 B&L Agreement, effective December 15, 2004, we continue to be Bausch & Lomb’s exclusive global supplier (other than with respect to Japan) of AMVISC and AMVISC Plus ophthalmic viscoelastic products. The B&L Agreement expires December 31, 2010, and superseded an existing supply contract with Bausch & Lomb that was set to expire December 31, 2007. The new contract also provides us with a right to negotiate to manufacture future surgical ophthalmic viscoelastic products developed by Bausch & Lomb, while Bausch & Lomb has been granted rights to commercialize certain future surgical ophthalmic viscoelastic products developed by us. In addition, under certain circumstances, Bausch & Lomb has the right to terminate the agreement, and/or the agreement may revert to a non-exclusive basis; in each case, we cannot make any assurances that such circumstances will not occur. For the six months ended June 30, 2005 and 2004, sales of AMVISC products to Bausch & Lomb accounted for 26% and 29% of total revenues, respectively. Although we intend to continue to seek new ophthalmic product customers, there can be no assurances that we will be successful in obtaining new customers or achieve meaningful sales to such new customers.

Our distributor for CoEase, Advanced Medical Optics, completed its previously announced acquisition of the surgical ophthalmology business of Pfizer, Inc. in June 2004, which includes a competing line of viscoelastic products for use in ocular surgery. As a result, our agreement with Advanced Medical

Optics has not been renewed and terminated in June 2005 upon its expiration. Sales to Advanced Medical Optics were less than 2% of total revenue for the six months ended June 30, 2005 compared to 9% of total revenue for the first six months of 2004. Sales to Advanced Medical Optics were 8% of total revenue for the year ended December 31, 2004, or approximately $2.2 million. As a result, in the future we may not be able to sustain current product revenue levels in our ophthalmic business.

We have entered into various agreements for the distribution of ORTHOVISC internationally which are subject to termination under certain circumstances. We are continuing to seek to establish long-term distribution relationships in regions not covered by existing agreements, but can make no assurances that we will be successful in doing so. There can be no assurance that we will be able to identify or engage appropriate distribution or collaboration partners or effectively transition to any such partners. There can be no assurance that we will obtain European or other reimbursement approvals or, if such approvals are obtained, they will be obtained on a timely basis or at a satisfactory level of reimbursement.

In December 2003 we entered into a ten-year licensing and supply agreement with Ortho Biotech Products, L.P., a member of the Johnson & Johnson family of companies, to market ORTHOVISC in the U.S. and Mexico. Under the OBI Agreement Ortho Biotech will perform sales, marketing and distribution functions. Additionally, Ortho Biotech licensed the right to further develop and commercialize ORTHOVISC products for the treatment of pain associated with osteoarthritis. We cannot assure you that Ortho Biotech will be able to market ORTHOVISC effectively or to establish sales levels to the extent that Anika and Ortho Biotech believe are possible in the timeframes expected, or at all, nor can we assure you that we will be able to achieve the performance- and sales- based milestones provided in the OBI Agreement. In the second quarter of 2005, in addition to Ortho Biotech’s marketing of ORTHOVISC, DePuy Mitek, Inc., another Johnson & Johnson company, began selling ORTHOVISC in the U.S. DePuy Mitek is a developer, manufacturer and marketer of innovative medical devices for surgery, with a focus on sports medicine and soft tissue reconstruction. We have been informed that DePuy Mitek will focus its ORTHOVISC sales efforts on arthroscopists and orthopedic surgeons who typically see patients prior to a need for total knee replacement and Ortho Biotech will retain the primary responsibility for marketing ORTHOVISC to rheumatologists and other specialties. We do not expect that the effect of this broadened sales effort will begin to impact ORTHOVISC revenues prior to the second half of 2005, nor can we provide assurance that these efforts will have a material effect on ORTHOVISC sales. For the six months ended June 30, 2005 and 2004, sales of ORTHOVISC to Ortho Biotech and royalties tied to end-user sales accounted for 7% and 23% of total revenue, respectively. We provide no assurance that these efforts will have a material effect on ORTHOVISC sales. Furthermore, we cannot predict whether the license granted to Ortho Biotech in the OBI Agreement to further develop and commercialize ORTHOVISC products for the treatment of pain associated with osteoarthritis based on our viscosupplementation technology will result in any new products or indications for use.

On July 26, 2004, we announced the signing of an exclusive worldwide development and commercialization partnership with OrthoNeutrogena a division of Ortho-McNeil Pharmaceuticals, Inc., an affiliate of Johnson & Johnson, for our CTA therapy products. Under the terms of the agreement, OrthoNeutrogena will, subject to certain limitations, reimburse us for costs incurred for the ongoing pivotal clinical trial with our CTA product initiated in May 2004 and support the development of the CTA product, as well as future line extensions. There can be no assurance that we will successfully complete the clinical trial for our CTA product or that we will be able to successfully complete the FDA approval process. We have previously disclosed our intention to file a PMA with respect to our CTA product by the end of the third quarter 2005. In the second quarter we completed our review of the clinical study results. Following this review, we reiterated our intent to file a PMA by the end of the third quarter. However, our strategic partner, OrthoNeutrogena, has instructed us not to file that PMA. Discussions with OrthoNeutrgena regarding this issue are ongoing. We cannot assure you that such discussions will be resolved in a manner

that will provide for the filing of the PMA during the third quarter. If we are able to successfully complete the FDA approval process for our CTA product, we cannot assure you that OrthoNeutrogena will be able to commercialize our CTA product effectively, or at all, nor can we assure you that we will be able to achieve the sales- and performance-based milestones provided in the agreement.

We may need to obtain the assistance of additional marketing partners to bring new and existing products to market and to replace certain marketing partners. The failure to establish strategic partnerships for the marketing and distribution of our products on acceptable terms will have a material adverse effect on our business, financial condition, and results of operations.

Our future success depends upon market acceptance of our existing and future products.

Our success will depend in part upon the acceptance of our existing and future products by the medical community, hospitals and physicians and other health care providers, and third-party payers. Such acceptance may depend upon the extent to which the medical community perceives our products as safer, more effective or cost-competitive than other similar products. Ultimately, for our new products to gain general market acceptance, it may also be necessary for us to develop marketing partners for the distribution of our products. There can be no assurance that our new products will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of our future products to achieve significant market acceptance could have a material adverse effect on our business, financial condition, and results of operations.

We may be unable to adequately protect our intellectual property rights.

Our success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct our business without infringing on the proprietary rights of others. The patent positions of pharmaceutical, medical products and biotechnology firms, including ours, can be uncertain and involve complex legal and factual questions. There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued, 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, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office (PTO) to determine priority of invention, 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 us, such interference proceedings could result in substantial cost to us, and diversion of management’s attention away from our operations. Filing and prosecution of patent applications, litigation to establish the validity and scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be expensive and time consuming. There can be no assurance that in the event that any claims with respect to any of our patents, if issued, are challenged by one or more third parties, 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 us to lose exclusivity covered by the disputed rights. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party. Furthermore, even if our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with us using the resulting alternative technology.

We have a policy of seeking patent protection for patentable aspects of our proprietary technology. We intend to seek patent protection with respect to products and processes developed in the course of our activities when we believe such protection is in our best interest and when the cost of seeking such

protection is not inordinate. However, no assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any issued patents will provide us with a competitive advantage or will not be successfully challenged by third parties. The protections afforded by patents will depend upon their scope and validity, and others may be able to design around our patents.

Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related products or processes. There can be no assurance that the products or processes developed by us will not infringe on the patent rights of others in the future. Any such infringement may have a material adverse effect on our business, financial condition, and results of operations. In particular, we received notice from the PTO in 1995 that a third party was attempting to provoke a patent interference with respect to one of our co-owned patents covering the use of INCERT for post-surgical adhesion prevention. It is unclear whether an interference will be declared. If an interference is declared it is not possible at this time to determine the merits of the interference or the effect, if any, the interference will have on our marketing of INCERT for this use. No assurance can be given that we would be successful in any such interference proceeding. If the third-party interference were to be decided adversely to us, involved claims of our patent would be cancelled, our marketing of the INCERT product may be materially and adversely affected and the third party may enforce patent rights against us which could prohibit the sale and use of INCERT products, which could have a material adverse effect on our future operating results.

We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect such information, we require all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure and use of such information. There can be no assurance that these agreements provide meaningful protection or that they will not be breached, that we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how, and our technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary technology. Further, there can be no assurance that third parties will not independently develop substantially equivalent or better technology.

Pursuant to the 2004 B&L Agreement, we have agreed to transfer to Bausch & Lomb, upon expiration of the term of the 2004 B&L agreement on December 31, 2010, or in connection with earlier termination in certain circumstances, our manufacturing process, know-how and technical information, which relate to only AMVISC products. Upon expiration of the 2004 B&L Agreement, there can be no assurance that Bausch & Lomb will continue to use us to manufacture AMVISC and AMVISC Plus. If Bausch & Lomb discontinues the use of us as a manufacturer after such time, our business, financial condition, and results of operations would likely be materially and adversely affected.

Our manufacturing processes involve inherent risks and disruption could materially adversely affect our business, financial condition and results of operations.

Our results of operations are dependent upon the continued operation of our manufacturing facility in Woburn, Massachusetts. The operation of biomedical manufacturing plants involves many risks, including the risks of breakdown, failure or substandard performance of equipment, the occurrence of natural and other disasters, and the need to comply with the requirements of directives of government agencies, including the FDA. In addition, we rely on a single supplier for syringes and a small number of suppliers for a number of other materials required for the manufacturing and delivery of our HA products. Although we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing processes are available, any supply interruption could harm our ability to manufacture our products until a new source of supply is identified and qualified. We may not be able to find a sufficient alternative supplier in a reasonable time period, or on commercially reasonable terms, if at all, and our ability to produce and supply our products could be impaired.

Furthermore, our manufacturing processes and research and development efforts involve animals and products derived from animals. We procure our animal-derived raw materials from qualified vendors, control for contamination and have processes that effectively inactivate infectious agents; however, we cannot assure you that we can completely eliminate the risk of transmission of infectious agents and in the future regulatory authorities could impose restrictions on the use of animal-derived raw materials that could impact our business.

The utilization of animals in research and development and product commercialization is subject to increasing focus by animal rights activists. The activities of animal rights groups and other organizations that have protested animal based research and development programs or boycotted the products resulting from such programs could cause an interruption in our manufacturing processes and research and development efforts. The occurrence of material operational problems, including but not limited to the events described above, could have a material adverse effect on our business, financial condition, and results of operations during the period of such operational difficulties.

Our financial performance depends on the continued growth and demand for our products and we may not be able to successfully manage the expansion of our operations

Our future success depends on substantial growth in product sales. There can be no assurance that such growth can be achieved or, if achieved, can be sustained. There can be no assurance that even if substantial growth in product sales and the demand for our products is achieved, we will be able to:

• develop the necessary manufacturing capabilities;

• obtain the assistance of additional marketing partners;

• attract, retain and integrate the required key personnel;

• implement the financial, accounting and management systems needed to manage growing demand for our products.

Our failure to successfully manage future growth could have a material adverse effect on our business, financial condition, and results of operations.

If we engage in any acquisition as a part our growth strategy, we will incur a variety of costs, and may never realize the anticipated benefits of the acquisition.

Our business strategy may include the future acquisition of businesses, technologies, services or products that we believe are a strategic fit with our business. If we undertake any acquisition, the process of integrating an acquired business, technology, service or product may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Moreover, we may fail to realize the anticipated benefits of any acquisition as rapidly as expected or at all. Future acquisitions could reduce stockholders’ ownership, cause us to incur debt, expose us to future liabilities and result in amortization expenses related to intangible assets with definite lives. In addition, acquisitions involve other risks, including diversion of management resources otherwise available for ongoing development of our business and risks associated with entering new markets with which we have limited experience or where experienced distribution alliances are not available. Our future profitability may depend in part upon our ability to develop further our resources to adapt to these new products or business areas and to identify and enter into satisfactory distribution networks. We may not be able to identify suitable acquisition candidates in the future or consummate future acquisitions.

Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by health care cost containment initiatives.

In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as our products, generally rely on third party payers, including Medicare, Medicaid and other health insurance and managed care plans, to reimburse all or part of the cost of the health care product. We depend upon the distributors for our products to secure reimbursement and reimbursement approvals. Reimbursement by third party payers may depend on a number of factors, including the payer’s determination that the use of our products is clinically useful and cost-effective, medically necessary and not experimental or investigational. Since reimbursement approval is required from each payer individually, seeking such approvals can be a time consuming and costly process which, in the future, could require us or our marketing partners to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payer separately. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and any failure or delay in obtaining reimbursement approvals can negatively impact sales or our new products. In addition, third party payers are increasingly attempting to contain the costs of health care products and services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. Also, 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 us. Outside the U.S., the success of our products is also dependent in part upon the availability of reimbursement and health care payment systems. Lack of adequate coverage and reimbursement provided by governments and other third party payers for our products and services could have a material adverse effect on our business, financial condition, and results of operations.

We may seek financing in the future, which could be difficult to obtain and which could dilute your ownership interest or the value of your shares.

We had cash and cash equivalents of approximately $39,930,000 at June 30, 2005. Our future capital requirements and the adequacy of available funds will depend, however, on numerous factors, including:

• market acceptance of our existing and future products;

• the successful commercialization of products in development;

• progress in our product development efforts;

• the magnitude and scope of such product development efforts,

• progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies;

• the cost and timing of our efforts to manage our manufacturing capabilities and related costs;

• the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

• competing technological and market developments;

• the development of strategic alliances for the marketing of certain of our products;

• the terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide upfront and/or milestone payments to us; and

• the cost of maintaining adequate inventory levels to meet current and future product demands.

To the extent that funds generated from our operations, together with our existing capital resources are insufficient to meet future requirements, we will be required to obtain additional funds through equity or

debt financings, strategic alliances with corporate partners and others, or through other sources. The terms of any future equity financings may be dilutive to you and the terms of any debt financings may contain restrictive covenants, which limit our ability to pursue certain courses of action. Our ability to obtain financing is dependent on the status of our future business prospects as well as conditions prevailing in the relevant capital markets. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.

We could become subject to product liability claims, which, if successful, could materially adversely affect our business, financial condition and results of operations.

The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and there can be no assurance that substantial product liability claims will not be asserted against us. Although we have not received any material product liability claims to date and have an insurance policy of $5,000,000 per occurrence and $5,000,000 in the aggregate to cover such claims should they arise, there can be no assurance that material claims will not arise in the future or that our insurance will be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required, will be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim, if successful, could have a material adverse effect on our business, financial condition and results of operations.

Our business is dependent upon hiring and retaining qualified management and scientific personnel.

We are highly dependent on the members of our management and scientific staff, the loss of one or more of whom could have a material adverse effect on us. We experienced a number of management changes in 2004 and the 2005. There can be no assurances that such management changes will not adversely affect our business. We believe that our future success will depend in large part upon our ability to attract and retain highly skilled, scientific, managerial and manufacturing personnel. We face significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that we will be successful in hiring or retaining the personnel we require. The failure to hire and retain such personnel could have a material adverse effect on our business, financial condition and results of operations.

We are subject to environmental regulation and any failure to comply with applicable laws could subject us to significant liabilities and harm our business.

We are subject to a variety of local, state 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 our products. Any failure by us to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject us to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operations.

Our future operating results may be harmed by economic, political and other risks relating to international sales.

During the six months ended June 30, 2005 and 2004, approximately, 36 % and 19%, respectively, of our product sales were to international distributors. Our representatives, agents and distributors who sell products in international markets are subject to the laws and regulations of the foreign jurisdictions in which they operate and in which our 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 and/or economic 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 a material adverse effect on our business, financial condition, and results of operations.

Our stock price has been and may remain highly volatile, and we cannot assure you that market making in our common stock will continue.

The market price of shares of our common stock may be highly volatile. Factors such as announcements of new commercial products or technological innovations by us or our competitors, disclosure of results of clinical testing or regulatory proceedings, governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products developed by us and general market conditions may have a significant effect on the market price of our common stock. The trading price of our common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in our operating results, material announcements by us or our competitors, governmental regulatory action, conditions in the health care industry generally or in the medical products industry specifically, or other events or factors, many of which are beyond our control. In addition, the stock market has experienced extreme price and volume fluctuations which have particularly affected the market prices of many medical products companies and which often have been unrelated to the operating performance of such companies. Our operating results in future quarters may be below the expectations of equity research analysts and investors. In such event, the price of our common stock would likely decline, perhaps substantially.

No person is under any obligation to make a market in the common stock or to publish research reports on us, and any person making a market in the common stock or publishing research reports on us may discontinue market making or publishing such reports at any time without notice. There can be no assurance that an active public market in our common stock will be sustained.

Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of us.

Certain provisions of our Restated Articles of Organization and Amended and Restated By-laws could have the effect of discouraging a third party from pursuing a non-negotiated takeover of us and preventing certain changes in control. These provisions include a classified Board of Directors, advance notice to the Board of Directors of stockholder proposals, limitations on the ability of stockholders to remove directors and to call stockholder meetings, the provision that vacancies on the Board of Directors be filled by vote of a majority of the remaining directors. In addition, the Board of Directors adopted a Shareholders Rights Plan in April 1998. We are also subject to Chapter 110F of the Massachusetts General Laws which, subject to certain exceptions, prohibits a Massachusetts corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a period of three years following the date that such stockholder became an interested stockholder. These provisions could discourage a third party from pursuing a takeover of us at a price considered attractive by many stockholders, since such provisions could have the effect of preventing or delaying a potential acquirer from acquiring control of us and our Board of Directors.

Our revenues are derived from a small number of customers, the loss of which could materially adversely affect our business, financial condition and results of operations.

We have historically derived the majority of our revenues from a small number of customers, most of whom resell our products to end users and most of whom are significantly larger companies than us. For the six months ended June 30, 2005, three customers accounted for 76.7% of product revenue. While it is expected that our ability to market ORTHOVISC in the U.S. will reduce our dependence on revenues from Bausch & Lomb, historically our largest customer, we will still be dependent on a small number of large customers for the majority of our revenues. Our failure to generate as much revenue as expected from these

customers or the failure of these customers to purchase our products would seriously harm our business. In addition, if present and future customers terminate their purchasing arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements on terms less favorable to us, our business, financial condition, and results of operations will be adversely affected. If we accept terms less favorable than the terms of the current agreement, such renegotiations may have a material adverse effect on our business, financial condition, and/or results of operations. Furthermore, we may be subject to the perceived or actual leverage the customers may have given their relative size and importance to us in any future negotiations. Any termination, change, reduction or delay in orders could seriously harm our business, financial condition, and results of operations. Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchases by our largest customers and the financial and operational success of these customers. The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict cash flow, and, as a consequence, could seriously harm our business, financial condition, and results of operations.

Additional costs for complying with recent and proposed future changes in Securities and Exchange Commission, Nasdaq Stock Market and accounting rules could adversely affect our profits.

Recent changes in the Securities and Exchange Commission and Nasdaq rules, as well as changes in accounting rules, will cause us to incur additional costs including professional fees, as well as additional personnel costs, in order to keep informed of the changes and operate in a compliant manner. In addition, we have and continue to expect to incur general and administrative expense as we maintain compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which requires management to report on, and our independent registered public accounting firm to attest to, our internal controls. These costs may be significant enough to cause our financial position and results of operation to be negatively impacted. In addition, compliance with these new rules could also result in continued diversion of management’s time and attention, which could prove to be disruptive to our normal business operations. Failure to comply with any of the new laws and regulations could adversely impact market perception of our company, which could make it difficult to access the capital markets or otherwise finance our operations in the future.

With new rules, including the Sarbanes-Oxley Act of 2002, we may have difficulty in retaining or attracting directors for the board and various committees thereof or officers.

The recent changes in SEC and Nasdaq rules, including those resulting from the Sarbanes-Oxley Act of 2002, may result in our being unable to attract and retain the necessary board directors and members of committees thereof or officers, to effectively provide for our management. The perceived increased personal risk associated with these recent changes may deter qualified individuals from wanting to participate in these roles. In addition, the reluctance of individuals to serve in such capacities may require us to engage director search firms in order to identify suitable candidates at an additional cost and expense not directly related to our operations.

We may have difficulty obtaining adequate directors and officers insurance and the cost for coverage may significantly increase.

We may have difficulty in obtaining adequate directors’ and officers’ insurance to protect us and our directors and officers from claims made against them. Additionally, even if adequate coverage is available, the costs for such coverage may be significantly greater than current costs. This additional cost may have a significant effect on our profits and as a consequence our results of operations may be adversely affected.

We have historically incurred operating losses and we cannot make any assurances about our future profitability.

From our inception through December 31, 1996 and 1999 through 2002 we incurred annual operating losses. For the years ended December 31, 2004 and 2003, we recorded net income of $11,190,000 and $827,000, respectively. For the six months of 2005 we recorded net income of $2,587,000 and as of June 30, 2005, we had retained earnings of approximately $209,000. Our ability to maintain profitability is uncertain. The continued development of our products will require the commitment of substantial resources to conduct research and preclinical and clinical development programs, and the establishment of sales and marketing capabilities or distribution arrangements either by us or our partners. We cannot assure you that we will be able to develop these products or new medical applications of our existing products or technology, or that if developed, the necessary regulatory approvals will be obtained, or if obtained, that sales, marketing and distribution capabilities and arrangements will be established in order to permit us to maintain profitability.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2005, we did not utilize any derivative financial instruments, market risk sensitive instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. All of our investments consist of money market funds, commercial paper and municipal bonds that are carried on our books at amortized cost, which approximates fair market value.

Primary Market Risk Exposures

Our primary market risk exposures are in the areas of interest rate risk. Our investment portfolio of cash equivalent investments is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (Exchange Act), we carried out an evaluation under the supervision and with the participation of the our management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that material information relating to us required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We currently are in the process of further reviewing and documenting our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b) Changes in internal controls.

There were no changes in our internal control over financial reporting during the second quarter of fiscal year 2005 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.

PART II: OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

On June 1, 2005, we held our 2005 Annual Meeting of Stockholders. At our annual meeting, stockholders were asked to consider one proposal: to elect two (2) Class III Directors, each to serve until the 2008 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. With respect to this proposal, Charles H. Sherwood, Ph.D. and Steven E. Wheeler were nominated as Class III Directors of Anika. Dr. Sherwood received 9,310,532 shares voted in favor of his election and 73,881 shares were withheld. Mr. Wheeler received 9,305,256 shares voted in favor of his election and 79,157 shares were withheld. Dr. Sherwood and Mr. Wheeler were therefore elected as Class III Directors. Joseph L. Bower and Eugene A. Davidson, Ph.D. (Class I Directors) and Samuel F. McKay and Harvey S. Sadow, Ph.D. (Class II Directors) continued to serve their respective terms after the meeting.

Item 6. Exhibits

Exhibit No.		Description

(3) Articles of Incorporation and Bylaws:


3.1		The Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993.

3.2		Certificate of Vote of Directors Establishing a Series of Convertible Preferred Stock, incorporated herein by reference to Exhibits to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993.

3.3		Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-QSB for the period ended November 30, 1996, (File no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997.

3.4		Certificate of Vote of Directors Establishing a Series of a Class of Stock, incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 8-AB12 (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.

3.5		Intentionally Omitted.

3.6		Intentionally Omitted.

3.7		Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.3 of the Company’s quarterly report on Form 10-Q for the quarterly period ending June 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on August 14, 2002.

3.8		The Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.6 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on August 14, 2002.

(4) Instruments Defining the Rights of Security Holders


4.1		Shareholder Rights Agreement dated as of April 6, 1998 between the Company and Firstar Trust Company, incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.

4.2		Amendment to Shareholder Rights Agreement dated as of November 5, 2002 between the Company and American Stock Transfer and Trust Company, as successor to Firstar Trust Company incorporated herein by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on November 13, 2002.

(11) Statement Regarding the Computation of Per Share Earnings


11.1		See Note 4 to the Financial Statements included herewith.

(31) Rule 13a-14(a)/15d-14(a) Certifications


*31.1		Certification of Charles H. Sherwood, Ph.D. pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Kevin W. Quinlan pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32) Section 1350 Certifications


**32.1		Certification of Charles H. Sherwood, Ph.D. and Kevin W. Quinlan pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*		Filed herewith

**		Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ANIKA THERAPEUTICS, INC.

August 8, 2005	By:	/s/ Kevin W. Quinlan
		Kevin W. Quinlan Chief Financial Officer (Principal Financial Officer)

Anika Therapeutics, Inc. - Quarter Report: 2005 June (Form 10-Q)

WASHINGTON, D.C. 20549

FORM 10-Q

Registrant’s Telephone Number, Including Area Code: (781) 932-6616

Use of Estimates

Stock-Based Compensation

Disclosures About Segments of an Enterprise and Related Information

Primary Market Risk Exposures