Anika Therapeutics, Inc. - Annual Report: 2013 (Form 10-K)

(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to

Massachusetts (State or Other Jurisdiction of Incorporation or Organization)

04-3145961 (IRS Employer Identification No.)

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer [   ]

Accelerated filer [X]

Non-accelerated filer [   ] (Do not check if a smaller reporting company)

Smaller reporting company [   ]

 

 

 

 

		Page
	Cautionary Note Regarding Forward-Looking Statements	3
Part I
Item 1.	Business	6
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	27
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	72
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
Item 13.	Certain Relationships and Related Transactions, and Director Independence	73
Item 14.	Principal Accounting Fees and Services	73
Part IV
Item 15.	Exhibits and Financial Statement Schedules	73
Signatures		79

·	Our future sales and product revenue, including geographic expansions, possible retroactive price adjustments, and expectations of unit volumes or other offsets to price reductions;

·	Our manufacturing capacity, efficiency gains and work-in-process manufacturing operations;

·	The timing, scope and rate of patient enrollment for clinical trials;

·	The development of possible line extensions and new products;

·	Our ability to achieve and/or maintain compliance with laws and regulations;

·	The timing of and/or receipt of Food and Drug Administration (“FDA”), foreign or other regulatory approvals, clearances, and/or reimbursement approvals of current, new or potential products, and any limitations on such approvals;

·	Our intention to seek patent protection for our products and processes, and protect our intellectual property;

·	Our ability to effectively compete against current and future competitors;

·	Negotiations with potential and existing partners, including our performance under any of our existing and future distribution, license or supply agreements or our expectations with respect to sales and sales threshold milestones pursuant to such agreements;

·	The level of our revenue or sales in particular geographic areas and/or for particular products, and the market share for any of our products;

·	Our current strategy, including our corporate objectives, research and development activities and collaboration activities;

·	Our expectations regarding our joint health products, including existing products and expectations regarding new products, expanded uses of existing products, new distribution partnerships and revenue growth;

·	Our intention to increase our market share for joint health products in international and domestic markets or otherwise penetrate growing markets for osteoarthritis of the knee and other joints;

·	Our expectations regarding next generation osteoarthritis/joint health product development, clinical trials, regulatory approvals and commercial launches;

·	Our and Bausch & Lomb’s performance under the non-exclusive, three-year contract for the supply of AMVISC® and AMVISC® Plus ophthalmic viscoelastic products, and our expectations regarding revenue from ophthalmic products;

·	Our ability to commercialize AnikaViscTM and AnikaViscTM Plus and our expectations regarding such commercialization and the potential profits generated thereby;

·	Our ability to license our aesthetics product to new distribution partners domestically and outside the United States;

·	Our ability, and the ability of our distribution partners,  to market our aesthetics dermatology product; and our expectations regarding the distribution and sales of our ELEVESSTM product and the timing thereof;

·	Our expectations regarding development of aesthetics product line extensions;

·	Our expectations regarding HYVISC® sales;

·	Our expectations regarding product gross margin;

·	Our expectations regarding CINGALTM, including the expense associated therewith, and our ability to obtain regulatory approvals for this product;

·	Our expectation for changes in operating expenses, including research and development and selling, general and administrative expenses;

·	The rate at which we use cash, the amounts used and generated by operations, and our expectation regarding the adequacy and usage of such cash;

·	Our expectation for capital expenditures spending and future amounts of interest income and expense;

·	Possible negotiations or re-negotiations with existing or new distribution or collaboration partners;

·	Our ability to continue streamlining operations and improving our manufacturing capabilities;

·	Our ability to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and other sources, to the extent our current sources of funds are insufficient;

·	Our ability to manage the operations of Anika Therapeutics S.r.l. (“Anika S.r.l.”) from one with losses, into a company generating continued profits;

·	The strength of the economies in which the Company operates or will operate, as well as the political stability of any of those geographic areas;

·	Our ability to effectively prioritize the many research and development projects underway;

·	Our ability to obtain U.S. approval for orthopedic and other product franchises of Anika S.r.l., including the timing and potential success of such efforts, and to expand sales of these products in the U.S., including the impact such efforts may have on our revenue; and

·	Our ability to successfully defend the Company against lawsuits and claims and the uncertain financial impact such lawsuits and claims and related defense costs may have on the Company.

	Anika	Anika S.r.l.
Orthobiologics	X	X
Dermal     Advanced wound care     Aesthetic dermatology	X	X
Surgical     Anti-adhesion     Ear, nose and throat care (“ENT”)	X	X X
Ophthalmic	X
Veterinary	X

 

·	The quality and breadth of our technology and technological advances;

·	Our ability to complete successful clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors;

·	Our ability to recruit and retain skilled employees; and

·	The availability of capital resources to fund discovery, development and commercialization activities or the ability to defray such costs through securing relationships with collaborators for our research and development and commercialization programs.

·	We will begin or successfully complete U.S. clinical trials for next generation products and new products;

·	The clinical data will support the efficacy of these products;

·	We will be able to successfully complete the FDA or foreign regulatory approval or clearance process, where required;

·	Additional clinical trials will support a PMA application and/or FDA approval or other foreign regulatory approvals, where required, in a timely manner or at all; or

·	European and other regulations may not change for the marketing of cell based products and thus impact our ability to continue commercialization of these products.

·	The approval or clearance may include significant limitations on the indications and other claims sought for use for which the products may be marketed;

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

·	Meaningful sales may never be achieved.

·	Reducing demand for our products;

·	Increasing risk of order cancellations or delays;

·	Increasing pressure on the prices for our products;

·	Creating greater difficulty in collecting accounts receivable; and

·	Increasing the risks to our liquidity, including the possibility that we might not have sufficient access to cash when needed.

 

 

 

 

·	Develop and maintain the necessary manufacturing capabilities;

·	Obtain the assistance of additional marketing partners;

·	Attract, retain and integrate required key personnel; and

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

·	Market acceptance of our existing and future products;

·	The success and sales of our products under various distributor agreements;

·	The successful commercialization of products in development;

·	Progress in our product development efforts;

·	The magnitude and scope of such product development efforts;

·	Any potential acquisitions of products, technologies or businesses;

·	Progress with preclinical studies, clinical trials and product approvals and 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 and the cost of defending any other legal proceeding;

·	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.

 

·	The impact of recessions and other economic conditions in economies, including Europe in particular, outside the United States;

·	Sovereign risk associated with doing business with government financed healthcare hospitals and institutions in Italy;

·	Instability of foreign economic, political and labor conditions;

·	Unfavorable labor regulations applicable to our European operations, such as severance and the unenforceability of non-competition agreements in the European Union;

·	The impact of strikes, work stoppages, work slowdowns, grievances, complaints, claims of unfair labor practices or other collective bargaining disputes;

·	Difficulties in complying with restrictions imposed by regulatory or market requirements, tariffs or other trade barriers or by U.S. export laws;

·	Imposition of governmental controls limiting the volume of international sales;

·	Longer accounts receivable payment cycles;

·	Potentially adverse tax consequences, including, if required, difficulties transferring funds generated in non-U.S. jurisdictions to the U.S. in a tax efficient manner;

·	Difficulties in protecting intellectual property;

·	Difficulties in managing international operations; and

·	Burdens of complying with a wide variety of foreign laws.

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Operations Data

 

 

	Anika	Anika S.r.l.
Orthobiologics	X	X
Dermal     Advanced wound care     Aesthetic dermatology	X	X
Ophthalmic	X
Surgical     Anti-adhesion     Ear, nose and throat care (“ENT”)	X	X X
Veterinary	X

•

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.  Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange.

•

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

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Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect our own estimates of assumptions market participants would use in pricing the asset or liability.

 

Property and Equipment

		Year Ended December 31,
		2013				2012				Inc/(Dec)				Inc/(Dec)
Product revenue		$	71,773,730			$	68,010,169			$	3,763,561				6	%
Licensing, milestone and contract revenue			3,307,424				3,348,336				(40,912	)			(1	%)
Total revenue			75,081,154				71,358,505				3,722,649				5	%
Operating expenses:
Cost of product revenue			22,765,404				28,988,621				(6,223,217	)			(21	%)
Research & development			7,059,875				5,388,036				1,671,839				31	%
Selling, general & administrative			12,936,001				14,728,662				(1,792,661	)			(12	%)
Restructuring charges			(286,843	)			2,537,988				(2,824,831	)			-
Total operating expenses			42,474,437				51,643,307				(9,168,870	)			(18	%)
Income from operations			32,606,717				19,715,198				12,891,519				65	%
Interest income (expense), net			(127,186	)			(187,777	)			60,591				(32	%)
Income before income taxes			32,479,531				19,527,421				12,952,110				66	%
Provision for income taxes			11,905,010				7,769,961				4,135,049				53	%
Net income		$	20,574,521			$	11,757,460			$	8,817,061				75	%
Product gross profit		$	49,008,326			$	39,021,548			$	9,986,778				26	%
Product gross margin			68	%			57	%

 

		Year ended December 31,
		2013				2012
Statutory federal income tax rate			35.0	%			35.0	%
State tax expense, net of federal benefit			4.8	%			6.4	%
Permanent items, including nondeductible expenses			(0.2	%)			0.9	%
State investment tax credit			(0.1	%)			(0.2	%)
Federal, state and foreign research and development credits			(0.5	%)			(1.2	%)
Foreign rate differential			0.1	%			2.5	%
Domestic production deduction			(2.4	%)			(3.6	%)
Effective income tax rate			36.7	%			39.8	%

 

                                                                                                                                      

 

 

 

·	Market acceptance of our existing and future products;

·	The success and sales of our products under current and future distribution agreements;

·	The successful commercialization of products in development;

·	Progress in our product development efforts;

·	The magnitude and scope of such efforts;

·	Any potential acquisitions of products, technologies or businesses;

·	Progress with pre-clinical studies, clinical trials and product approvals and clearances by the FDA and other agencies;

·	The cost of maintaining adequate manufacturing capabilities;

·	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;

·	The cost of maintaining adequate inventory levels to meet current and future product demands; and

·	The successful management of Anika S.r.l.

 

 

 

(1)

Included in this line is a lease we entered into on January 4, 2007, pursuant to which we lease our Corporate Headquarters facility, The Facility consists of approximately 134,000 square feet of general office, R&D and manufacturing space located in Bedford, Massachusetts. The Lease has an initial term of ten and one-half years, and commenced on May 1, 2007. We have an option under the Lease to extend its terms for up to four periods beyond the original expiration date subject to the condition that we notify the landlord that we are exercising each option at least one year prior to the expiration of the original or current term thereof. The first three renewal options each extend the term an additional five years with the final renewal option extending the term six years. Our administrative and R&D personnel began occupying the Bedford facility in November of 2007. The Bedford facility was fully validated and approved by applicable regulatory authorities in 2012. We completed the manufacturing space consolidation and moved all domestic operations into the Bedford facility during the second quarter of 2012. Also included in the table above is the lease entered into in Italy related to Anika S.r.l. The lease for our Italian facility commenced on December 30, 2009 for a period of six years.

 

 

 

 

 

Report of Independent Registered Public Accounting Firm	48
Consolidated Balance Sheets as of December 31, 2013 and 2012	49
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011	50
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011	51
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011	52
Notes to Consolidated Financial Statements	53