SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
236 WEST CUMMINGS PARK, 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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
At May 7, 2001 there were issued and outstanding 9,934,280 shares of
Common Stock, par value $.01 per share.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,386,749 $ 8,265,936
Short term marketable securities 10,420,246 10,039,849
Accounts receivable, net of reserves of $124,000 1,251,612 1,692,457
Inventories 4,776,952 4,737,645
Prepaid expenses and other receivables 457,447 612,890
----------- -----------
Total current assets 23,293,006 25,348,777
Property and equipment, at cost 8,755,940 8,621,579
Less: accumulated depreciation (5,722,717) (5,498,455)
----------- -----------
3,033,223 3,123,124
Long term deposits 123,765 124,600
Notes receivable from officers 382,000 382,000
----------- -----------
Total assets $26,831,994 $28,978,501
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 773,821 $ 870,502
Accrued expenses 1,590,917 1,395,677
----------- -----------
Total current liabilities 2,364,738 2,266,179
Commitments and contingencies (Note 9)
Stockholders' equity:
Redeemable convertible preferred stock, $.01 par value
authorized 750,000 shares, no shares issued and outstanding -- --
Undesignated preferred stock, $.01 par value
authorized 1,250,000 shares, no shares issued and outstanding -- --
Common stock, $.01 par value: Authorized 30,000,000 shares;
Issued 9,991,943 shares 99,919 99,919
Additional paid-in capital 31,735,660 31,735,660
Treasury stock (at cost, 57,663 shares) (279,756) (279,756)
Deferred compensation (171,184) (244,549)
Accumulated deficit (6,917,383) (4,598,952)
----------- -----------
Total stockholders' equity 24,467,256 26,712,322
----------- -----------
Total liabilities and stockholders' equity $26,831,994 $28,978,501
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
2
ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2001 2000
----------- ----------
Product revenue $ 2,178,617 $2,620,833
Licensing revenue -- 100,000
----------- ----------
Total revenue 2,178,617 2,720,833
Cost of product revenue 1,968,948 1,232,968
----------- ----------
Gross profit 209,669 1,487,865
Operating expenses:
Research & development 1,347,870 1,313,738
Selling, general & administrative 1,452,810 999,462
----------- ----------
Total operating expenses 2,800,680 2,313,200
Loss from operations (2,591,011) (825,335)
Interest income 272,580 261,248
----------- ----------
Loss before provision for income taxes (2,318,431) (564,087)
Provision for income taxes -- --
----------- ----------
Net loss $(2,318,431) $ (564,087)
=========== ==========
----------- ----------
Basic and diluted loss per share $ (0.23) $ (0.06)
=========== ==========
Shares used for computing basic and diluted earnings per share 9,934,280 9,804,284
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3
ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2001 2000
--------------- ----------------
Cash flows from operating activities:
Net loss $(2,318,431) $ (564,087)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 224,262 214,529
Amortization of deferred compensation 73,366 77,842
Changes in operating assets and liabilities:
Accounts receivable 440,844 294,525
Inventories (39,307) (1,299,293)
Prepaid expenses 155,443 246,024
Accounts payable (96,681) (207,668)
Accrued expenses 195,240 202,418
Deferred revenue -- 540,735
----------- -----------
Net cash used for operating activities (1,365,264) (494,975)
----------- -----------
Cash flows from investing activities:
Proceeds of short-term marketable securities 7,039,849 3,025,324
Purchase of short term marketable securities (7,420,246) --
Purchase of property and equipment (134,361) (90,957)
Notes receivable from officers -- 59,000
Deposits 835 --
Purchase of long term marketable securities -- (88,436)
----------- -----------
Net cash (used for) provided by investing activities (513,923) 2,904,931
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants -- 95,650
----------- -----------
Net cash provided by financing activities -- 95,650
----------- -----------
Increase (decrease) in cash and cash equivalents (1,879,187) 2,505,606
Cash and cash equivalents at beginning of period 8,265,936 6,440,705
----------- -----------
Cash and cash equivalents at end of period $ 6,386,749 $ 8,946,311
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
4
ANIKA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(R), which is an HA product
used in the treatment of some forms of osteoarthritis in humans and
HYVISC(R), which is an HA product used in the treatment of equine
osteoarthritis. ORTHOVISC(R) is currently approved for sale and is being
marketed in Canada, parts of Europe, Turkey, and Israel. In the U.S.,
ORTHOVISC(R) is currently limited to investigational use. The Company
manufactures AMVISC(R) and AMVISC(R) Plus for Bausch & Lomb Surgical, which
are HA products used as viscoelastic supplements in ophthalmic surgery.
STAARVISC(R)II, an injectable ophthalmic viscoelastic is produced for STAAR
Surgical Company. The Company is currently evaluating product development
activities for INCERT(R)-S, which is an HA based product designed for use in
the prevention of post-surgical adhesions. In collaboration with Orquest,
Inc., Anika also has exclusive rights to produce OSSIGEL(R), an injectable
formulation of basic fibroblast growth factor combined with HA designed to
accelerate the healing of bone fractures.
The accompanying financial statements and related notes should be read
in conjunction with the Company's annual financial statements filed with the
Annual Report on Form 10-K for the year ended December 31, 2000. The results of
operations for the three months ended March 31, 2001 are not necessarily
indicative of the results to be expected for the year ending December 31, 2001.
(See "Risk Factors and Certain Factors Affecting Future Operating Results"
below.)
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of the Company as of March
31, 2001, the results of operations for the three months ended March 31, 2001
and 2000 and the cash flows for the three months ended March 31, 2001 and 2000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Anika Therapeutics, Inc. and its wholly owned subsidiaries, Anika Securities
Corporation and Anika Therapeutics UK, Ltd. All intercompany transactions have
been eliminated in consolidation.
5
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash and investments with
original maturities of 90 days or less.
SHORT-TERM MARKETABLE SECURITIES
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES.
Short-term marketable securities consist of commercial paper with
maturities within twelve months of the balance sheet date. The Company
classifies these short-term marketable securities as held to maturity, and
accordingly they are carried at amortized costs. Aggregate fair value, amortized
cost and average maturity for marketable securities held at March 31, 2001 and
December 31, 2000 are as follows:
MARCH 31, 2001
----------------------------------------------------
AMORTIZED GROSS UNREALIZED
COST HOLDING GAIN FAIR VALUE
---- ------------ ----------
Commercial Paper (weighted average maturity of
3.4 months)...................................... $10,420,246 $51,069 $10,471,315
=========== ======= ===========
DECEMBER 31, 2000
----------------------------------------------------
AMORTIZED GROSS UNREALIZED
COST HOLDING GAIN FAIR VALUE
---- ------------ ----------
Commercial Paper (weighted average maturity of
3.4 months)...................................... $10,039,849 $82,384 $10,122,233
=========== ======= ===========
During the first quarter of 2001, securities classified as held to
maturity, with an amortized cost aggregating $7,039,849, including interest and
realized gains of $191,788 which are included in interest income on the
Consolidated Statement of Operations, matured during the year.
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, short-term marketable securities,
accounts receivable, notes receivable from officers and accounts payable. The
estimated fair values of the Company's other financial instruments approximate
their carrying values.
INVENTORIES
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.
REVENUE RECOGNITION
Product revenue is recognized upon shipment of commercial product
and represents sales of AMVISC(R) products, HYVISC(R) and ORTHOVISC(R).
ORTHOVISC(R) is sold through several distribution and logistic arrangements.
Advanced payments received for products are recorded as deferred revenue and are
recognized when the product is shipped.
The Company adopted the provisions of SEC Staff Accounting
Bulletin 101 (SAB 101) in its 1999 operating results. SAB 101 changes revenue
recognition practices for non-refundable up-front payments received as part
of broad supply, distribution, and marketing agreements, including $2,500,000
and $1,500,000 received from Zimmer in the fourth quarter of 1997 and the
second quarter of 1998, respectively. These amounts were previously
recognized in the period received. In accordance with SAB 101, issued in
December 1999, the Company recorded the cumulative effect of the change in
accounting principle of $3,625,000 as a charge in the first quarter of 1999.
Amounts received and deferred to future periods was $3,225,000 at December
31, 1999. The Company has recognized as revenue $100,000 of the payments in
each of the quarters ended from March 31, 1999 through September 30, 2000. As
a result of the early termination of the Zimmer Distribution Agreement, the
remaining non-refundable up-front payments in deferred revenue of $2,925,000
was recorded as revenue in the fourth quarter of 2000.
6
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
as follows:
Machinery and equipment...................... 3-10 years
Furniture and fixtures....................... 3-5 years
Leasehold improvements....................... Shorter of estimated useful life
or life of lease
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
The Company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
During the three months ended March 31, 2001, the Company did not record any
losses on impairment.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company provides for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial reporting and tax bases of assets and
liabilities.
REPORTING COMPREHENSIVE INCOME
SFAS No. 130, REPORTING COMPREHENSIVE INCOME establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income is the total of net income and all
other non-owner changes in equity including such items as unrealized holding
gains/losses on securities, foreign currency translation adjustments and minimum
pension liability adjustments. The Company had no such items for the three
months ended March 31, 2001 and 2000.
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 the chief
financial officer. 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 financial statements. Substantially all of the operations and
assets of the Company have been derived from and are located in the United
States.
7
Revenues by geographic location in total and as a percentage of total
revenues are as follows for the three months ended March 31, 2001 and 2000,
respectively:
THREE MONTHS ENDED MARCH 31,
Geographic location: 2001 2000
------------------------------------------------------------------
Percent of Percent of
Revenue Revenue Revenue Revenue
------------------------------------------------------------------
United States $1,440,482 66.12% $2,201,333 80.91%
Middle East 411,950 18.91% 517,500 19.02%
Other/Europe 326,185 14.97% 2,000 0.07%
------------------------------------------------------------------
Total $2,178,617 100.00% $2,720,833 100.00%
==================================================================
Product revenue by significant customers is as follows:
Percent of Product Revenue
Three Months ended March 31,
2001 2000
----------------------------
AMVISC(R):
Bausch & Lomb 60.1% 71.7%
ORTHOVISC(R):
Pharmaren AG (Formerly Biomeks) 18.2% 14.0%
----------------------------
78.3% 85.7%
============================
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 and dilutive potential common
shares outstanding during the period. Under the treasury stock method, the
dilutive unexercised options are assumed to be exercised at the beginning of
the period or at issuance, if later. The assumed proceeds are then used to
purchase common shares at the average market price during the period. For
periods where the Company has incurred a loss, dilutive net loss per share is
equal to basic net loss per share. Accordingly, diluted weighted average
shares outstanding of 9,934,280 for the three months ended March 31, 2001
exclude 18,022 potential common shares related to outstanding stock options
as of March 31, 2001, because to include them would have been antidilutive
for the period presented.
5. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
2001 2000
--------------------------------
Raw Materials $ 1,585,169 $ 1,386,504
Work in-process 2,971,239 3,169,358
Finished goods 220,544 181,783
--------------------------------
Total $ 4,776,952 $ 4,737,645
================================
6. PROPERTY & EQUIPMENT
Property and equipment is stated at cost and consists of the following:
MARCH 31, DECEMBER 31,
2001 2000
--------------------------------
Machinery and equipment $ 5,244,518 $ 6,071,812
Furniture and fixtures 683,314 670,923
Leasehold improvements 2,828,108 1,878,844
--------------------------------
8,755,940 8,621,579
--------------------------------
Less accumulated depreciation (5,722,717) (5,498,455)
--------------------------------
Total $ 3,033,223 $ 3,123,124
================================
Costs of $835,000 for a clean room had previously been included in
Machinery and equipment. It has been reclassified as a Leasehold improvement
upon its completion in Q1 2001.
7. NOTES RECEIVABLE FROM OFFICERS
Notes receivable from officers consists of loans made to three officers
and one former officer. The loan amounts are generally due at the earlier of
the end of five years from the date of the note or at the termination of the
officers' employment. The note receivable from the former officer is secured
by a mortgage on the person's primary residence. A portion of a note
8
to one officer is also secured by a mortgage on the officer's primary residence.
Interest accrues at annual rates between 5.54% to 6.22% and is payable monthly
over the term of the loans.
8. LICENSING AND DISTRIBUTION AGREEMENT
In July 2000, the Company entered into a new seven-year supply
agreement (the "BLS Agreement") with Bausch & Lomb Surgical, a unit of Bausch &
Lomb. Under the terms of the BLS Agreement, effective January 1, 2001, the
Company became Bausch & Lomb's exclusive provider of AMVISC(R) and AMVISC(R)
Plus, ophthalmic viscoelastic products, in the U.S. and international markets.
The BLS Agreement expires December 31, 2007, superceding an existing supply
contract with Bausch & Lomb Surgical that was set to expire December 31, 2001.
The BLS Agreement is subject to early termination and/or reversion to a
non-exclusive basis under certain circumstances. The BLS Agreement lifts
contractual restrictions on the Company's sales of certain ophthalmic products
to other companies, subject to payment of royalties by Anika. In exchange, the
Company agreed to a reduction in unit selling prices effective April 1, 2000,
and the elimination of minimum unit purchase obligations by BLS. For the
three months ended March 31, 2001, revenue under the BLS Agreement was
$1,321,232.
9. LEGAL MATTERS
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION. The SEC had issued
a formal order of investigation and has required the Company to provide
information in connection with certain revenue recognition matters. These
matters, relating to the Company's historical accounting for sales of its
product under a long-term supply and distribution agreement with Zimmer, Inc.,
were also the subject of the Company's March 15, 2000 disclosure concerning an
informal SEC inquiry and the restatement of results for 1998 and the first three
quarters of 1999. The Company has been cooperating fully. However, the Company
is not in a position to predict the probable outcome of this matter or its
potential impact on the Company's business or operations.
PUTATIVE CLASS ACTION COMPLAINTS. Three putative class action
complaints have been filed against the Company, J. Melville Engle, and Sean
Moran, the Company's former chief financial officer, in the United States
District Court for the District of Massachusetts (the "Court") on behalf of all
purchasers of the Company's shares between April 15, 1998 and May 30, 2000 (the
"Class"). The first, filed on or about June 8, 2000, is captioned CASAZZA, ET
AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN MORAN, Civil Action
No. 00-11127-WGY. The second, filed on or about June 26, 2000, is captioned
NEMETH-COSLETT, ET AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE ENGLE AND SEAN
MORAN, Civil Action No. 00-11257-WGY. The third, filed on or about August 2,
2000, is captioned ROCKEFELLER, ET AL. V. ANIKA THERAPEUTICS, INC., J. MELVILLE
ENGLE AND SEAN MORAN, Civil Action No. 00-11540-WGY. Each of these putative
class action complaints encompasses the same class period and covers almost
identical allegations. On or about August 7, 2000, David and Vivian West,
alleged members of the Class, filed a motion to appoint themselves lead
plaintiffs, and their law firm, lead counsel; as well as a motion for
consolidation of the above cases. On or about September 13, 2000, the Court
granted David and Vivian West's motions, consolidated the cases and recaptioned
the case IN RE ANIKA THERAPEUTICS, INC. SECURITIES LITIGATION, Civil Action No.
00-11127-WGY. On or about October 30, 2000, lead plaintiffs filed a consolidated
amended complaint. The complaint alleges that the Company and the individual
defendants violated the federal securities laws by, INTER ALIA, making material
misrepresentations and omissions in certain public disclosures during the period
between April 15, 1998 and May 30, 2000. The alleged misrepresentations and
omissions relate to the Company's historical revenue recognition policies and
its restatement of revenues for 1998 and the first three quarters of 1999. The
complaint seeks an unspecified amount of monetary damages, costs and expenses,
and equitable and/or injunctive relief to restrict the defendants from disposing
of various assets in order to assure adequate funds are available for the
claimed damages. On December 14, 2000, the Company, Mr. Engle and Mr. Moran each
filed motions to dismiss the consolidated amended complaint. On January 29,
2001, plaintiffs' counsel filed oppositions to defendants' motions to dismiss.
The Defendants filed reply briefs on February 12, 2001.
The parties have negotiated and entered into an agreement in
principle to settle the action (the "Memorandum of Understanding"), which sets
forth the terms of the proposed settlement, subject to approval by the Court. As
part of the proposed settlement, defendants would pay a total of $1.25 million
into a settlement fund, which would, among other things, be used to pay
authorized members of the Class. The Memorandum of Understanding and the
proposed settlement will be contingent upon, among other things, (i) the parties
execution of an appropriate Stipulation of Settlement which is acceptable to the
parties; (ii) conditional certification of the Class for purposes of the
Settlement, (iii) Court approval of the Settlement; and (iv) dismissal of the
Action with prejudice. The Company is not able to provide any assurances that
(i) the proposed settlement will be consummated or (ii) the terms of any final
settlement will not differ from the terms of the Memorandum of Understanding.
Accordingly, the Company has not recorded a liability for the proposed
settlement.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF ANIKA THERAPEUTICS, INC. AND THE NOTES
THERETO AS WELL AS THE "RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE
OPERATING RESULTS" HEREIN.
The Company receives a substantial portion of its revenue from the sale
of AMVISC(R) and AMVISC(R)Plus to Bausch & Lomb Surgical. For the three months
ended March 31, 2001 and 2000, AMVISC sales accounted for 60.1% and 71.7% of
product revenue, respectively.
RESULTS OF OPERATIONS
PRODUCT REVENUE. Product revenue for the three months ended March
31, 2001 decreased by $442,216 or 16.9%, compared with the first quarter of
2000. Sales of AMVISC products to Bausch & Lomb are the principal element of
this decrease due primarily to a reduction in unit prices beginning April 1,
2000 in connection with a new long-term distribution agreement with Bausch &
Lomb. ORTHOVISC sales in Europe and Canada through third party logistics
agents totaled approximately $300,000 in the first quarter of 2001. These
sales channels were established following the termination of the ORTHOVISC
distribution agreement with Zimmer Corporation in the fourth quarter of 2000.
LICENSING FEES. There were no licensing fees for the three months ended
March 31, 2001 due to the termination of the Zimmer Distribution Agreement on
November 10, 2000. For the three months ended March 31, 2000, licensing fees of
$100,000 represented the annual amortization of amounts received in 1997 and
1998.
GROSS PROFIT. Gross profit for the three months ended March 31, 2001
was $209,669, a decrease of $1,278,196 or 86% from $1,487,865 recorded in the
corresponding quarter of 2000. Gross profit as a percentage of product sales
for the three months ended March 31, 2001 was 9.6% compared to 53% in the
prior year corresponding quarter, as a result of reduced unit selling prices
to Bausch and Lomb and reduced manufacturing cost performance. Costs of sales
includes approximately $700,000 in the first quarter of 2001 attributable to
underutilization of manufacturing capacity resulting from the Company's
efforts to reduce work-in-process and other inventory that had been produced
through mid-2000 in anticipation of ORTHOVISC product launch in the U.S.
market. The Company expects to continue to experience the impacts of this
underutilization through mid-2001.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
three months ended March 31, 2001 increased by $34,132 to $1,347,870 from
$1,313,738 in the prior year corresponding quarter. The increase in research
and development during 2001 was primarily due to approximately $700,000 in
startup costs associated with the new ORTHOVISC(R) Phase III clinical trials
and development costs for INCERT. Research and development expenses during
2001 are expected to be approximately twice the level of spending in 2000 due
to clinical trial costs, as well as expected additions to headcount.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the three months ended March 31, 2001 increased by
$453,348 or 45.4% to $1,452,810 from $999,462 in the prior year corresponding
quarter. The increase was primarily attributable to higher professional fees
associated with the putative class action suit described in Note 9--"Legal
Matters" and certain corporate matters. Selling, general and administrative
expenses for the first quarter of 2001 also included approximately $200,000 to
support the sales and marketing of ORTHOVISC(R) in Europe and Canada.
INTEREST INCOME. The Company's interest income increased by $11,332
to $272,580 for the three months ended March 31, 2001 from $261,248 in the
prior year corresponding quarter. The increase is attributable to slightly
higher average balances in marketable securities in 2001 versus 2000 and
higher average interest rates.
10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash, cash equivalents and short
term marketable securities of $16.8 million and working capital of $20.9 million
versus cash, cash equivalents and short-term marketable securities of $18.3
million and working capital of $23.1 million at December 31, 2000.
During the first quarter of 2001, the Company utilized $1,365,264 in
operations, primarily as a result of the net loss, partially offset by the
reductions of accounts receivable and certain other working capital items.
Capital expenditures were $134,361 during the quarter. As previously
disclosed, the company is planning certain pilot laboratory projects
amounting to approximately $500,000 that would result in additional capital
spending during the remainder of 2001. Aggregate capital investments for 2001
are expected to be approximately $1 million.
As described in financial statement Note 9 - "Legal Matters", the
Company is a defendant in a putative class action lawsuit. The parties have
negotiated and entered into a Memorandum of Understanding, which sets forth the
terms of the proposed settlement, subject to approval by the Court. As part of
the proposed settlement, defendants would pay a total of $1.25 million into a
settlement fund, which would, among other things, be used to pay authorized
members of the Class. The Memorandum of Understanding and the proposed
settlement will be contingent upon, among other things, (i) the parties
execution of an appropriate Stipulation of Settlement which is acceptable to the
parties; (ii) conditional certification of the Class for purposes of the
Settlement, (iii) Court approval of the Settlement; and (iv) dismissal of the
Action with prejudice. The Company is not able to provide any assurances that
(i) the proposed settlement will be consummated or (ii) the terms of any final
settlement will not differ from the terms of the Memorandum of Understanding.
Accordingly, the Company has not recorded a liability for the proposed
settlement.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including market acceptance of its
existing and future products; the successful commercialization of products in
development; progress in its product development efforts; the magnitude and
scope of such efforts; progress with preclinical studies; clinical trials and
product clearances by the FDA and other agencies; the cost, and timing
requirements of its efforts to expand its manufacturing capabilities; the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; defending, negotiating, and settling legal
matters; competing technological and market developments; and the development of
strategic alliances for the marketing of certain of its products. There can be
no assurance that the company will record profits in future periods. See "Risk
Factors and Certain Other Factors Affecting Future Operating Results - History
of Losses; Uncertainty of Future Profitability."
11
RISK FACTORS AND CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
THIS QUARTERLY REPORT 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. THE WORDS "BELIEVE," "EXPECT,"
"ANTICIPATE," "INTEND," "ESTIMATE," "PLAN," "SEEK," "HOPE," "WILL" AND OTHER
EXPRESSIONS, WHICH ARE PREDICTIONS OF, OR INDICATE FUTURE EVENTS AND TRENDS AND
WHICH DO NOT RELATE TO HISTORICAL MATTERS, IDENTIFY FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING: FUTURE SALE
AND PRODUCT REVENUES, NEGOTIATIONS WITH POTENTIAL AND EXISTING CUSTOMERS,
POSSIBLE DEVELOPMENT OF NEW PRODUCTS, POSSIBLE STRATEGIC INVESTMENTS, POSSIBLE
REGULATORY APPROVAL OF NEW OR POTENTIAL PRODUCTS, THE IMPACT OF THE TERMINATION
OF THE ZIMMER DISTRIBUTION AGREEMENT, ACQUISITION OF NEW DISTRIBUTION AND
COLLABORATION PARTNERS, PERFORMANCE UNDER THE BLS AGREEMENT AND THE OUTCOME AND
IMPACT OF THE SEC INVESTIGATION AND PUTATIVE CLASS ACTION COMPLAINT. THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENT COULD DIFFER MATERIALLY
FROM ANTICIPATED RESULTS, PERFORMANCE OR ACHIEVEMENT, EXPRESSED OR IMPLIED IN
SUCH FORWARD-LOOKING STATEMENTS. IN PARTICULAR, THERE CAN BE NO ASSURANCE THAT
THE COMPANY WILL: (i) BEGIN CLINICAL TRIALS OF INCERT(R)-S; (ii) SUCCESSFULLY
COMPLETE CLINICAL TRIALS OF ORTHOVISC(R) OR INCERT(R)-S; (iii) OBTAIN CLINICAL
DATA TO SUPPORT A PRE-MARKET APPROVAL APPLICATION AND/OR FDA APPROVAL; (iv)
RECEIVE FDA OR OTHER REGULATORY APPROVALS OF ORTHOVISC(R) OR THAT SUCH APPROVALS
WILL BE OBTAINED IN A TIMELY MANNERS OR WITHOUT THE NEED FOR ADDITIONAL CLINICAL
TRIALS. THERE CAN BE NO ASSURANCE THAT THE TERMINATION OF THE DISTRIBUTION
AGREEMENT WITH ZIMMER WILL NOT HAVE A MATERIAL ADVERSE IMPACT ON SALES OR
DISTRIBUTION OF ORTHOVISC(R) OR THAT THE COMPANY WILL BE ABLE TO IDENTIFY OR
ENGAGE APPROPRIATE DISTRIBUTION OR COLLABORATION PARTNERS FOR SALES OF
ORTHOVISC(R) OR INCERT(R)-S OR EFFECTIVELY TRANSITION THE DISTRIBUTION OF
ORTHOVISC(R) OR INCERT(R)-S TO SUCH DISTRIBUTORS, ONCE ENGAGED. IN ADDITION,
THERE CAN BE NOT ASSURANCE THAT ANY DELAY IN RECEIVING ANY SUCH APPROVALS WILL
NOT ADVERSELY EFFECT THE COMPANY'S COMPETITIVE POSITION OR, IF COMPLETED,
MEANINGFUL SALES OF THE PRODUCTS WILL BE ACHIEVED. THERE CAN BE NO ASSURANCE
THAT THE COMPANY'S INVENTORY REDUCTION OR OTHER EFFORTS WILL RESULT IN IMPROVED
GROSS MARGINS BY MID - 2001 OR EVER. THERE CAN BE NOT ASSURANCES THAT: (i) THE
COMPANY WILL ACHIEVE INCREMENTAL SALES OF THIS OPHTHALMIC PRODUCTS TO BAUSCH &
LOMB SURGICAL AND/OR OTHER COMPANIES SUFFICIENT TO OFFSET THE EFFECTS OF THE
PRICE REDUCTION AND ROYALTIES TO BE PAID TO BAUSCH & LOMB SURGICAL (ii) BAUSCH &
LOMB SURGICAL WILL MAKE PURCHASES IN ACCORDANCE WITH ITS FORECASTS. FURTHERMORE,
THE COMPANY CANNOT MAKE ANY ASSURANCE THAT THE CURRENT LEVELS OF SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES WILL NOT CONTINUE. ADDITIONAL FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE ARE SET FORTH HEREIN AND IN THE "MANAGEMENT'S
DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
BEGINNING ON PAGE 10 OF THIS QUARTERLY REPORT ON FORM 10-Q AS WELL AS THOSE
DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND THE COMPANY'S PRESS
RELEASES AND OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENT WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OF OTHERWISE.
COMPREHENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL. The
Company's products, product development activities, manufacturing processes, and
current and future sales and marketing are subject to extensive and rigorous
regulation by the Food & Drug Administration (FDA) and comparable agencies in
foreign countries. In the United States, the FDA regulates the marketing,
advertising, promotion, and distribution of medical devices, drugs, and
biologics, as well as testing, safety, effectiveness, clearance, approval,
manufacturing, labeling, packing, storage, record keeping, and reporting
activities for such products.
Medical products regulated by the FDA are generally classified as
medical devices and/or drugs and/or biologics. Product development and approval
within the FDA framework takes a number of years and involves the expenditure of
substantial resources. There can be no assurance that the FDA will grant
approval for the Company's new products on a timely basis if at all, or that FDA
review will not involve delays that will adversely affect the Company's ability
to commercialize additional products or expand permitted uses of existing
products, or that the regulatory framework will not change, or that additional
regulation will not arise at any stage of the Company's product development
process which may adversely affect approval of or delay an application or
require additional expenditures by the Company. In the event the Company's
future products are regulated as human drugs or biologics, the FDA's review
process typically would be substantially longer and more expensive than the
review process to which they are currently subject as devices.
The Company's ORTHOVISC(R) product will have to meet regulatory
requirements of a Class III device by the FDA. Class III devices are those that
generally must receive pre-market approval (PMA) by the FDA (e.g.
life-sustaining, life-supporting and implantable or new devices which have not
been found to be substantially equivalent to legally marketed devices) and
require clinical testing to ensure safety and effectiveness and FDA approval
prior to marketing and
12
distribution. In order for the Company to commercially distribute ORTHOVISC(R)
in the U.S., it must obtain a PMA. The PMA process can be expensive, uncertain
and lengthy. A number of devices for which PMAs have been sought have never been
approved for marketing. The review of an application often occurs over a
protracted time period and may take two years or more from the filing date to
complete. The Company submitted a PMA application for ORTHOVISC(R) in December
1997. In October 1998, the Company was notified by the FDA that the Company's
PMA application for ORTHOVISC(R) was not approvable and that additional clinical
data would be required to demonstrate the effectiveness of ORTHOVISC(R). The
Company submitted an Investigational Device Exemption (IDE) to the FDA in
February 1999 and received approval in late March 1999 to commence a second
Phase III clinical study. The Company received initial results from the Phase
III clinical trial in late May 2000 that the Company determined did not show
sufficient efficacy to support the filing of a PMA application. The Company has
evaluated available information and announced its intention to pursue further
clinical trials. In February 2001, the Company commenced another Phase III
clinical trial of ORTHOVISC(R). The trial is being conducted in up to 20 centers
in the U.S. and Canada, with 360 patients expected to be enrolled, and with
evaluation over a six-month period following treatment. There can be no
assurance that (i) any additional clinical data will support the efficacy of
ORTHOVISC(R), (ii) the Company will complete any additional clinical trials of
ORTHOVISC(R), (iii) the Company will be able to successfully complete the FDA
approval process, or (iv) additional clinical trials will support a PMA
application and/or FDA approval in a timely manner or at all. There also can be
no assurance that any delay in receiving FDA approvals will not adversely affect
the Company's competitive position. Furthermore, even if the Company were to
receive a PMA approval, (i) the approval may include significant limitations on
the indications and other claims sought for use for which the product may be
marketed; (ii) the approval may include other significant conditions to approval
such as post-market testing, tracking, or surveillance requirements; and (iii)
the Company may not be able to achieve meaningful sales in the U.S.
The Company's HA product under development, INCERT(R)-S, has not
obtained regulatory approval in the U.S. for commercial marketing and sale. The
Company believes that INCERT(R)-S will be regulated as a Class III medical
device and will require a PMA prior to marketing. The Company has received IDE
approval from the FDA and is evaluating product development activities,
including the prospects for conducting clinical trials for INCERT(R)-S. There
can be no assurance that (i) the Company will begin or successfully complete
clinical trials oF INCERT(R)-S; (ii) the clinical data will support the efficacy
of INCERT(R)-S; (iii) it will be able to successfuLlY complete the FDA approval
process; or (iv) additional clinical trials will support a PMA application
and/or FDA approval in a timely manner or at all. There also can be no assurance
that any delay in receiving FDA approvals will not adversely affect our
competitive position. Furthermore, even if we received FDA approval, (i) the
approval may include significant limitations on the indications and other claims
sought for use for which the product may be marketed, (ii) the approval may
include other significant conditions of approval such as post-market testing,
tracking, or surveillance requirements; and /or (iii) meaningful sales of
INCERT(R)-S may never be achieved.
Orquest has not received regulatory approval in the U.S. for the
commercial marketing and sale of OSSIGEL(R). The Company believes that
OSSIGEL(R) will be regulated as a Class III medical device with the FDA's Center
of Biologics Research and Review as the lead review center and will require a
PMA prior to marketing. There can be no assurance that clinical trials of
OSSIGEL(R) will demonstrate that OSSIGEL(R) is safe and effective or otherwise
satisfies FDA requirements.
Once obtained, marketing approval can be withdrawn by the FDA for a
number of reasons, including, among other things, the failure to comply with
regulatory standards, or the occurrence of unforeseen problems following initial
approval. The Company 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 that effect safety and effectiveness, may be deemed approved after
a 30-day notice unless the FDA requests a supplement. Failure by the Company to
receive approval of a PMA supplement regarding the use of a different
manufacturing facility or any other change affecting the safety or effectiveness
of an approved device on a timely basis, or at all, may have a material adverse
effect on the Company's business, financial condition, and results of
operations. The FDA could also limit or prevent the manufacture or distribution
of the Company's products and has the power to require the recall of such
products. Significant delay or cost in obtaining, or failure to obtain FDA
approval to market products, any FDA limitations on the use of the Company's
products, or any withdrawal or suspension of approval or rescission of approval
by the FDA could have a material adverse effect on the Company's business,
financial condition, and results of operations.
13
In addition, all FDA approved or cleared products manufactured by
the Company must be manufactured in compliance with FDA's Good Manufacturing
Practices (GMP) regulations and, for medical devices, FDA's Good Manufacturing
Practices/Quality System Regulations (GMP/QSR). Ongoing compliance with GMP/QSR
and other applicable regulatory requirements is enforced through periodic
inspection by state and federal agencies, including the FDA. The FDA may inspect
the Company and its facilities from time to time to determine whether the
Company is in compliance with regulations relating to medical device and
manufacturing companies, including regulations concerning manufacturing,
testing, quality control and product labeling practices. There can be no
assurance that the Company will be able to comply with current or future FDA
requirements applicable to the manufacture of products.
FDA regulations depend heavily on administrative interpretation and
there can be no assurance that the future interpretations made by the FDA or
other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company. In addition, changes in the existing regulations or adoption
of new governmental regulations or policies could prevent or delay regulatory
approval of the Company's products.
Failure to comply with applicable regulatory requirements could
result in, among other things, warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, refusal of the FDA to grant pre-market clearance or pre-market
approval for devices, withdrawal of approvals and criminal prosecution.
In addition to regulations enforced by the FDA, the Company is
subject to other existing and potential future federal, state, local and foreign
regulations. International regulatory bodies often establish regulations
governing product standards, packing requirements, labeling requirements, import
restrictions, tariff regulations, duties and tax requirements. To enable the
Company to market ORTHOVISC(R) in Europe, the Company was required to receive a
"CE" marking certification, an international symbol of quality and compliance
with the applicable European medical device directive. In October 1996, the
Company received an EC Design Examination and an EC Quality System Certificate
from a European Notified Body, which entitled the Company to affix a CE marking
for ORTHOVISC(R) as a viscoelastic supplement or a replacement for synovial
fluid in human joints. There can be no assurance that the Company will be able
to achieve and/or maintain compliance required for CE marking or other foreign
regulatory approvals for any or all of its products or that it will be able to
produce its products in a timely and profitable manner while complying with
applicable requirements. Federal, state, local and foreign regulations regarding
the manufacture and sale of medical products are subject to change. The Company
cannot predict what impact, if any, such changes might have on its business. The
requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement also vary widely from country to country.
The process of obtaining approvals from the FDA and other regulatory
authorities can be costly, time consuming, and subject to unanticipated delays.
There can be no assurance that approvals or clearances of the Company's products
will be granted or that the Company will have the necessary funds to develop
certain of such products. Any failure to obtain, or delay in obtaining such
approvals or clearances could adversely affect the ability of the Company to
market its products.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. From its
inception, up until December 31, 1996 and in 1999 and 2000, the Company had
incurred annual operating losses. As of March 31, 2001, the Company had an
accumulated deficit of approximately $6,917,000. The continued development of
the Company's products will require the commitment of substantial resources to
conduct research and preclinical and clinical development programs, and to
establish sales and marketing capabilities or distribution arrangements. The
ability of the Company to reach sustained profitability is highly uncertain. To
achieve sustained profitability the Company must, among other things,
successfully complete development of certain of its products, obtain regulatory
approvals and establish sales and marketing capabilities or distribution
arrangements for certain of its products.
COMPETITION. The Company competes 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 the Company. The Company also competes with academic institutions,
governmental agencies and other research organizations which may be involved in
research, development and commercialization of products. Because a number of
companies are developing HA products for similar applications, the successful
commercialization of a particular product will depend in part upon the ability
of the Company to complete clinical
14
studies and obtain FDA marketing and foreign regulatory approvals prior to its
competitors. There can be no assurance that the Company will be able to compete
against current or future competitors or that competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is currently experiencing pricing pressures
in the Turkish market from increased competition which may hinder its ability to
effectively compete in that market. As a result, prices to our Turkish
distribution have decreased.
UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS. Several of the
Company's products, including ORTHOVISC(R), as well as the products of the
Company's collaborative partners, including OSSIGEL(R), will require clinical
trials to determine their safety and efficacy for U.S. and international
marketing approval by regulatory bodies, including the FDA. In late May 2000,
the Company's initial analysis of the results of its second Phase III clinical
trial of ORTHOVISC(R) did not show sufficient efficacy to support the filing of
a PMA application to obtain FDA approval. The Company has evaluated available
information and announced the commencement of further clinical trials. The
Company has received Investigational Device Exemption (IDE) approval from the
FDA. There can be no assurance that (i) any additional clinical data will
support the efficacy of ORTHOVISC(R), (ii) the Company will begin clinical
trials of INCERT(R)- S or complete any additional clinical trials of
ORTHOVISC(R) or INCERT(R)- S, (iii) it will be able to successfully complete the
FDA approval process FoR either ORTHOVISC(R) or INCERT(R)- S, or (iv) additional
ORTHOVISC(R) or INCERT(R)- S clinical trials will support a PMA application
and/or FDA approval in a timely manner or at all. There can be no assurance that
the Company or its collaborative partners will not encounter problems that will
cause it to delay, suspend or terminate clinical trials. In addition, the
Company cannot provide any assurance that such clinical trials, if completed,
will ultimately demonstrate these products to be safe and efficacious.
DEPENDENCE UPON MARKETING AND DISTRIBUTION PARTNERS. The Company's
success will be dependent upon the efforts of its marketing partners and the
terms and conditions of the Company's relationships with such marketing
partners.
In addition, there can be no assurances that such marketing partners
will not seek to renegotiate their current agreements on terms less favorable to
the Company. Under the terms of the BLS Agreement, effective January 1, 2001,
the Company became Bausch & Lomb Surgical's exclusive provider of AMVISC(R) and
AMVISC(R) Plus, ophthalmic viscoelastic products, in the U.S. and international
markets. The BLS Agreement expires December 31, 2007, superseding an existing
supply contract with Bausch & Lomb Surgical that was set to expire December 31,
2001. The BLS Agreement is subject to early termination and/or reversion to a
non-exclusive basis under certain circumstances. The BLS Agreement lifts
contractual restrictions on the Company's sales of certain ophthalmic products
to other companies, subject to payment of royalties by the Company. In exchange,
the Company agreed to a reduction in unit selling prices retroactively effective
to April 1, 2000 and the elimination of minimum unit purchase obligations by
BLS.
The Company has not achieved incremental sales of its ophthalmic
products to Bausch & Lomb Surgical and/or other companies sufficient to offset
the effects of the price reduction to Bausch & Lomb Surgical and there can be no
assurances that the Company will be able to do so in the future. The Company
expects that, at least through 2001, the reduction in unit prices will result in
a decrease in the Company's revenue and gross margin from Bausch & Lomb
Surgical. In addition, under certain circumstances, (i) Bausch & Lomb Surgical
may have the right to terminate the agreement and/or (ii) the agreement may
revert to a non-exclusive basis; in each case, the Company cannot make any
assurances that such circumstances will not occur. For the three months ended
March 31, 2001 and 2000, sales of AMVISC(R) products to Bausch & Lomb Surgical
accounted for 60.1% and 71.7% of product revenues, respectively. Although the
Company intends to continue to seek new opthalmic product customers, there can
be no assurances that the Company will be successful in obtaining new customers
or to achieve meaningful sales to such new customers.
The Zimmer Distribution Agreement provided Zimmer with exclusive
marketing and distribution rights to ORTHOVISC(R) in the United States, Canada,
Latin America, Asia and most of Europe. On November 10, 2000, the Company
reached an agreement with Zimmer, Inc. for an early termination of its marketing
and distribution agreement for ORTHOVISC(R). The termination may have a material
adverse effect on the Company's ability to market ORTHOVISC(R), which may have a
material adverse effect on the Company's future operating results. The Company
has relationships with logistics service providers in order to distribute
ORTHOVISC(R) to customers in Canada and European countries previously served by
Zimmer. The Company is seeking to establish long-term relationships with new
distribution partners in these countries where Zimmer previously sold the
product. There can be no assurance that the Company will be able to identify or
engage appropriate distribution or collaboration partners or effectively
transition to any such partners. There
15
can be no assurance that the Company 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. Furthermore, the Company may
experience some difficulties or delays in the transfer of existing business
relationships and reimbursement approvals from Zimmer.
The Company will need to obtain the assistance of additional marketing
partners for new products, which are brought to market for the replacement of
certain marketing partners, such as Zimmer, and for existing products brought to
new markets. There can be no assurance that such additional partners will be
available or that such partners will agree to market the Company's products on
acceptable terms. The failure to establish strategic partnerships for the
marketing and distribution of the Company's products on acceptable terms would
have a material adverse effect on the Company's business, financial condition,
and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE OF FUTURE PRODUCTS. The Company's
success will depend in part upon the acceptance of the Company's future products
by the medical community, hospitals and physicians and other health care
providers, and third-party payors. Such acceptance may depend upon the extent to
which the medical community perceives the Company's products as safer, more
effective or cost-competitive than other similar products. Ultimately, for the
Company's new products to gain general market acceptance, it will also be
necessary for the Company to develop marketing partners for the distribution of
its products. There can be no assurance that the Company's new products will
achieve significant market acceptance on a timely basis, or at all. Failure of
some or all of the Company's future products to achieve significant market
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success
will depend, in part, on its ability to obtain and enforce patents, protect
trade secrets, obtain licenses to technology owned by third parties when
necessary, and conduct its business without infringing on the proprietary rights
of others. The patent positions of pharmaceutical, medical products and
biotechnology firms, including the Company, can be uncertain and involve complex
legal and factual questions. There can be no assurance that any patent
applications will result in the issuance of patents or, if any patents are
issued, whether they will provide significant proprietary protection or
commercial advantage, or will not be circumvented by others. In the event a
third party has also filed one or more patent applications for any of its
inventions, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office ("PTO") to determine priority
of invention (see below), which could result in failure to obtain or the loss of
patent protection for the inventions and the loss of any right to use the
inventions. Even if the eventual outcome is favorable to the Company, such
interference proceedings could result in substantial cost to the Company. Filing
and prosecution of patent applications, litigation to establish the validity and
scope of patents, assertion of patent infringement claims against others and the
defense of patent infringement claims by others can be expensive and time
consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity covered
by the disputed rights. If a third party is found to have rights covering
products or processes used by the Company, the Company could be forced to cease
using the technologies or marketing the products covered by such rights, could
be subject to significant liabilities to such third party, and could be required
to license technologies from such third party. Furthermore, even if the
Company's patents are determined to be valid, enforceable, and broad in scope,
there can be no assurance that competitors will not be able to design around
such patents and compete with the Company using the resulting alternative
technology.
The Company has a policy of seeking patent protection for patentable
aspects of its proprietary technology. It filed five (5) patent applications in
the first quarter of 2001. The Company co-owns certain United States patents
with claims relating to the chemical modification of HA and certain adhesion
prevention and drug delivery uses of HA. Two patents in this portfolio were
issued in the year 2000. The Company also solely owns patents directed to
certain manufacturing processes. The Company holds an exclusive license from
Tufts University to use technologies claimed in a United States patent
application which has been granted a Notice of Allowance from the U.S. Patent
Office for the anti-metastasis applications of HA oligosaccharides. The
Company's patents expire between 2007 and 2015 and the license expires upon
expiration of all related patents. The Company intends to seek patent protection
with respect to products and processes developed in the course of its activities
when it believes such protection is in its best interest and when the cost of
seeking such protection is not inordinate. However, no assurance can be given
that any patent application will be filed, that any filed applications will
result in issued patents or that any issued patents will provide the Company
with a competitive advantage or will not be successfully challenged by third
parties. The protections afforded by patents will
16
depend upon their scope and validity, and others may be able to design around
the Company's patents. The Company's issued patents and any licensed patents
would provide competitive protection, if at all, only in the United States. The
Company has not, to date, pursued foreign patents equivalent to those issued or
applied for in the United States.
Other entities have filed patent applications for or have been issued
patents concerning various aspects of HA-related products or processes. There
can be no assurance that the products or processes developed by the Company will
not infringe on the patent rights of others in the future. Any such infringement
may have a material adverse effect on the Company's business, financial
condition, and results of operations. In particular, the Company received notice
from the PTO in 1995 that a third party was attempting to provoke a patent
interference with respect to one of the Company's co-owned patents covering the
use of INCERT(R) 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 the Company's marketing of INCERT(R) for this use.
The existence of the interference proceeding may have a negative impact on the
marketing of the INCERT(R) product, and no assurance can be given that the
Company would be successful in any such interference proceeding. If the
third-party interference were to be decided adversely to the Company, involved
claims of the Company's patent would be cancelled, the Company's marketing of
the INCERT(R) product may be materially and adversely affected and the third
party may enforce patent rights against the Company which could prohibit the
sale and use of INCERT(R) products, which could have a material adverse effect
on the Company's future operating results.
The Company also relies upon trade secrets and proprietary know-how for
certain non-patented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such information.
There can be no assurance that these agreements provide meaningful protection or
that they will not be breached, that the Company would have adequate remedies
for any such breach, or that the Company's trade secrets, proprietary know-how,
and technological advances will not otherwise become known to others. In
addition, there can be no assurance that, despite precautions taken by the
Company, others have not and will not obtain access to the Company's proprietary
technology. Further, there can be no assurance that third parties will not
independently develop substantially equivalent or better technology.
Pursuant to the BLS Agreement, the Company has agreed to transfer to
Bausch & Lomb Surgical, upon expiration of the term of the agreement on December
31, 2007, or in connection with earlier termination in certain circumstances,
the Company's manufacturing process, know-how and technical information, which
relate to AMVISC(R) products. Upon expiration of the BLS Agreement, there can be
no assurance that Bausch & Lomb Surgical will continue to use the Company to
manufacture AMVISC(R) and AMVISC(R) Plus. If Bausch & Lomb Surgical discontinues
the use of the Company as a manufacturer after such time, the Company's
business, financial condition, and results of operations would likely be
materially and adversely affected.
RISKS ASSOCIATED WITH MANUFACTURING. The Company's results of
operations are dependent upon the continued operation of its manufacturing
facility in Woburn, Massachusetts. The operation of biomedical manufacturing
plants involves many risks, including the breakdown, failure or substandard
performance of equipment, natural and other disasters, and the need to comply
with the requirements of directives of government agencies, including the FDA.
In addition, the Company relies on a single supplier for syringes and a small
number of suppliers for a number of other materials required for the
manufacturing and delivery of its HA products. Furthermore, manufacturing
processes and research and development efforts of the Company involve animals
and products derived from animals. The utilization of animals in research and
development and product commercialization is subject to increasing focus by
animal rights activists. The activities of animal rights groups and other
organizations that have protested animal based research and development programs
or boycotted the products resulting from such programs could cause an
interruption in the Company's manufacturing processes and research and
development efforts. The occurrence of material operational problems, including
but not limited to the events described above, could have a material adverse
effect on the Company's business, financial condition and results of operations
during the period of such operational difficulties.
NO ASSURANCE OF GROWTH OR ABILITY TO MANAGE GROWTH. The Company's
future success depends on substantial growth in product sales. There can be no
assurance that such growth can be achieved or, if achieved, can be sustained.
There can be no assurance that even if substantial growth in product sales and
the demand for the Company's products is achieved, the Company will be able to
(i) develop the necessary manufacturing capabilities; (ii) obtain the assistance
of additional marketing partners; (iii) attract, retain and integrate the
required key personnel; or (iv) implement the financial, accounting and
management systems needed to manage growing demand for its products, should it
occur. Failure of the Company to
17
successfully manage future growth could have a material adverse effect on the
Company's business, financial condition and results of operations.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE COST CONTAINMENT INITIATIVES.
In the U.S. and other markets, health care providers, such as hospitals and
physicians, that purchase health care products, such as the Company's products,
generally rely on third party payors, including Medicare, Medicaid and other
health insurance and managed care plans, to reimburse all or part of the cost of
the health care product. The Company depends upon the distributors for its
products to secure reimbursement. Reimbursement by a third party payor may
depend on a number of factors, including the payor's determination that the use
of the Company's products are clinically useful and cost-effective, medically
necessary and not experimental or investigational. Since reimbursement approval
is required from each payor individually, seeking such approvals can be a time
consuming and costly process which, in the future, could require the Company or
its marketing partners to provide supporting scientific, clinical and
cost-effectiveness data for the use of the Company's products to each payor
separately. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and third party payors are increasingly
attempting to contain the costs of health care products and services by limiting
both coverage and the level of reimbursement for new therapeutic products and by
refusing in some cases to provide coverage for uses of approved products for
disease indications for which the FDA has not granted marketing approval. In
addition, Congress and certain state legislatures have considered reforms that
may affect current reimbursement practices, including controls on health care
spending through limitations on the growth of Medicare and Medicaid spending.
There can be no assurance that third party reimbursement coverage will be
available or adequate for any products or services developed by the Company.
Outside the U.S., the success of the Company's products is also dependent in
part upon the availability of reimbursement and health care payment systems.
Lack of adequate coverage and reimbursement provided by governments and other
third party payors for the Company' products and services could have a material
adverse effect on the Company's business, financial condition and results of
operations.
NEED FOR ADDITIONAL FUNDS; LIQUIDITY. The Company had cash, cash
equivalents and short-term marketable securities of $16.8 million as of March
31, 2001. The Company's future capital requirements and the adequacy of
available funds will depend, however, on numerous factors, including market
acceptance of its existing and future products; the successful commercialization
of products in development; progress in its product development efforts; the
magnitude and scope of such efforts, progress with preclinical studies, clinical
trials and product clearances by the FDA and other agencies; the cost and timing
of its efforts to expand its manufacturing capabilities; the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; competing technological and market developments; and the
development of strategic alliances for the marketing of certain of its products.
To the extent that funds generated from the Company's operations, together with
the Company's existing capital resources and are insufficient to meet future
requirements, the Company will be required to obtain additional funds through
equity or debt financings, strategic alliances with corporate partners and
others, or through other sources. The terms of any future equity financings may
be dilutive to the Company's stockholders and the terms of any debt financings
may contain restrictive covenants, which limit the Company's ability to pursue
certain courses of action. The ability of the Company to obtain financing is
dependent on the status of the Company's future business prospects as well as
conditions prevailing in the relevant capital markets. No assurance can be given
that any additional financing will be made available to the Company or will be
available on acceptable terms should such a need arise.
EXPOSURE TO PRODUCT LIABILITY CLAIMS. The testing, marketing and sale
of human health care products entail an inherent risk of allegations of product
liability, and there can be no assurance that substantial product liability
claims will not be asserted against the Company. Although the Company has not
received any material product liability claims to date and has 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 the Company's insurance will be adequate to
cover all situations. Moreover, there can be no assurance that such insurance,
or additional insurance, if required, will be available in the future or, if
available, will be available on commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL. The Company is highly dependent on the
members of its management and scientific staff, the loss of one or more of whom
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled, scientific, managerial and manufacturing
personnel. The Company faces significant competition for such personnel from
other companies, research and academic institutions, government entities and
other organizations. There can be no assurance
18
that the Company will be successful in hiring or retaining the personnel it
requires. The failure to hire and retain such personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL REGULATION. The Company is subject to a variety of local,
state and federal government regulations relating to the storage, discharge,
handling, emission, generation, manufacture and disposal of toxic, or other
hazardous substances used in the manufacture of the Company's products. Any
failure by the Company to control the use, disposal, removal or storage of
hazardous chemicals or toxic substances could subject the Company to significant
liabilities, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS RELATING TO INTERNATIONAL OPERATIONS. During the three months
ended March 31, 2001 and 2000, approximately, 33.9% and 19.7%, respectively, of
the Company's product sales were generated in international markets through
marketing partners. The Company's 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 the Company's
products are sold. A number of risks are inherent in international sales and
operations. For example, the volume of international sales may be limited by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, difficulties in managing
international operations, import restrictions and fluctuations in foreign
currency exchange rates. Such changes in the volume of sales may have an adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE; NO CONTROL OVER MARKET MAKING.
The market price of shares of the Company's common stock may be highly volatile.
Factors such as announcements of new commercial products or technological
innovations by the Company or its competitors, disclosure of results of clinical
testing or regulatory proceedings, governmental regulation and approvals,
developments in patent or other proprietary rights, public concern as to the
safety of products developed by the Company and general market conditions may
have a significant effect on the market price of the Company's common stock. In
particular, the Company's stock price declined significantly in October 1998
following the Company's announcement that the FDA had notified the Company that
its PMA for ORTHOVISC(R) was not approvable and that additional clinical data
would be required to demonstrate the effectiveness of ORTHOVISC(R). The stock
price declined again in May 2000 following the Company'S announcements that
initial analysis of results from the Phase III clinical trial of ORTHOVISC(R)
did not show sufficient efficacy to support the filing of a PMA application to
obtain FDA approval, and that the SEC had issued a formal order of investigation
and required the Company to provide information in connection with certain
revenue recognition matters. The trading price of the Company's common stock
could be subject to wide fluctuations in response to quarter-to-quarter
variations in the Company's operating results, material announcements by the
Company or its competitors, governmental regulatory action, conditions in the
health care industry generally or in the medical products industry specifically,
or other events or factors, many of which are beyond the Company's control. In
addition, the stock market has experienced extreme price and volume fluctuations
which have particularly affected the market prices of many medical products
companies and which often have been unrelated to the operating performance of
such companies. The Company's operating results in future quarters may be below
the expectations of equity research analysts and investors. In such event, the
price of the common stock would likely decline, perhaps substantially.
No person is under any obligation to make a market in the common stock
or publish research reports on the Company, and any person making a market in
the common stock or publishing research reports on the Company may discontinue
market making or publishing such reports at any time without notice. There can
be no assurance that an active public market in the common stock will be
sustained.
POSSIBLE ADVERSE EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. Certain
provisions of the Company's Restated Articles of Organization and Amended and
Restated By-laws could have the effect of discouraging a third party from
pursuing a non-negotiated takeover of the Company and preventing certain changes
in control. These provisions include a classified Board of Directors, advance
notice to the Board of Directors of stockholder proposals, limitations on the
ability of stockholders to remove directors and to call stockholder meetings,
the provision that vacancies on the Board of Directors be filled by a majority
of the remaining directors. In addition, the Board of Directors adopted a
Shareholders Rights Plan in April 1998. The Company also is subject to Chapter
110F of the Massachusetts General Laws which, subject to certain exceptions,
prohibits a Massachusetts corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
These provisions could discourage a third party from pursuing a takeover of the
Company at a price considered attractive by many
19
stockholders, since such provisions could have the effect of preventing or
delaying a potential acquiror from acquiring control of the Company and its
Board of Directors.
SEC INVESTIGATION AND SECURITIES CLASS ACTION LITIGATION. The SEC had
issued a formal order of investigation and has required the Company to provide
information in connection with certain revenue recognition matters. These
matters, relating to the Company's historical accounting for sales of its
product under a long-term supply and distribution agreement with Zimmer, Inc.,
were also the subject of the Company's March 15, 2000 disclosure concerning an
informal SEC inquiry and the restatement of results for 1998 and the first three
quarters of 1999. The Company has been cooperating fully. However, the Company
is not in a position to predict the probable outcome of this matter or its
potential impact on the Company's business or operations. Three putative class
action lawsuits were filed against the Company. These lawsuits have been
consolidated. The parties have negotiated and entered into an agreement in
principle to settle the Action (the "Memorandum of Understanding"), which sets
forth the terms of the proposed settlement, subject to approval by the Court. As
part of the proposed settlement, defendants will pay a total of $1.25 million
into a settlement fund, which will, among other things, be used to pay
authorized members of the class comprised of all purchasers of the Company's
shares between April 15, 1998 and May 30, 2000 (the "Class"). The Memorandum of
Understanding and the proposed settlement will be contingent upon, among other
things, (i) the parties execution of an appropriate Stipulation of Settlement
which is acceptable to the parties; (ii) conditional certification of the Class
for purposes of the Settlement, (iii) Court approval of the Settlement; and (iv)
dismissal of the Action with prejudice. The Company is not able to provide any
assurances that (i) the proposed settlement will be consummated or (ii) the
terms of any final settlement will not differ from the terms of the Memorandum
of Understanding. Accordingly, the Company has not recorded a liability for the
proposed settlement. The consolidated lawsuit is described more fully in Note 9
- - "Legal Matters" to the financial statements.
RELIANCE ON A SMALL NUMBER OF CUSTOMERS. The Company has
historically derived the majority of its revenues from a small number of
customers, most of who resell its products to end users and most of who are
significantly larger companies. The Company's failure to generate as much
revenue as expected from these customers or the failure of these customers to
purchase Anika's products would seriously harm Anika's business. For the three
months ended March 31, 2001, Bausch & Lomb Surgical accounted for 60.1% of
product revenues and 73.95% of the accounts receivable balance and Pharmaren
(formerly Biomeks), Anika's distributor in Turkey, accounted for 18.2% of
product revenues and none of the accounts receivable balance. Accordingly, if
present and future customers terminate their purchasing arrangements with the
Company, significantly reduce or delay their orders or seek to renegotiate their
agreements on terms less favorable to the Company, the Company will be adversely
affected. If the Company accepts terms less favorable than the terms of the
current agreement, such renegotiations may have a material adverse affect on
Anika's business, financial condition, and/or results of operations.
Furthermore, the Company may be subject to the perceived or actual leverage the
customers may have given their relative size and importance to the Company in
any future negotiations. Any termination, change, reduction or delay in orders
could seriously harm the Company's business, financial condition, and results of
operations. Accordingly, unless and until the Company diversifies and expands
its customer base, Anika's future success will significantly depend upon the
timing and size of future purchases by its largest customers and the financial
and operational success of these customers. Product revenue in the future may
continue to be impacted by economic uncertainties associated with the Turkish
market. Furthermore, 2001 sales to our Turkish distributor are at lowered prices
and negotiations are ongoing to establish a new long-term distribution agreement
for this territory.
The loss of any one of the Company's major customers or the delay of
significant orders from such customers, even if only temporary, could reduce or
delay the Company's recognition of revenues, harm its reputation in the
industry, and reduce its ability to accurately predict cash flow, and, as a
consequence, could seriously harm the Company's business, financial condition,
and results of operations.
The Company distributes ORTHOVISC(R) in territories such as Spain,
Portugal, Turkey, and Israel. Due to the result of the unfavorable results of
the U.S. ORTHOVISC(R) Phase III clinical trial announced on May 31, 2000,
marketing efforts in these countries may be negatively affected. There can be no
assurance that past ORTHOVISC(R) sales levels will be maintained or that sales
will occur at all in these countries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2001, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. All of the Company's
20
investments consist of money market funds and commercial paper that are carried
on the Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
investment portfolio of cash equivalent and short-term investments is subject to
interest rate fluctuations, but the Company believes this risk is immaterial due
to the short-term nature of these investments. The Company's exposure to
currency exchange rate fluctuations is specific to certain sales to a foreign
customer and is expected to continue to be modest. The impact of currency
exchange rate movements on sales to this foreign customer was immaterial for the
quarter ended March 31, 2001. Currently, the Company does not engage in foreign
currency hedging activities.
21
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9, "Legal Matters" of the financial statements incorporated herein by
reference to such financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 Current Report on Form 8-AB12 (File no.
001-14027), filed with the Securities and Exchange Commission
on April 7, 1998.
3.5 Amendment to the Amended and Restated Articles of Organization
of the Company, incorporated herein by reference to the
Company's quarterly report on Form 10-QSB for the quarterly
period ending June 30, 1998 (File no. 001-14027), filed with
the Securities and Exchange Commission on August 14, 1998.
3.6 The Amended and Restated Bylaws of the Company, incorporated
herein by reference to Exhibit 3.4 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.
(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 Current Report on
Form 8-A12B (File no. 001-14027), filed with the Securities
and Exchange Commission on April 7, 1998.
(11) Statement Regarding the Computation of Per Share Earnings
11.1 See Note 4 to the Financial Statements included herewith.
(b) Reports on Form 8-K: None
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in Woburn,
Massachusetts on May 14, 2001.
ANIKA THERAPEUTICS, INC.
May 14, 2000 By: /s/ Douglas R. Potter
----------------------------------------------------
Douglas R. Potter
CHIEF FINANCIAL OFFICER
(Principal Financial Officer and Authorized Officer)
23