Anika Therapeutics Inc.

Good evening, ladies and gentlemen, and welcome to ANECA Therapeutics' fourth quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero, on your touch-tone telephone. As a reminder, this conference call is being recorded. I will now turn the call over to Sylvia Chung, Chief Financial Officer. Please proceed.

Thank you, Ashley. Good evening, everyone, and thank you for joining our fourth quarter and full year 2018 earnings call. With me on the call today is Anika's president and chief executive officer, Joseph Darling. During today's call, Joe and I will review our fourth quarter and full year 2018 financial results and key business highlights, which were summarized in our earnings release issued today. A copy of the earnings release is available in the Investors Relations section of our website at annacatherapeutics.com. In addition, a slide presentation is posted on our website in the Investors Relations section under the Events and Presentations tab. We invite you to take a moment to open a file and follow the presentation along with us. Please turn to slide number one. Before we begin, please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities and Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance, or achievements. Please see our CPC filings for more information about factors that could affect our results. Please turn to slide number two as I now turn the call over to our CEO, Joseph Darling. Joe.

Thank you, Sylvia, and good evening, everyone. Welcome to our fourth quarter and full year 2018 earnings call. 2018 was a pivotal and dynamic year for ANACA as we continue to deliver strong earnings and cash flow while building on the foundation that will drive ANACA's next phase of growth. Our fourth quarter and full year results are a snapshot of a company undergoing a transformation. The 2018 performance highlights our ability to capably manage the elements of our business that are within our direct control, with strict financial discipline and an eye toward generating cash and returning value to our shareholders. More importantly, we continue to focus on strategic growth initiatives to address near-term challenges relating to the structure of our legacy contracts. Overall, Anika remains a profitable and cash-producing growth company, and I am very confident in our future. We are executing against our strategic vision of being a global commercial company that delivers a continuum of innovative orthopedic therapies. We are assured of our value proposition to patients, physicians, and our shareholders and I know that by leveraging our strong foundation and executing on our new and ongoing strategic and operational initiatives, we have multiple opportunities as well as the resources to drive revenue and earnings growth over the next several years. We are also making solid progress toward developing and finalizing our five-year strategic plan which will guide our continued transformation into a global commercial company. While we have indicated some of the broad elements of that plan, we look forward to sharing specific details later this year following board review and approval. Last quarter, I spoke about our people, our pipeline, and profitability being the key drivers of our future growth. Through that lens, 2018 marked the beginning of a transformative period. Just look at what we have achieved. First, we expanded our leadership team by appointing a new vice president of operations in the U.S. to drive operational efficiencies and a vice president of international sales to evaluate and improve our international performance. We also added two new highly qualified independent directors to our board of directors who we believe will bring new perspectives and drive enhanced value for our company. Later, I will discuss additional plans to strengthen our organization. We also made significant progress toward developing and deploying a hybrid commercial model as we worked to launch our first surgically delivered regenerative therapy for bone repair procedures in the U.S. later this year. We completed an initial prototype for our second surgically delivered regenerative therapy for rotator cuff tears and remain well positioned to deliver a series of innovative new treatments to the global orthopedic community over the next several years. We also resumed global production and distribution of HyloFast, Hylograph C and HyloMatrix in the fourth quarter as planned following our voluntary non-safety related recall of these products in the second quarter of 2018. We saw improved product gross margin from this and other related initiatives. As we refine and finalize our strategic plan, we are confident in our strengths, understand our challenges, and are working to capture the incredible opportunity that we have to make a difference in the lives of patients. Anika has a robust product pipeline spanning beyond osteoarthritis pain management to tissue repair and regeneration and cartilage restoration. We remain focused on delivering innovative solutions for patients to drive the next phase of our growth. The important steps that we are now taking will help pave the way for new product lines, increase control over the commercial management of those products, and create value for our physician users, patients, and our shareholders. As I noted last quarter, enhancing our profitability won't happen overnight. but I know that we have the right team in place which we will continue to strengthen with experienced leaders including in the regulatory and quality area as well as the product innovation area to execute our strategy to drive sustained growth and enhance shareholder value. ANACA also continues to have a healthy balance sheet that we can leverage as we identify additional growth opportunities in the years ahead which I will discuss further shortly. Please now turn to slide number three. I'd now like to provide an update on Syngal. We recently met with the FDA to discuss our clinical data, including data from the 1702 extension study, and talked about the pathway for Syngal approval. As the meeting occurred a short time ago, we have not yet received the written meeting minutes from the FDA. While we believe it was a productive discussion, it has become clear that we will need to conduct another Phase III clinical trial before we can obtain approval for Syngol in the U.S. But we did obtain clarity that additional clinical data are needed, and we have understanding on the broad outlines of the study. There are additional matters that need to be worked out in order to finalize a design. As I have discussed on previous investors' calls, We were aware that we might have to gather additional clinical data to support U.S. approval and included this outcome in our contingency planning. We will work with the agency and pursue the most expeditious path to FDA for approval for SYNGAL. As we have further discussions and interactions with the FDA to obtain alignment on approval requirements and trial parameters, we will be able to provide substantive details about the nature Design, timeframe, and cost of a potential clinical trial at the appropriate point in time. We continue to believe that our clinical trial data, together with real-world evidence gathered in markets around the world, demonstrate the efficacy, safety, and clinical utility of this novel treatment. Importantly, we continue to experience strong international demand for Syngal in Canada and Europe which further reinforces our conviction in its market opportunity. For the full year of 2018, Syngal OUS revenue increased 34% year-over-year, and we are aggressively pursuing near-term revenue growth by expanding our global footprint for Syngal and the orthobiologics business. To that end, we added eight new international distributors in 2018. expanding the presence of our franchise in Europe, Asia, Africa, and South America. I will now turn to an update on the Monavis Phase III trial to support the expanded HIP-OA indication conducted by our U.S. commercial partner. After analyzing interim data as required by the clinical protocol during the fourth quarter of 2018, our partner informed us that they discontinued the study. We have not yet had the opportunity to review the interim data underlying this decision internally. We intend to thoroughly examine our options, including by vetting the recent regulatory development regarding FDA's intention to begin treating the use of HA for osteoarthritis as a drug rather than a medical device, which has been the regulatory status for decades. While the changes in the regulatory environment present challenges for companies developing HA products, we do believe that such changes may deliver positive benefits for established companies like Inecon with extensive product and clinical development capabilities, as they could increase the barriers for competing products to reach the market, potentially limit new competition, and possibly even stabilize pricing. More importantly, Our product development strategy has already expanded beyond physical supplements with newer surgical products that purposefully move away from this legacy pathway. This is a nice segue to HylaFast, our innovative cartilage repair solution. Please turn to slide number four. We are continuing to pursue strategies to accelerate enrollment in our phase three trial to support FDA approval. patient enrollment has advanced over 50% and we continue to see a very high level of enthusiasm among physicians and patients for this unique regenerative treatment. In fact, numerous surgeons have noted how the product properties greatly enhance the surgical procedure. We continue to view Hylafast as an important product with significant future revenue potential. Conservatively, We estimate the U.S. market size for HyloFast to be greater than half a billion dollars annually. As noted on slide five, we remain on track to launch our first HA-based, surgically delivered, regenerative therapy for bone repair procedures in the U.S. in the second half of this year. This is a momentous catalyst for ANACA, as it will be our first domestic surgical product developed internally and launched under our hybrid commercial model. As we prepare for the launch, we look forward to showcasing the advantages of this therapy to the global orthopedic surgery community at multiple upcoming industry conferences, including the American Academy of Orthopedic Surgeons, AAOS, the International Cartilage Regeneration and Joint Preservation Society, also known as ICRS, and the International Society of Arthroscopy, Knee Surgery and Orthopedic Sports Medicine, known as ISACOS. Engaging with orthopedic medicine thought leaders at these meetings is critical to our success and we look forward to their feedback as we move towards commercial launch. Importantly, we are confident that we are well positioned to deliver on the estimated 250 to 300 million market opportunity We are also continuing to develop the initial prototype we created for our second surgically delivered regenerative therapy for rotator cuff repair procedures. This product is designed to be used in both partial and full thickness rotator cuff tears. It will be a unique therapy that complements our growing portfolio of regenerative medicine products. We anticipate that we will be completing key pre-clinical work in early 2019, and we will be focused on surgical instrumentation development for the remainder of 2019. This therapy represents another significant growth opportunity for ANACA. With more than 650,000 procedures reported in the U.S. each year, this treatment represents a $150 to $200 million market opportunity and the US alone. Further, given the potential addressable international market, we believe it can become a large global franchise. In summary, our organic product launch plans over the next several years will provide a continuum of new products to fuel our growth in the orthobiologic sector. I'll now turn the call over to Sylvia to review our fourth quarter and full year 2018 financial results before I provide more details about our ongoing initiatives to drive near and long-term growth. Sylvia.