Anika Therapeutics Inc.

Thank you for standing by. This is the conference operator. Welcome to the Q2 2020 Anika Therapeutics Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Kristen Galfetti, Executive Director of Investor Relations. Please go ahead, ma'am.

Thank you, Carl. Good evening, everyone, and thank you for joining us. With me today on the call is Dr. Cheryl Blanchard, President and Chief Executive Officer, and Sylvia Chung, Chief Financial Officer of Anika. During today's call, Cheryl and Sylvia will review Anika's second quarter 2020 financial results and key business highlights, which were summarized in our earnings release today. A copy of the earnings release is available on the investor relations section of our website at www.annikatherapeutics.com. In addition, a slide presentation is posted on our website in the investor relations section under the events and presentations tab. We invite you to take a moment now to open the file and follow the presentation along with us. Please turn to slide two. Before we begin, Please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations, including statements with respect to impacts of the COVID-19 pandemic on ANACA. These statements are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance, or achievements. Please also see our SEC filing for more information about factors that could affect our results. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial performance. A reconciliation of these non-GAAP financial results to the most comparable GAAP measurement calculated and presented in accordance with the U.S. GAAP is available in the investor relations section of our website. I will now turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thank you, Kristen, and good evening. We hope that everyone joining us on this call remains in good health while we continue to navigate this ever-shifting landscape. Our thoughts and gratitude remain with all the committed healthcare workers around the world who are on the front lines and selflessly taking on this global pandemic. As this is our first full-quarter call to report since I became president and CEO, I'm delighted to share that the ANICA team executed extremely well against both internal and external expectations. As expected, the suspension of elected procedures due to COVID had a material impact on our business. Despite the COVID environment, we generated positive top and bottom line performance and surpassed aggressive organizational goals, including integration milestones, all in the environment of a global pandemic. That cross-functional execution underscores the ability of our team to adapt, overcome situational barriers, and find new ways to deliver increased value to our customers, shareholders, and other key stakeholders with a continued focus on the patients who benefit from Anika's products. Please turn to slide three. Before diving into our second quarter results and business progress, I'd like to discuss how we are continuing to navigate the evolving COVID-19 environment. First and foremost, our steps to safeguard the health and well-being of our employees and other stakeholders have paid off. remote and distance working, new internal policies and other measures have been effective in maintaining a healthy organization and in continuing to deliver our products to physicians and their patients safely. Manufacturing and supply chain operations have also continued with minimal disruption. And our team and distribution partners have coordinated closely with medical facilities and surgery centers to ensure patients have had uninterrupted access to the treatments and implants they need. We also maintain strong fiscal discipline during the quarter, focusing on cash preservation and strengthening our liquidity. Our continued proactive and decisive action, including talent redeployment, acceleration of integration activities, and delivering products as procedural recovery ramps back up, drove the business results and progress we achieved in the quarter and positioned us well for the future. Please turn to slide four. The leadership team that is successfully navigating this unique environment is now a combination of legacy ANACA executives, talented leaders that joined ANACA through the recent acquisitions of Parkes Medical and Arthur Surface, and other recent additions to our team. This enhanced team positions us very well for continued success in the current environment and as we work to grow ANACA in the coming quarters and years. There have been several key organizational changes and many team members who deserve recognition for their contributions But today I would like to highlight a few key adds to our newly formed ANACA executive team. First, Bart Bracey, who is a co-founder and executive at Parkis, has been appointed Senior Vice President of Sales and Marketing for the Americas region. Bart is an established orthopedic executive with a successful career in sales and marketing in sports medicine, and prior to joining Parkis, he served in commercial leadership roles at companies including Arthrex and Smith & Nephew. Steve Ack, the former president and CEO at Arthur Surface, has been appointed vice president of research and development. Steve has a track record of designing and delivering breakthrough solutions in the joint preservation and restoration and sports medicine markets. He also brings a wealth of orthopedic knowledge from his prior work experience at Linvitec, now ConMed, and Smith & Nephew. Mark Brunsvold, another co-founder and the former president of Parkis, will continue to lead the legacy Parcus operations as President of Sports Medicine. Mark brings a significant background of innovating and manufacturing in the sports medicine field from his prior work experience developing and manufacturing products for Arthrex as the owner of Machine Metals. Finally, James Chase, Senior Vice President of International Sales and Marketing, has assumed responsibility for Anika's operations in Padua, Italy, in order to fully leverage our growing international business. James brings significant sales, marketing, and general management experience in the sports and regenerative medicine spaces from his extensive experience at Smith & Nephew. The more time I spend with his team, the more excited I become about Annika's future and our ability to drive growth to new levels. Now turning to flag five. We delivered a strong revenue performance in the quarter with total revenue growing year over year. This exceeded our COVID planning expectations for the quarter even in light of the procedural slowdowns due to the pandemic. The temporary suspension of elected procedures resulted in an organic top line decline of $5.9 million during the quarter. However, inorganic revenue contributed an increase of $6.2 million in the quarter, which more than offset the drop and resulted in year over year top line growth of 1%. This speaks to the success of our strategic initiatives and the strength of our newly expanded, more diversified business. I'm also very encouraged by the improvement we experienced over the last couple of months as a result of restrictions easing on elective procedures across major markets, even with recent COVID setbacks in certain regions. Orthopedic joint preservation and restoration volumes were at about 25% of historical levels in April, and Rose to around 50% in May and over 80% in June on a pro forma basis. July's orthopedic joint preservation and restoration run rate volumes are around 75% of 2019 levels, also on a pro forma basis. The procedural recovery was particularly evident in ambulatory surgery centers or ASCs and office-based activities where physicians have had the ability to implement safety protocols that have allowed certain appointments and procedures to resume. Our tracking, rapid response, and adaption to the shifting environment has allowed us to maintain relevance in the marketplace and even gain and train new customers during the period. It's important to remember that the vast majority of our products are used in either office-based procedures for the OA pain management injectable side of the business or surgeries performed in the ASC setting. We anticipate hospitals will continue to face special challenges with the influx of COVID patients, and we expect continued depressed levels of elective procedures in the hospital and possibly ASD in office settings, especially as COVID hotspots emerge in different geographies. Our current product mix that favors non-hospital based procedures puts us in a strong position to continue our positive momentum going forward, depending on the COVID status in a given geography. An additional factor benefiting second quarter revenue was the stable order flow during the quarter for monovisc and orthovisc from our U.S. commercial partner due to order timing and contractual terms. We expect domestic orders for orthovisc and monovisc to ease in the second half of the year to level off inventory due to lower end market sales in Q2 as a result of COVID. Please turn to slide six. We made accelerated progress against our integration plan during the quarter. Most importantly, we fully integrated our U.S. commercial team, forming a single seamless organization to support our expanded product portfolio. These changes include the senior management changes I mentioned earlier, the implementation of shared marketing and sales operations functions, and an optimized direct sales representative structure and scaling plan. We entered the third quarter with 35 direct sales professionals in the U.S., in addition to a specialized group of sales support and marketing personnel. Final elements of the integration that will continue into next year include consolidation and implementation of operating systems and the prioritization of our robust product pipeline, which will be discussed on the next earnings call. Turn to slide seven. We also made changes in our R&D team in an effort to streamline and accelerate development of our many promising new product development programs. We made progress evaluating our robust product pipeline, and we are on track to roll out our new R&D roadmap to investors on our third quarter earnings call. Q2 was a very active time for our product development and regulatory teams. We gained U.S. regulatory clearance for six new sports medicine surgical devices and instruments to enable procedures ranging from rotator cuff repair to arthroscopic knee repairs and treating arthritis damage in the hand and wrist. These products will be commercialized through ANICA's recently integrated sales and marketing team through the third quarter of 2020. We also expanded the TactiSat franchise, our surgically delivered regenerative therapy to treat bone insufficiency fractures with the launch of a small bone cannula set. This line extension was developed with input from foot and ankle surgeons to enable improved and more accurate access in small joints and extremities and will address unmet patient needs in those joints. In addition, we achieved our first sales of Syngal in Australia in the quarter and continued the international expansion of our joint pain management portfolio with Syngal and Monovisc regulatory approvals in Finland and Syngal, Monovisc, and OrthoVisc approvals in Serbia. With respect to clinical trials, we've continued to work with clinical trial sites and CRO partners to determine how and when we can safely start new or resume ongoing studies. While we're not yet ready to provide updated timing for the Singhal pilot study or the HylaFAST phase three trial, we are optimistic that we will be able to provide new guidance by the time we report our third quarter results in October. We're ready to move ahead with these clinical trial plans as soon as it is safe to do so in the current COVID environment and continue to be excited to pursue both of these products in the U.S. market based on our commercial experience with them internationally. I will now turn the call over to Sylvia to review our second quarter results, and I will wrap up with some additional comments on the quarter before opening the line for questions.