Anika Therapeutics Inc.

Good morning, ladies and gentlemen, and welcome to ANICA's third quarter earnings conference call. Following the presentation, we will conduct a question and answer session. Instruction will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star zero for the operator's assistance at any time. I would like to remind everyone that this call is being recorded on Thursday, October 31, 2024. I will now turn the call over to Matt Hall. Director, Corporate Development and Investor Relations. Please proceed.

Thank you. Good morning and thank you for joining us for ANACA's third quarter 2024 conference call and webcast. I'm Matt Hall, ANACA's Director of Corporate Development and Investor Relations. I joined ANACA two and a half years ago in business development and have recently taken over investor relations responsibilities from Mark, who exited the company earlier this quarter. I've spent more than 15 years in the healthcare and life sciences investment space and I look forward to engaging with our investors and analysts on the call today. Our Q3 earnings press release was issued earlier this morning and is available on our investor relations website located at www.annika.com as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer, and Steve Griffin, Executive Vice President, Chief Financial Officer, and Treasurer. Please take a moment and open the slide presentation and refer to slide number two. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities 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. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance, In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are used in addition to the results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. a reconciliation of these adjusted non-GAAP financial results. The most comparable GAAP measurements are available at the end of the presentation slide deck and our third quarter 2024 press release. And now I'd like to turn the call over to our president and CEO, Dr. Cheryl Blanchard. Cheryl.

Thanks, Matt. And good morning, everyone. Thanks for joining us. Please turn to slide three. Today marks an important day in the Anika story, and I'll start by providing an update on our ongoing strategic review that has been focused on driving the most optimal capital allocation structure. Earlier today, we announced a series of strategic updates, all of which culminate in a renewed focus that Anika will have going forward on our differentiated HA-based products that serve the approximate $4 billion market of OA pain management and regenerative solutions. I'll be speaking more to our updated strategy, but now I'll take a moment to discuss the details of today's actions. First, we announced the simultaneous signing and closing of the sale of Arthrosurface and our intent to sell Parkis Medical. Second, we announced a restructuring and rightsizing of our operating expenses to support our more narrowly defined target markets. and lastly, we announced plans to reclassify our revenue to give shareholders a clearer view of our value drivers. Let me take a moment to talk about Arthrosurface and Parkes Medical. These decisions are the result of our previously announced company-wide strategic review to drive the highest total return on invested capital. As part of our robust assessment of our products, pipeline and market opportunities, and our experience operating these businesses in what has been a rapidly changing environment over the last few years. We concluded that the Arthur Surface and Parkes Medical portfolio of products would be better suited at another company. The expectations of these acquisitions have fallen short due to a number of factors including unmet commercial synergies, higher costs and complexities due to the changing regulatory requirements and the capital intensive investments needed to compete. At the same time, over the last four years, we've taken significant steps forward in our regenerative solutions and OA pain portfolios. These include launching Integrity last year, formulating a near-term regenerative pipeline around our highly differentiated HIAF technology, bringing Hylafast into focus with the expected launch by 2026, and overcoming hurdles to significantly progress Syngal towards an NDA filing. Together with our board, we've decided to narrow our focus and allocate our resources, both financial and human capital, on the highly differentiated HA-based products that we will deliver the strongest and highest probability of improved shareholder returns. In addition, this morning, we announced the reduction of our workforce to a more optimally fit the needs of our updated strategic focus on HA products. As a result of this restructuring, the sale of Arthur Surface, and the planned divestiture of Parkis Medical, we expect global headcount to reduce from approximately 325 to about 225. Our team is ready to take on the value-building opportunities that lie ahead for the business, our customers, and the patients they serve. Lastly, beginning in the fourth quarter, we will delineate our revenue between our commercial channel and our OEM channel. In the commercial channel, Anika has full responsibility for sales, marketing, and pricing of products through our commercial leaders, direct sales representatives, and independent distributors. Conversely, in the OEM channel, Anika is responsible for development and manufacturing of products governed by long-term agreements, but does not control sales, marketing, or pricing. Over the last four years, We have been working to drive growth in the products that we sell through our ANACA-controlled commercial channel globally. This has included enhanced regulatory support for geographic expansion, developing and launching highly differentiated products, and investing in sales and marketing operations. Since 2021, excluding Parkinson-Arthur service, these investments have resulted in 18% annual growth of products sold through ANACA's commercial channel. and in 2024, we expect to deliver 16% growth at the midpoint of our guidance. We've proven the ability to deliver growth in the HA-focused products that we sell through our commercial channel, and this represents one of the largest shareholder value opportunities in both the short and long term. Please refer to slide four. Turning to this quarter, we have key updates on the major milestones we highlighted in our last call for Integrity, Hylafast and Singall. Let me first start with Integrity. As a reminder, Integrity is our HA-based scaffold for rotator cuff and other tendon repairs, and we're incredibly pleased with its performance early into the full market release. I've talked about its unique structure, design, and instrumentation before. All benefits and features that we continue to hear echoed back to us as exceptionally valuable from the surgeons. Integrity is going really well. Let me discuss some of the proof points. We grew the total number of surgeries in the third quarter by greater than 40% sequentially as we completed nearly 200 surgeries, in line with the guidance shared at the end of the second quarter. Consistent with prior trends, 20% of the surgeons using Integrity were new to ANACA in the last 90 days. Since the initial launch of Integrity in late 2023, more than 500 surgeries have been performed, and we're encouraged to see the number of new customers being attracted to Anika's regenerative products. Integrity competes in a US tendon augmentation market, which is estimated to be more than $220 million annually and grew about 13% in the second quarter of 2024. We expect continued strong growth in the fourth quarter and again anticipate about 40% sequential growth in surgeries. Our updated 2025 guidance, which Steve will discuss in a moment, reflect continued growth of this increasingly important regenerative solutions product. While Integrity's core technology and instrumentation are strong, we recognize the need for robust clinical data to support our expansion into key international markets, including those under EU MDR, and to bolster our U.S. marketing efforts. We expect to be ready to begin enrollment in our prospective multi-center post-market clinical follow-up study by the end of this year. The study will enroll 100 subjects with both 26- and 52-week follow-ups. We also have smaller post-market follow-up studies ongoing that we expect to yield data in 2025. With a strong commercial pull of integrity and adoption accelerating, we're also advancing this technology platform with a near-term regenerative solutions pipeline to further accelerate our growth in our commercial channel. For our first project, we've partnered with a leading team of surgeons and expect new shapes, sizes, and configurations for integrity to begin to hit the U.S. market in 2025, with additional HA-driven innovation leveraging our high-AF regenerative platform to come in the midterm. Let me now shift to the other product that is key to the midterm plans within our regenerative solutions portfolio. the breakthrough device Hylafest, our single stage off the shelf regenerative cartilage repair solution. We've made important progress on our plans to bring Hylafest to the US market and we remain on track with our modular PMA filing plan. I'm excited to announce that the first module of the PMA, the GMP module, was filed with FDA on Tuesday of this week. With that done, our focus has progressed to the preclinical module, which we expect to file by early 2025. We then look forward to filing the third and final module, the clinical module, later in 2025. We remain on track to launch HylaFAST in the U.S. by 2026, targeting a growing estimated $1 billion market with expected revenue contributions later that year. Our investments in integrity, the near-term regenerative pipeline, and our commercial channel will lay the foundation to fully capitalize on this significant opportunity. Lastly, I'll provide an important update on Syngal and our efforts to bring this game-changing product to the United States. We've made real progress in addressing important hurdles on our path to filing the NDA. In April of 2023, Annika held a Type C meeting with the FDA, which led to an advice letter this past April. The letter included positive feedback and new challenges that we're actively addressing. On the positive side, we received further confirmation that the Syngal clinical data is a review issue and not a filing issue. As a reminder, our clinical studies have hit the endpoints that the FDA set forth for us of demonstrating superiority to each of the two active ingredients in Syngal, the steroid triamcinolone hexacetinide and hyaluronic acid. In the Type C meeting, the FDA requested a proposal on our bioequivalent study design. The FDA has since changed their long-standing approach on the Aristospan material needed for the study, now requiring Aristospan to be manufactured using CMC information from the NDA holder rather than label information as previously guided and that is consistent with the 505 pathway. I am pleased to report that we have acquired the Aristospan NDA. This significant achievement addresses that recent FDA hurdle, allowing us to source reference drugs for the bioequivalence study and request a new Type C meeting to finalize that protocol. The FDA had also directed us to complete additional non-clinical testing on Monovisc, our HA used in Syngal, as a result of the FDA designating the HA in Syngal as a drug. I'm also pleased to report progress on that topic. that that non-clinical testing will begin in Q1 of 2025. For those investors who are new to the ANACA story, these actions have cleared many of the hurdles that have been raised by the FDA for the filing of Syngal in the U.S. And because of the progress to date, we remain more committed than ever to bring this revolutionary pain management therapy to the approximate $1 billion U.S. addressable market. We plan to provide updates as soon as we have clarity from our final Type C meeting with FDA. By executing this strategic shift to focus on our core hyaluronic acid-driven products and pipeline, we are positioned to drive shareholder value by capitalizing on our best near-term and long-term value-building opportunities. Looking ahead, we see three phases to creating shareholder value through our ANACA-controlled commercial channel. First, we'll increase revenue within our commercial channel by launching near-term regenerative products and continuing international commercial execution for OrthoVisc, MonoVisc, Singhal, and Hylafast. Second, medium-term growth will accelerate with the U.S. introduction of Hylafast, allowing Anika to compete directly in this attractive market. And lastly, Singhal will enter the U.S. market as a next-generation non-opioid OA pain product with an estimated $1 billion market opportunity. Both Thingol and Hylafast leverage our core HA technology, offering greenfield opportunities that can transform our company's value. I'm excited about the path ahead that put us more in control of our destiny. I will add that we will, of course, continue to support our partners that constitute our OEM channel, as they make investments that will help realize the full potential of our clinically differentiated products. The update to our guidance for US OA pain products sold through J&J MedTech is reflective of a more competitive and price sensitive market. However, I want to highlight that our products still hold the market leading position in the US and J&J has committed to work to establish stronger market access that will result in more stabilized output in 2026. And with that, I'll turn it over to Steve.