Wednesday, September 20, 2017

A Current AIM Program Small Cap Equity Holding: Anika Therapeutics, Inc. (ticker: ANIK) by: Jacob Schwister. "This Biotech Requires Close Monitoring"

Anika Therapeutics, Inc. (ANIK, $55.99): “Strong Product Platform with Competitive Advantage”
By: Jacob Schwister, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Anika Therapeutics, Inc. (NASDAQ:ANIK) is a global medical technology company focused on developing, manufacturing, and commercializing therapeutic products for pain management and tissue rebuilding.

• Currently, the company has four products in clinical trial phases along with one in early discovery. If these products continue passing their respective stages/trials and eventually launch, Anika could see significant top-line growth.

• The company's Orthobiologics product category accounted for $90M or 87% of the company’s total revenue in 2016. Revenues in this category grew 22% in FY 2016 compared to FY 2015.

• The Orthobiologics market is expected to grow at a CAGR of 4.5% to $7.3B in 2023.

• According to the US Census Bureau, the population age 65 and older is forecasted to double from 47.8M in 2015 to 98.2M in 2060. Most patients Anika’s products treat fall into this age category.

• In the first half of 2017, Anika began Phase III clinical trials of CINGAL in the US. CINGAL has already proved its competitive advantage internationally and a US approval could open up a whole new market.

Key points: As with every medical technology company, Anika's future profitability and growth is driven by current products, prospective products in the pipeline, and strategic partnerships and decisions. Currently, Anika is positioned well in the market with a worldwide network of distributors that has consistently performed well by growing sales and territories.

This distribution network helps deliver a diverse portfolio of products. Anika uses a propriety technology that modifies the Hyaluronic Acid (HA) molecule, which is used to rebuild tissue. This technology enables HA to remain in the body for longer, and it also can be tailored to most of their products to be used therapeutically. Further, Anika protects this proprietary technology through multiple patents.

Anika's strengths in the market position them well to take advantage of substantial growth opportunities. Anika plans to capitalize on internal and external opportunities including new product development and launch, a shift in demographics, and growing markets. In 2016, management mentioned they are actively looking for acquisitions to further improve their product base.

Anika competes in a competitive and changing industry that demands consistent new product approvals and launches in order to generate growth. In 2015, Anika announced the decision to commercialize CINGAL in the US using a direct sales model. The Phase III clinical trial began in the second quarter of 2017 and the company expects to complete the study in 2018 leading to a potential approval in 2019. This would allow Anika to continue capitalizing on the $2B Hyaluronic Acid market.

The aging population 65 and older in the US and worldwide will provide many opportunities for Anika to grow their product base and revenues. Those over the age of 65 are more prone to orthopedic disorders; therefore, the demand for joint health and orthopedic products will increase substantially. Though long-term in nature, this driver could start helping the company in the near future.

What has the stock done lately?

Currently the stock is trading near the 52-week high. Over the past five days, the stock increased $1.09 or 1.99%, and over the past three months, the stock increased 19%. These favorable increases can be linked back to the most recent 2Q earnings release in July. Anika reported EPS of $0.76 compared to analysts' estimates of $0.44.

Past Year Performance: ANIK has increased 21.96% in value over the past year, despite significant decreases near the end of the Q1 and early Q3. The stock has been creating new 52-week highs for the past month. The stock seems to be performing well even with the current healthcare reform conditions that are still up in the air.

Source: FactSet
My Takeaway

Anika's 2Q results indicate that the company is performing well and positioned for success. It does concern me that the stock is trading at the 52-week high. Nonetheless, Anika has future pipeline drivers that could boost future growth and profits. The company is highly invested in innovation, and management is actively working hard to stay at the forefront. I believe that Anika has a variety of drivers that should expand their success in the future. With healthcare reform up in the air, it will be crucial to monitor how these may affect Anika.