Why Anika Therapeutics Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Anika Therapeutics (NASDAQ: ANIK  ) , a biopharmaceutical company focused on developing therapies for tissue protection, healing, and repair, jumped as much as 52% after the Food and Drug Administration gave marketing approval for the drug Monovisc for osteoarthritis of the knee.

So what: According to Anika's press release, Monovisc "is a single injection supplement to synovial fluid of the osteoarthritic joint, used to treat pain and improve joint mobility in patients suffering from osteoarthritis of the knee." The injection will be marketed in the U.S. by DePuy Synthes, a subsidiary of Johnson & Johnson (NYSE: JNJ  ) . Anika will receive a $5 million milestone payment upon the first commercial sale of the therapy by DePuy Synthes, and their agreement also affords Anika the opportunity to make more via royalties and other sale threshold milestones. Monovisc's approval was based on a study that showed a greater improvement from the baseline in the WOMAC pain score compared to the control arm at 12 weeks.

Now what: There's no way to construe this as anything but good news on the surface, given that the viscosupplementation therapy market is growing by double-digits on an annual basis, per Anika Therapeutics CEO Charles Sherwood. Anika has indeed delivered relatively steady growth over the last couple of years. Conversely, though, Anika will likely deliver in the neighborhood of $70 million in net product sales this year, and that's inclusive of all of its viscosupplementation products throughout the world. In other words, with a valuation of nearly $700 million, investors may have overshot what Anika is really capable of in the next few years, and that may be cause for caution with this stock near $50 per share.

Anika shares are absolutely soaring today -- but even it may have a difficult time keeping up with this top stock in 2014
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  • Report this Comment On February 26, 2014, at 3:50 PM, srik76 wrote:

    The royalty payments are not included in the 75 Mil estimates. which should added up depending on the drug sales. you need to include that in the 2014 earnings estimate

  • Report this Comment On February 26, 2014, at 5:24 PM, WineHouse wrote:

    I don't understand the logic of the last paragraph of this article. Perhaps I'm not sure what the author means by "this year" -- is he referring to the immediate prior year (2013) or the current year (2014)? And what does he mean by "net product sales" -- ? I understand "product revenue," and "total revenue," and "net income," but what is "net product sales" ?? This article was written prematurely, a few hours before the press release announcing 4th Q and final annual 2013 results. If the author had waited a few hours, he would have had REAL data for 2013, and perhaps he would have viewed things differently. The market for viscosupplementation of arthritic knees is going up as the baby boomers get older. The doctors have been increasingly turning to Orthovisc instead of the competing products, thanks to both the excellent marketing of the Depuy-Mitek folks and the product itself. So the market is getting bigger and Anika's share of the market is getting bigger. From the press release, it's clear that the profit margin has been increasing also (probably it's as high now as it'll ever get). Anika is fairly cash-rich, according to the press release, and debt-free. All of this is really positive, both for today and in forward-looking terms. The FDA approval of Monovisc makes the forward-looking situation even better. Monovisc is well-established, having been used since 2008 outside of the US, so the marketing should be simple and straightforward. Cingal, in clinical trials right now, is only one of several things listed as being in the pipeline. Why then the need for "caution" at a trailing P/E of 36 ($50/share / $1.39/share fully diluted net income)? This company may have been a speculative play in the past, but the current share pricing is not based on the old "maybe the product will get approved" hopefulness, but rather on the "yay! the product is going to be marketed in two weeks! and there's more in the pipeline!" reality. The company is NOT blowing bubbles any more! IMHO.

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