Why Anika Therapeutics Inc. Shares Skyrocketed

Anika Therapeutics shares soared after the company received favorable news from the FDA. Here's why you may want to control that excitement a bit.

Feb 26, 2014 at 12:52PM

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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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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