Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Editor's note: A previous version of this transcript misstated Parcus Medical's 2019 revenue; it was $13 million, not $30 million. 

Anika Therapeutics Inc (NASDAQ:ANIK)
Q4 2019 Earnings Call
Feb 20, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening, ladies and gentlemen, and welcome to Anika Therapeutics Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]

I will now turn the call over to Sylvia Cheung, Chief Financial Officer. Please proceed.

Sylvia Cheung -- Chief Financial Officer

Thank you, Lide. Good evening, everyone and thank you for joining us. With me on the call today is Dr. Cheryl Blanchard, Interim Chief Executive Officer; and Jim Loerop, Executive Vice President of Business Development and Strategic Planning. During today's call, Cheryl, Jim and I will review our fourth quarter and full year 2019 financial results and key business highlights, which were summarized in our earnings release issued today. A copy of the earnings release is available on our Investor Relations section of our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website in the Investor Relations section under the Events & Presentations tab.

We invite you to take a moment now to open a file and follow the presentation along with us. Please turn to Slide 2. Before we begin, please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities and 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. Please also see our SEC filings 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 these measures provide -- 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 US GAAP is available in the Investor Relations section of our website.

I will now turn the call over to our Interim CEO, Dr. Cheryl Blanchard. Cheryl?

Cheryl Blanchard -- Interim Chief Executive Officer

Thank you, Sylvia and good evening, everyone. Before we discuss our financial results and outlook for the year ahead, I'd like to start by remembering Anika's President and CEO, Joe Darling, who passed away unexpectedly on January 29. When I interviewed to join Anika's Board, Joe talked about Anika and the people who make up Anika with a passion you hope every leader exhibits about his or her company. Joe was a wonderful leader and a trusted colleague, who led the beginning of our transformation into a global commercial company. Over the last 2.5 years, he set Anika on its current path reinforcing its strong foundation, leveraging its strengths and embracing innovation.

Most recently, he led the development of our five-year strategic plan, which will continue to guide our growth over the next several years. Joe was a great man with a well-deserved reputation in our industry for being a strong leader, who is passionate about healthcare. Though certainly we'll miss his leadership. We'll miss his character, humor and friendship even more. Our thoughts and sympathies go out to his wife, Maureen; and children Jon and Jordan. We are grateful to Joe for all that he did for Anika and we will continue to work to honor and build on his legacy.

Some of you have asked about Joe's passing, while we will continue to respect his family's wish for privacy, I can share that in early 2019 Joe informed the Board that he was experiencing some health issues. Following that communication, the Board and Joe, were in regular contact regarding his health. He continued to perform his responsibilities well throughout 2019 and into 2020 and over delivered progress against our strategic goals. Based on an ongoing dialogue and Joe's exemplary performance record, the Board remained confident in his ability to lead and the Board respected Joe's wishes to keep his health condition private.

The Board designed an interim Office of the President in the event Joe might need to take a short leave of absence, which he never needed. His unexpected passing was a shock to all of us here at Anika and we are deeply saddened by his loss. Upon learning of Joe's passing, the Board activated the interim Office of the President to provide immediate ongoing leadership and oversight of Anika's day-to-day operations, while we began the search process to identify Anika's next CEO. After that time the Board had an opportunity to consider what would be best for Anika in light of all the circumstances.

And in particular to consider the impact on the Interim Office of the President structure for the time it would take to conduct a CEO search. With the support of the Interim Office of the President, the Board decided to appoint an Interim CEO. I'm honored to assume that role and look forward to working alongside the Anika team to continue delivering for our shareholders and other stakeholders. I have a long history in the biotech and medtech world in orthopedics and specifically with joint preservation and regenerative medicine businesses. Given my experience and passion for the field, I was impressed with the company's achievements and excited by its potential. I'm confident in the strength of the company's market position and growth prospects.

As I step into the role of Interim CEO, I'm optimistic about the future of the company. During my time on the Board I've gained unique insight into the business, strategy and operations and have seen first-hand the growth and development of the organization. Anika is well positioned both strategically and financially. With a talented team that has deep expertise and an innovative product pipeline. I look forward to working with the Board and the management team to capitalize upon the opportunities ahead.

Please turn to Slide number 3. I'd like to now discuss the significant progress that Anika continued to deliver in 2019. Last year, we took significant steps to transform Anika into a global commercial company focused on joint preservation and restoration, by executing on our five-year strategic plan. We redeployed resources and added world-class talent to our leadership team, successfully completed the build-out of our small internal hybrid commercial sales force in the US, launched our first surgical orthopedic product TACTOSET under our hybrid commercial model and continue to expand internationally.

We also recently completed the acquisitions of Parcus Medical and Arthrosurface, which expanded our joint preservation and restoration product portfolio, expanded our commercial capabilities and infrastructure, enhanced our innovative product pipeline and diversified our revenue base from our successful legacy commercial partners and distributors. These acquisitions accomplished these strategic goals and more importantly, they strengthened Anika's unique position in the $7 billion sports and regenerative medicine market. They improved our ability to address significant unmet medical needs, which will deliver better patient outcomes and drive sustained revenue growth that will ultimately enhance value for shareholders.

Please turn to Slide number 4. Joe often said that our growth strategy is driven by our focus on the 3 Ps: people, products, and performance. And in many ways, our 2019 results and accomplishments are a testament to that continued focus. Let's start with the people. Last year, we added several seasoned executives to our leadership team, to enhance our ability to achieve our growth objectives, including Jim Loerop, Executive Vice President of Business Development and Strategic Planning; Dr. Dr. Bob Richard, Vice President of Research and Development; Steve Goldy, Vice President of US Sales; and Mira Leiwant, Vice President of Regulatory Quality and Clinical Affairs. Additionally, we successfully onboarded four highly skilled regional sales directors in the US, under our hybrid commercial model. These sales directors are currently focused on the full launch of TACTOSET.

Please turn now to Slide 5. The recent acquisitions of Parcus Medical and Arthrosurface brought a wealth of talent into our organization and further enhanced our commercial capabilities and infrastructure. Combined, they added approximately 40 sales reps and more than a 150 distributors in the US to our hybrid commercial model and over 70 international distributors. These acquisitions enabled us to achieve a level of commercial scale far more efficiently and quickly than greenfielding a commercial team. We are excited to fully deploy our hybrid commercial model, which will provide Anika with the direct line of sight to the market and deliver more favorable economic results.

Turning to Slide 6. In December, we commenced the full scale commercial launch of TACTOSET in the US at the 2019 Orthopaedic Summit and an Evolving Techniques Conference or OSET. Nearly 100 procedures have been completed to date and we continue to receive positive feedback from the physician community regarding the therapies ease of use and procedural efficiency. In 2019, we surpassed our initial goals of onboarding five distributors with product availability in 10 surgical centers. To date, we have onboarded 17 new distributors and we plan to grow and leverage the distribution networks at Arthrosurface and Parcus. For 2020, we expect revenue from TACTOSET to be approximately $3 million. Product development for our rotator cuff repair therapy is progressing according to plan. We continue to anticipate that we will submit a 510 (k) application to the FDA in the early 2021 timeframe. This therapy is highly synergistic with many product offerings at Parcus Medical and Arthrosurface.

Please turn to Slide number 7. CINGAL our novel third-generation viscosupplementation therapy combining HA and steroid continued to deliver strong performance in Canada and across Europe. International revenue from CINGAL grew close to 30% year-over-year in 2019. The continued growth of CINGAL coupled with the strong feedback from both doctors and patients has reinforced our confidence as we advanced CINGAL toward regulatory approval in the US market. We remain on track to initiate the CINGAL pilot study in the first half of 2020. We are in the process of preparing for US site initiation and patient enrollment. We expect this study to confirm our trial design, increase our probability of success in a Phase III trial and generate datas that ultimately will be needed to support FDA approval.

There are three key differentiators in this revised protocol compared to the prior Phase III 16-02 study. The first is the inclusion of a placebo arm. The second is the addition of a much larger steroid arm. And the third is the modification of the patient enrollment selection criteria for targeting our ideal patient profile. We continue to expect that the pilot study will take approximately one year to complete. We remain confident in CINGAL's US market opportunity, which we estimate to be approximately $1 billion annually.

Please turn to Slide 8. On the regenerative medicine front, we've advanced the clinical development for our cartilage repair therapy HYALOFAST. During the fourth quarter, we continued to work on adding new sites, especially internationally and we have expect to initiate 10 new sites in the first half of 2020. The trial is currently close to 70% enrolled, and we continue to expect to complete patient enrollment by the end of 2020. I'm excited about Anika's momentum, confident in our market position and the opportunities ahead and look forward to the continued execution of our plan.

With that, I will now turn the call over to Jim Loerop to discuss our integration plans for the Parcus Medical and Arthrosurface businesses. Jim?

James Loerop -- Executive Vice President of Business Development and Strategic Planning

Thank you, Cheryl. Please turn to Slide 9. I will start by discussing our integration plans for Parcus Medical and Arthrosurface, and touch on some of the key targets that we are looking to achieve in the near-term. Similar to how our acquisitions were focused on delivering growth, we view the integration process as a growth story. We are deploying an efficient matrix organization with local management. Our focus is on adding capabilities rather than consolidating them. When we first announced the acquisitions, we were confident that both Parcus Medical and Arthrosurface were highly synergistic with Anika's technology platform, and that has become even more evident following the completion of both transactions.

Anecdotally, I can share that on the commercial side, we have already heard from distributors across all three companies about adding products from the combined company with significant cross-selling opportunities. We are encouraged by the positive feedback we have received thus far, and we will work to capture these revenue growth and cross-selling opportunities as we continue the integration process. In the immediate term, our goal is to focus on product portfolio cross-training and leverage our consolidated distribution network to commercialize TACTOSET.

Longer term, our goal is to optimize our commercial infrastructure, reap the benefits from cross-selling and increased profitability. The acquisitions of Parcus Medical and Arthrosurface also expand our innovative product pipeline and enable us to increase the number of new products we will bring to market in the coming years. We are currently using our stage gate process to evaluate our enhanced pipeline following these acquisitions and prioritize resources toward supporting programs with the highest growth potential. We will share our pipeline road map later this year after completing this assessment.

In the near-term, we expect that the acquisitions will be accretive to earnings on a non-GAAP basis by the end of 2021, deliver double-digit revenue growth and contribute to achieving a vitality index at above 25%.

I will now turn the call over to Sylvia to review our fourth quarter and full year 2019 financial results. Sylvia?

Sylvia Cheung -- Chief Financial Officer

Thank you, Jim. Please turn to Slide 10. Total revenue for the fourth quarter increased 10% year-over-year to $29.8 million compared to $27 million for the fourth quarter of 2018. Revenue growth for the quarter was driven primarily by global viscosupplement products, which delivered worldwide growth of 11% year-over-year. Total revenue for the full year of 2019 increased 9% to $114.6 million compared to $105.6 million for 2018. Domestic viscosupplement revenue increased 8% year-over-year for the quarter.

During the fourth quarter, US end user average selling price increased around mid-single digit for both ORTHOVISC and MONOVISC on a year-over-year basis. On a sequential quarter basis, US end user net average selling price decreased in the single-digit percent range for ORTHOVISC and MONOVISC. On a year-over-year basis, end user volume for the quarter increased 5% for ORTHOVISC and 13% for MONOVISC.

International viscosupplement revenue increased 24% and 20% year-over-year for the quarter and for the full year, respectively. Product gross margin was 71% for the quarter compared to 74% for the fourth quarter of 2018. The year-over-year decrease was primarily due to certain inventory charges and changes in the product revenue mix. For the full year of 2019, we delivered a strong product gross margin of 75%.

Total operating expenses in the quarter were $25 million compared to $17.2 million in the fourth quarter of 2018. The year-over-year increase in total operating expenses was due primarily to higher SG&A expenses related to the acquisitions of Parcus Medical and Arthrosurface, the US commercial launch of TACTOSET, as well as the higher cost of product revenue. Acquisition costs totaled $2.9 million for the fourth quarter of 2019. For the full year, total operating expenses were $80.4 million compared to $83.8 million for 2018.

Net income for the quarter was $4.1 million or $0.28 per diluted share compared to $7.7 million or $0.54 per diluted share in the fourth quarter of 2018. Excluding acquisition costs, adjusted non-GAAP net income for the fourth quarter of 2019 was $6.3 million or $0.43 per diluted share. For the full year, net income increased by $8.5 million to $27.2 million or $1.89 per diluted share compared to $18.7 million or $1.27 per diluted share for 2018. Excluding the acquisition costs, adjusted net income for the full year of 2019 was $29.4 million or $2.05 per diluted share.

Adjusted EBITDA was $11.1 million for the quarter compared to $12.2 million for the fourth quarter of last year. For the full year, adjusted EBITDA increased 27% to $49.2 million compared to $38.7 million for 2018. Adjusted EBITDA is defined by the company as US GAAP net income excluding depreciation and amortization, interest and other income or expense, income taxes, share-based compensation expense and acquisition related expenses.

In 2019, acquisition related expenses consisted of investment banking, legal, accounting and other professional and related fees associated with the Arthrosurface and Parcus Medical transactions. These are costs that the company would not have incurred, except as a direct result of the acquisitions. For the 12 months ended December 31, 2019, we generated approximately $37 million in cash from operating activities and approximately $22 million in cash from employee stock option exercises. We ended the year with cash and investments totaling $185 million.

In the first quarter of 2020, we used $95 million from existing cash on our balance sheet to fund the acquisitions of Parcus Medical and Arthrosurface. We also completed our $30 million accelerated share repurchase program in January of 2020. Since May 2019, we have repurchased approximately 600,000 shares of common stock under that program. We have not yet had any shares repurchased under the Board approved $20 million open market repurchase program. We will continue to take a disciplined approach to capital allocation to ensure we're deploying our capital to the opportunities with the greatest potential to create shareholder value.

Please turn to Slide 11 to review our guidance and key initiatives for 2020. Total operating expenses for the year -- sorry, for the full year of 2020, we expect total revenue to be in the $160 million to $165 million range. And total operating expenses for the year are expected to be in the $150 million to $155 million range. This includes purchase accounting, acquisition and integration costs, which is currently estimated to be around $27 million for the year, most of which are non-cash charges.

Product gross margin for 2020 is expected to be around the low 60% range due to acquisition accounting and related one-time inventory fair value markups. We expect product gross margin to return to the 70% range in 2021. Research and development expenses as a percentage of revenue is expected to increase in 2020, due primarily to the initiation of the CINGAL pilot study and advancement of ongoing development programs.

Selling, general and administrative expenses as a percentage of revenue is also expected to be higher in 2020, as a result of our enhanced commercial capabilities and infrastructure from the acquisitions of Parcus Medical and Arthrosurface. As Jim discussed earlier, we plan to optimize our global distribution network following the integration to drive SG&A efficiencies.

For the full year of 2020, adjusted EBITDA is expected to be in high $40 million to high $50 million range based on a GAAP net income expectation in the $5 million to $12 million range. Non-GAAP adjusted net income is expected to be in the mid-$20 million to low $30 million range. Adjusted EBITDA and net income exclude expenses related to acquisition accounting and non-recurring integration charges, currently estimated to be around $27 million for the year, most of which, again, are non-cash charges. Capital expenditures for the year are expected to be between $5 million and $7 million, primarily for manufacturing and operations automation initiatives.

I would like to emphasize that this guidance reflects our best estimate for the very recently acquired Arthrosurface and Parcus businesses. These transactions closed in late January and early February of this year. The final fair value determination of acquisition related purchase accounting may differ from the preliminary estimates once Anika's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed have been completed and those differences could be material.

In 2020, our disciplined financial plan is focused on the following four key initiatives. First, successfully integrating Parcus Medical and Arthrosurface, including a refreshed product pipeline road map in the third quarter of 2020. Second, continuing to execute the US commercial launch of TACTOSET and expanding our viscosupplement and surgical product portfolios globally. Third, commencing the CINGAL pilot study in the first half of 2020 to advance the therapy toward regulatory approval in the US. Fourth, advancing our regenerative medicine product pipeline, including HYALOFAST, rotator cuff repair therapy and other development programs.

Lastly, with the acquisitions of Parcus Medical and Arthrosurface, we significantly expanded our product portfolio beyond our historical focus on osteoarthritis pain management into therapies for joint preservation and restoration. Going forward, we will report revenue for three product lines. First is the joint pain management therapy, which includes the human and animal viscosupplement products. Second is the orthopedic joint preservation and restoration care products, which include TACTOSET, HYALOFAST and sports medicine surgical products from Parcus Medical and Arthrosurface. And lastly, the other category, which includes legacy products such as ophthalmology, advanced wound care, anti-adhesion surgical products and aesthetic dermatology products.

Thank you very much for your attention. I would now turn the call back over to Cheryl.

Cheryl Blanchard -- Interim Chief Executive Officer

Thank you, Sylvia. We're pleased with the company's performance in 2019 and look forward to continuing our momentum in 2020. We are well positioned to achieve our strategic initiatives, and we are confident that we are becoming a leader in sports and regenerative medicine, while also doubling our total revenue over the next five years.

We're now happy to take your questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Joe Munda with First Analysis. Your line is now open.

Joe Munda -- First Analysis -- Analyst

Good afternoon. Can you hear me OK?

Cheryl Blanchard -- Interim Chief Executive Officer

Yes, we can, Joe. Hi. Good afternoon.

Joe Munda -- First Analysis -- Analyst

Good. First off, I want to convey our sincerest condolences regarding the passing of Joe. He was a really, really great guy to work with. That being said, I wanted to talk to you a little bit about the guidance in the quarter. In regards to the quarter itself, can you give us some sense of what the split was in the mix, MONOVISC, ORTHOVISC and then maybe the contribution from CINGAL in the quarter? And then my second question in regards to the guidance, can you give us some sense of what the incremental contribution will be from Parcus and Arthrosurface in 2020 in terms of your forecast? Thank you.

Sylvia Cheung -- Chief Financial Officer

Okay. So I think -- I just want to make sure. The first question is on ORTHOVISC, MONOVISC mix, and the second is on CINGAL, and then the third question is on the revenue contribution from Parcus and Arthrosurface. In terms of the split of revenue for MONOVISC and ORTHOVISC, MONOVISC is roughly 45% to 50% of our total revenue for the year, and ORTHOVISC is roughly between 35% to 40% of our total revenue for the year.

Joe Munda -- First Analysis -- Analyst

Okay.

Sylvia Cheung -- Chief Financial Officer

CINGAL continued to grow very strongly. And we have mentioned that for the year, the growth year-over-year is close to 30% and as a percent of total revenue, is roughly about 5% of our total revenue.

Joe Munda -- First Analysis -- Analyst

For the year?

Sylvia Cheung -- Chief Financial Officer

For the year, yes.

Joe Munda -- First Analysis -- Analyst

Okay.

Sylvia Cheung -- Chief Financial Officer

We would like to stick to commenting on year just because of the inherent quarterly variability because of our distributor model. Yeah. So thank you for your understanding on that. With regards to revenue contribution, so we provided our consolidated total revenue guidance for the year, which is between $160 million to $165 million. We do not plan to provide guidance on a company by company basis. Having that said, I can reiterate, Parcus from a historical standpoint, they achieved $13 million of revenue in 2019 and delivered 15% growth year-over-year for 2019. And Arthrosurface revenue for 2019 was $30 million, and they achieved 10% growth year-over-year from '18 to '19. And our expectation is that they will continue double-digit growth this year and into the future.

Joe Munda -- First Analysis -- Analyst

Okay. Thank you.

Sylvia Cheung -- Chief Financial Officer

You're welcome.

Operator

Our next question comes from the line of Mike Petusky with Barrington Research. Your line is now open.

Mike Petusky -- Barrington Research -- Analyst

Good evening. I guess, just from a modeling perspective, are you going to sort of separately -- in terms of these new businesses, are you going to break them out, are they going in other revenue? How are you disclosing that piece of the business going forward?

Sylvia Cheung -- Chief Financial Officer

Yeah. So from a reporting standpoint, we'll consolidate Parcus and Arthrosurface. The revenue product families will be recasted. Instead of having the historical orthobiologics, surgical, dermal and other, we will be recasting the revenue into three revenue product lines or three families. So joint pain management will be a human and animal viscosupplement products, meaning ORTHOVISC, MONOVISC, CINGAL and HYVISC. The joint preservation and restoration care products will be the surgical products from Parcus and Arthrosurface as well as our own legacy surgical products, like HYALOFAST, as well as TACTOSET, which is newly launched in December of 2019.

All the other product lines, the ophthalmic products, the wound care, dermatology products and anti-adhesion products will be grouped in the other category. I think this provides a better visibility in terms of understanding our office based products, which would now be in the pain management category; and the operating room based surgical products, which we have full control of because of our hybrid and direct sales model. And that would be in the orthopedic joint preservation and restoration care product line. So hopefully, that's clear and it's helpful for you, Mike.

Mike Petusky -- Barrington Research -- Analyst

You probably added an hour to my evening, just telling you that. That's fine. Thank you. Yeah. We'll figure it out. And then in terms of the integration expenses, is that just going into SG&A or is it going to be a separate line item for that each quarter going forward?

Sylvia Cheung -- Chief Financial Officer

Yeah. So on the estimate, the preliminary estimated purchase accounting, integration and acquisition costs, it's roughly about $27 million. There are really three buckets and most -- the majority of that will go through the cost of goods sold line, which is related to purchase price accounting and having to mark up the inventory balance to fair value. And this was the reason why, in the script section, I mentioned that the product gross margin expectation for 2020 is in the low 60% range. And that is due to the result of purchase price accounting, having to mark up inventory. And the remaining portion will primarily go through SG&A.

Mike Petusky -- Barrington Research -- Analyst

Okay. And then on -- just in this quarter, do you -- by any chance to have capex for the fourth quarter handy?

Sylvia Cheung -- Chief Financial Officer

Capex is roughly about $300,000 for the fourth quarter and close to $3 million for the year.

Mike Petusky -- Barrington Research -- Analyst

All right. And then -- and just, I guess, one other question. Is there any change in emphasis, strategic vision in terms of the leadership transition, capital allocation priorities? Is there any change relative to what we had been hearing, say, the past six months to 12 months? Thanks.

Cheryl Blanchard -- Interim Chief Executive Officer

Hi, Mike. This is Cheryl. I'll take that one. I would let you know that there are no changes, that the five year strategic plan that we've been talking about is the way we're moving forward and nothing has changed in that regard. So no change in assumptions there.

Mike Petusky -- Barrington Research -- Analyst

Okay. All right. Great. Thank you very much.

Sylvia Cheung -- Chief Financial Officer

Thank you, Mike.

Cheryl Blanchard -- Interim Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Jim Sidoti with Sidoti & Company. Your line is now open.

Jim Sidoti -- Sidoti & Company -- Analyst

Hi. Good afternoon. Can you hear me?

Cheryl Blanchard -- Interim Chief Executive Officer

Yes, we can, Jim.

Sylvia Cheung -- Chief Financial Officer

Yes.

Jim Sidoti -- Sidoti & Company -- Analyst

Great. I just want to get some more color on that $27 million of charge -- integration charges in 2020. Will that all be one-time and will those recur at all in 2021?

Sylvia Cheung -- Chief Financial Officer

Yeah. So most of the -- that charge would be one-time, and most of it is non-cash. And I think it may be helpful, given the size and the fact that there's a repeat question for me to provide a little bit more color. Earlier, I was saying that there are three buckets of these acquisition related expenses. The first bucket is really purchase price accounting, which includes fair valuation of the assets and related amortization costs. So the majority of the valuation is going to be based on what we -- half at this point will be on inventory. And that charge is non-cash, and we expect that majority of that will flow through 2020. So that's a one-time event.

Some of the purchase price accounting will have ongoing amortization effect, but that's a smaller portion, and I'll get into, at a high level, the split. Acquisition costs is going to be related to banking, legal, accounting and other professional costs, and those are purely one-time. And integration related expenses are routine in nature from that integration standpoint. These are professional fees and some of it is related to -- will be related to system costs, and those will be one-time as well. So when we look at the $27 million estimate, I would say that roughly about 80% of that would be non-cash, and the majority of that will be one-time charges.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. And will there be more in the first quarter, because that's when the deal is closed or will they be -- will it be spread out throughout the year?

Sylvia Cheung -- Chief Financial Officer

Yeah. So from a timing standpoint, I would say roughly about one-third would be in the first quarter, and this is due to the timing of the closings of Parcus and Arthrosurface transactions. And the remainder will be roughly evenly spread between Q2 and Q4 of this year.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. So based on your share count, you're talking about a hit of about $1.30 a share, and you're saying about $0.40 of that will wind up in the first quarter?

Sylvia Cheung -- Chief Financial Officer

Roughly, yes.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. Thank you.

Operator

We have a follow-up question from the line of Joe Munda with First Analysis. Your line is now open.

Joe Munda -- First Analysis -- Analyst

Sorry. Sylvia, I was on mute. Real quick. So if we were to back out that impact to gross margin essentially from the $27 million -- I know you gave us some data, and I'm trying to run through the numbers here. But what would product gross margin be without the impact of the $27 million? Would it still be in the mid- to low 70s for 2020?

Sylvia Cheung -- Chief Financial Officer

We're not in a position to break out the business and the different line items on the P&L with and without the acquisition. What I can share is that the reason why the product gross margin is expected to be in the low 60% range comparing to the previous historical 70% product gross margin achievement is due to the non-cash acquisition related, the expected -- estimated non-cash acquisition related adjustment. We do expect that starting 2021, we'll be back to the historical level of product gross margin.

Joe Munda -- First Analysis -- Analyst

Okay. So there's nothing else in there other than the acquisition related charges that is driving gross margin down? Is that the way to think about it?

Sylvia Cheung -- Chief Financial Officer

Yeah. I think there are a number of -- there are a number of factors as you know. The largest one is the non-cash item that I spoke about. On the prior investor call, we had talked about the product gross margin for the two acquired businesses are slightly lower than Anika's historical consolidated product gross margin. So that is one factor, but it's a smaller factor. And product gross margin, as you know, is also directly impacted by pricing. So I don't think on this call, it's appropriate to get into a detailed discussion on each of these points. The key takeaway is the main driver for the product gross margin to be in the low 60% range is due to one-time non-cash charges related to the Parcus and Arthrosurface acquisitions.

Joe Munda -- First Analysis -- Analyst

Okay. And then just one more here. And then on the adjusted EBITDA that you're looking for $47 million to $57 million. In your prior comments regarding the acquisition, you were talking about them weighing on EBITDA or having an impact in '20 and then bouncing back in '21 and being non-GAAP profitable as a result. Can you give us some sense of what the impact to EBITDA is from the combined businesses in '20, the expectation?

Sylvia Cheung -- Chief Financial Officer

Yes. We -- our policy is to provide the EBITDA guidance and expectation on a consolidated business standpoint and not brick into the individual business entities. What I can share with you is our goal, and we have plans in place and are on our pathway to achieve those, is to have the two acquired businesses, the EBITDA positive as well as the net income -- non-GAAP net income positive or accretive for us starting in 2021.

Joe Munda -- First Analysis -- Analyst

Okay. Thanks.

Operator

We have a follow-up question from the line of Mike Petusky with Barrington Research. Your line is now open.

Mike Petusky -- Barrington Research -- Analyst

Yeah. So Sylvia, on the effective tax rate, it looks like you guys are expecting more like mid-30s in '20. And could you just, I guess, explain that and then talk about, is that sort of the new normal as we move forward or do we go back post the integration of all this to sort of a mid-20s range for effective tax rate? Thanks.

Sylvia Cheung -- Chief Financial Officer

Yeah. The current expectation on the effective tax rate is in the mid to high 20% range. Obviously, as you can imagine, after the acquisition of two new entities, there's a fair amount of work to do on a number of fronts, including purchase price accounting, looking at the tax positions for each of the three individuals. So there is a lot of detailed work that we're currently focusing on, and we'll look to update and provide additional information in future quarters. The information that we have provided in the earnings release as well as on this investor call are based on our best estimates. And as you all know, the acquisitions just recently closed within the last few weeks. We've done a lot of work in terms of looking at the two businesses and put together our best set of estimates. And throughout this year, we'll be looking to report actuals and providing information on the differences and any material updates that we have.

Mike Petusky -- Barrington Research -- Analyst

Okay. Sylvia, so -- OK. So I'm looking at Page 3 of the release where you essentially say estimated provision for income tax is $1.7 million on net income of $5 million. Obviously, that's 34%. And it's the same for the high end of the range. Are you saying that your estimate is now lower than what's in this release or am I just misunderstanding, which is very possible at this point?

Sylvia Cheung -- Chief Financial Officer

Yes. I think there -- on Page 3 of the earnings release, if you're looking at the estimated provision for income tax, that should equate to about mid 20% to high 20%.

Mike Petusky -- Barrington Research -- Analyst

Okay. I see. I'm sorry. It's on -- against pre-tax. Sorry, I've been working -- 14 hours already today. Sorry.

Sylvia Cheung -- Chief Financial Officer

No problem.

Mike Petusky -- Barrington Research -- Analyst

Thank you very much. Thanks.

Sylvia Cheung -- Chief Financial Officer

You're welcome.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to Cheryl Blanchard for closing remarks.

Cheryl Blanchard -- Interim Chief Executive Officer

Thank you for your time today. We look forward to updating you as we continue to deliver progress toward our strategic initiatives. Thank you and have a great evening.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Sylvia Cheung -- Chief Financial Officer

Cheryl Blanchard -- Interim Chief Executive Officer

James Loerop -- Executive Vice President of Business Development and Strategic Planning

Joe Munda -- First Analysis -- Analyst

Mike Petusky -- Barrington Research -- Analyst

Jim Sidoti -- Sidoti & Company -- Analyst

More ANIK analysis

All earnings call transcripts

AlphaStreet Logo