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Anika Therapeutics Inc (NASDAQ:ANIK)
Q2 2020 Earnings Call
Jul 30, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Q2 2020 Anika Therapeutics Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Kristen Galfetti, Executive Director of Investor Relations. Please go ahead, ma'am.

Kristen P. Galfetti -- Director of Investor Relations

Thank you, Carl. Good evening, everyone, and thank you for joining us. With me today on the call is Dr. Cheryl Blanchard, President and Chief Executive Officer; and Sylvia Cheung, Chief Financial Officer of Anika. During today's call, Cheryl and Sylvia will review Anika's second quarter 2020 financial results and key business highlights, which are summarized in our earnings release today. A copy of the earnings release is available on the 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 the 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 Exchange Act of 1934. These statements are based on our current beliefs and expectations, including statements with respect to impacts of the COVID-19 pandemic on Anika. These statements 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 providing these measures 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 the U.S. GAAP, is available in the Investor Relations section of our website.

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

Cheryl Blanchard -- President and Chief Executive Officer

Thank you, Kristen, and good evening. We hope that everyone joining us on this call remains in good health, while we continue to navigate this ever-shifting landscape. Our thoughts and gratitude remain with all the committed healthcare workers around the world, who are on the front lines and selflessly taking on this global pandemic.

As this is our first full quarter call to report since I became President and CEO, I am delighted to share that the Anika team executed extremely well against both internal and external expectations. As expected, the suspension of elective procedures due to COVID had a material impact on our business. Despite the COVID environment, we generated positive top-line and bottom line performance, and surpassed aggressive organizational goals, including integration milestones, all in the environment of a global pandemic. That cross-functional execution underscores the ability of our team to adapt, overcome situational barriers and find new ways to deliver increased value to our customers, shareholders and other key stakeholders with a continued focus on the patients who benefit from Anika's products.

Please turn to Slide 3. Before diving into our second quarter results and business progress, I'd like to discuss how we are continuing to navigate the evolving COVID-19 environment. First and foremost, our steps to safeguard the health and well-being of our employees and other stakeholders have paid off. Remote and distance working, new internal policies and other measures have been effective in maintaining a healthy organization and in continuing to deliver our products to physicians and their patients safely. Manufacturing and supply chain operations have also continued with minimal disruption. And our team and distribution partners have coordinated closely with medical facilities and surgery centers to ensure patients have had uninterrupted access to the treatments and implants they need.

We also maintained strong fiscal discipline during the quarter, focusing on cash preservation and strengthening our liquidity. Our continued, proactive and decisive actions, including talent redeployment, acceleration of integration activities and delivering product as procedural recovery ramped back up, drove the business results and progress we achieved in the quarter and positioned us well for the future.

Please turn to Slide 4. The leadership team that is successfully navigating us unique environment is now a combination of legacy Anika executives, talented leaders that joined Anika through the recent acquisitions of Parcus Medical and Arthrosurface and other recent additions to our team. This enhanced team positions us very well for continued success in the current environment and as we work to grow Anika in the coming quarters and years.

There have been several key organizational changes and many team members who deserve recognition for their contributions. But today, I would like to highlight a few key adds to our newly formed Anika Executive Team. First, Bart Bracy, who is the Co-Founder and Executive at Parcus, has been appointed Senior Vice President of Sales and Marketing for the Americas region. Bart is an established orthopedic executive with a successful career in sales and marketing in sports medicine. And prior to joining Parcus, he served in commercial leadership roles at companies including Arthrex and Smith & Nephew.

Steve Ek, the former President and CEO at Arthrosurface, has been appointed Vice President of Research and Development. Steve has a track record of designing and delivering breakthrough solutions in the joint preservation and restoration and sports medicine markets. He also brings a wealth of orthopedic knowledge from his prior work experience at Linvatec, now CONMED and Smith & Nephew.

Mark Brunsvold, another Co-Founder and the former President of Parcus, will continue to lead the legacy Parcus operations as President of Sports Medicine. Mark brings a significant background of innovating and manufacturing in the sports medicine field from his prior work experience, developing and manufacturing products for Arthrex as the owner of Machined Metals.

Finally, James Chase, Senior Vice President of International Sales and Marketing, has assumed responsibility for Anika's operations in Padua, Italy, in order to fully leverage our growing international business. James brings significant sales, marketing and general management experience in the sports regenerative medicine spaces from his extensive experience at Smith & Nephew. The more time I spend with this team, the more excited I become about Anika's future and our ability to drive growth to new levels.

Now turning to Slide 5. We delivered a strong revenue performance in the quarter, with total revenue growing year-over-year. This exceeded our COVID planning expectations for the quarter, even in light of the procedural slowdowns due to the pandemic. The temporary suspension of elective procedures resulted in an organic top-line decline of $5.9 million during the quarter. However, inorganic revenue contributed an increase of $6.2 million in the quarter, which more than offset the drop and resulted in year-over-year top-line growth of 1%. This speaks to the success of our strategic initiatives and the strength of our newly expanded more-diversified business.

I'm also very encouraged by the improvement we experienced over the last couple of months as a result of restrictions easing on elective procedures across major markets, even with recent COVID setbacks in certain regions. Orthopedic joint preservation and restoration volumes were at about 25% of historical levels in April and rose to around 50% in May and over 80% in June on a pro forma basis. July's orthopedic joint preservation and restoration run rate volumes are around 75% of 2019 levels, also on a pro forma basis. The procedural recovery was particularly evident in ambulatory surgery centers or ASCs and office-based activity where physicians have had the ability to implement safety protocols that have allowed certain appointments and procedures to resume.

Our tracking rapid response and adaption to the shifting environment has allowed us to maintain relevance in the marketplace, and even gain and train new customers during the period. It's important to remember that the vast majority of our products are used in either office-based procedures for the OA pain management injectable side of the business or surgeries performed in the ASC setting.

We anticipate hospitals will continue to face special challenges with the influx of COVID patients, and we expect continued depressed levels of elective procedures in the hospital, and possibly ASC and office setting, especially as COVID hotspots emerge in different geographies. Our current product mix that favors non-hospital-based procedures, puts us in a strong position to continue our positive momentum going forward depending on the COVID status in a given geography.

An additional factor benefiting second quarter revenue was the stable order flow during the quarter for MONOVISC and ORTHOVISC from our U.S. commercial partner due to order timing and contractual terms. We expect domestic orders for ORTHOVISC and MONOVISC to ease in the second half of the year to level off inventory due to lower end market sales in Q2 as a result of COVID.

Please turn to Slide 6. We made accelerated progress against our integration plan during the quarter. Most importantly, we fully integrated our U.S. commercial team, forming a single, seamless organization to support our expanded product portfolio. These changes include the senior management changes I mentioned earlier, the implementation of shared marketing and sales operations function and an optimized direct sales representative structure and scaling plan.

We entered the third quarter with 35 direct sales professionals in the U.S. in addition to a specialized group of sales support and marketing personnel. Final elements of the integration that will continue into next year include consolidation and implementation of operating systems and the prioritization of our robust product pipeline, which will be discussed on the next earnings call.

Turn to Slide 7. We also made changes in our R&D team in an effort to streamline and accelerate development of our many promising new product development programs. We made progress evaluating our robust product pipeline. And we are on track to rollout our new R&D roadmap to investors on our third quarter earnings call.

Q2 was a very active time for our product development and regulatory teams. We gained U.S. regulatory clearance for six new sports medicine, surgical devices and instruments to enable procedures ranging from rotator cuff repairs to arthroscopic knee repairs and treating arthritis damage in the hand and wrist. These products will be commercialized through Anika's recently integrated sales and marketing team through the third quarter of 2020.

We also expanded the Tactoset franchise, our surgically delivered regenerative therapy to treat bone insufficiency fractures with the launch of a small bone cannula set. This line extension was developed with input from foot and ankle surgeons to enable improved and more accurate access in small joints and extremities, and we'll address unmet patient needs in those joints. In addition, we achieved our first sales of CINGAL in Australia in the quarter and continued the international expansion of our joint pain management portfolio with CINGAL and MONOVISC regulatory approvals in Finland and CINGAL, MONOVISC and ORTHOVISC approvals in Serbia.

With respect to clinical trials, we've continued to work with clinical trial sites and CRO partners to determine how and when we can safely start new or resume ongoing studies. While we're not yet ready to provide updated timing for the CINGAL pilot study or the HYALOFAST Phase 3 trial, we are optimistic that we will be able to provide new guidance by the time we report our third quarter results in October. We're ready to move ahead with these clinical trial plans as soon as it is safe to do so in the current COVID environment, and continue to be excited to pursue both of these products in the U.S. market based on our commercial experience with them internationally.

I will now turn the call over to Sylvia to review our second quarter results. And I will wrap up with some additional comments on the quarter, before opening the line for questions. Sylvia?

Sylvia Cheung -- Chief Financial Officer

Thank you, Cheryl. Please turn to Slide number 8. Total revenue for the second quarter of 2020 increased 1% and 20% year-over-year for the three month and six month periods respectively. Revenue growth for the quarter was driven primarily by orthopedic joint preservation and restoration products due to the acquisitions of Parcus Medical and Arthrosurface. This was partially offset by the lower joint pain management revenue under the COVID environment. We expect U.S. purchase orders for ORTHOVISC and MONOVISC to ease in the second half of the year as a result of inventory leveling by our commercial partner due to COVID.

As part of the integration of Parcus and Arthrosurface, we have decided to prioritize, and over time discontinue certain legacy Anika products in the future. These are low volume and low margins, primarily wound care-related non-core products. In the second quarter, we recorded $2.9 million of non-cash charges related to this product rationalization, of which $1.9 million was included in the cost of revenue and $1 million was included in the selling, general and administrative expenses.

As expected, we also incurred non-cash acquisition-related amortization expense of $3.8 million in the quarter in cost of product revenue. The result of these non-cash charges impacted product gross margins by 19 percentage points year-over-year. COVID also negatively impacted our top-line, resulting in lower royalty revenue and lower manufacturing volumes, together impacted product gross margin by 14 percentage points for the quarter. As a result, product gross margin was 45% for the quarter compared to 78% for the second quarter of 2019 and 60% for the first quarter of 2020. The Q2 product gross margin is primarily a result of non-recurring items and COVID environment, and therefore, should not be indicative of our future performance.

Cost of product revenue, R&D and SG&A expenses in the quarter were $36 million compared to $18.5 million in the second quarter of 2019. Cost of product revenue increased -- sorry, increased $10.1 million due to the drivers previously discussed. Selling, general and administrative expenses increased $7 million, due mostly to increased selling and marketing expenses related to the company's expanded sales infrastructure and intangible asset charges approximately $1 million related to the rationalization of certain legacy products, which we discussed earlier.

Total operating expenses for the second quarter of 2020 also included $4.2 million of increase in fair value of contingent consideration liability. These were associated with the recent acquisitions of Parcus and Arthrosurface. This charge was recorded as an expense in the second quarter. The increase in contingent liability is primarily a result of better than expected revenue performance in the second quarter due to easing COVID restrictions in certain regions and related improvements in revenue.

Net loss for the quarter was $7.7 million or $0.54 loss per diluted share compared to net income of $9.4 million or $0.67 per diluted share in the second quarter of 2019. Excluding the non-cash charges discussed earlier, we achieved net income and positive EBITDA for the quarter. Non-GAAP adjusted net income for the second quarter of 2020 was $1.2 million or $0.09 per diluted share. Adjusted EBITDA was $5.6 million for the quarter compared to $14.8 million for the second quarter of last year. The decrease in adjusted EBITDA was primarily due to increases in cost of product revenue and related revenue mix as well as selling and marketing expenses discussed earlier.

Adjusted EBITDA is defined by the company as U.S. GAAP to net income, excluding depreciation and amortization, interest and other income or expense, income taxes, share-based compensation expense, acquisition-related expenses and other charges, non-cash charge related to goodwill impairment in the first quarter and change in fair value of contingent consideration associated with our recent acquisition, and as a result of the COVID-19 pandemic.

We ended the quarter with a solid $144 million in cash and investments on our balance sheet. In April, we drew down $50 million from our existing credit facility to strengthen liquidity in light of COVID-19. We have also implemented a number of short-term internal expense controls, and are prioritizing business initiatives to conserve cash flow and continue selected investment in critical strategic initiatives for future growth. We are continuing to suspend our financial guidance for the remainder -- for the full year of 2020 until our visibility into revenue trends impacted by COVID improves. Importantly, the long-term fundamentals of our business remained strong, and we are well positioned to navigate this period of uncertainty.

That concludes my comments. And I will now turn the call back over to Cheryl. Cheryl?

Cheryl Blanchard -- President and Chief Executive Officer

Thank you, Sylvia. I'd like to remind you that as previously announced, Sylvia Cheung plans to step away from her role at Anika next month. We have proceeded with the timely search to identify Sylvia's successor and have evaluated some truly excellent candidates. I feel strongly, we will be able to name a top-notch CFO in the not too distant future. On behalf of the board and management team, I want to thank Sylvia for her years of service in building this company, and also for the support she has provided to me and so many of our colleagues over the years. Thank you, Sylvia. Truly, we will always be grateful for your leadership.

And to wrap up the second quarter, we experienced an unprecedented impacts on procedure volumes in our business in general as a result of COVID. As jarring as that was, we leaned into the challenge, turning our efforts to actively tracking the situation through multiple channels with the goal of quickly returning to full commercial activity as soon as it's safely possible.

We continued to aggressively monitor leading indicators of hospital, surgery center and office-based activity and engage with our customers and distributors. We also moved quickly on integrating our commercial organizations to leverage our full product portfolio across the full sales team. That vigilant analysis and rapid response allowed us to be equipped when our customers were ready.

Our performance in the second quarter underscores the resolve of our leadership team and the strength, depth and new diversity of our product portfolio propelling this organization forward. While we are not providing guidance at this time due to the uncertainty presented in the current COVID environment, our business fundamentals and product pipeline remains strong, and demand for our innovative products is robust.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from Jim Sidoti with Sidoti & Company LLC. Please go ahead.

Jim Sidoti -- Sidoti & Company -- Analyst

Good afternoon. Can you hear me?

Cheryl Blanchard -- President and Chief Executive Officer

We can.

Sylvia Cheung -- Chief Financial Officer

We can. Good afternoon, Jim.

Jim Sidoti -- Sidoti & Company -- Analyst

Great, great. First, Sylvia, I just want to say good luck with whatever adventures are next to you, and you'll be missed.

Sylvia Cheung -- Chief Financial Officer

Thank you. I appreciate it, Jim.

Jim Sidoti -- Sidoti & Company -- Analyst

Now with regards to the quarter, you indicated that your U.S. partner was contractually obligated, I guess, to make some purchases. Can you just give us an order of magnitude on what that revenue was from them? And how much will that go down, do you expect in the second half of the year?

Sylvia Cheung -- Chief Financial Officer

Yeah. So the revenue from our ORTHOVISC and MONOVISC products in the U.S. was roughly about 55% of our Q2 revenue. And from a mix standpoint, it used to be more or less roughly between product and royalty, but due to the COVID pandemic situation, the royalty component is much smaller than before. And as Cheryl mentioned earlier, this factor had impacted our first half of the year revenue as our U.S. partner continued with their purchase. For the second quarter, they did not reduce their inventory purchase and this is due to timing of order placement as well as contractual terms. However, we did see that royalty revenue from domestic ORTHOVISC and MONOVISC sales during the quarter decline and was negatively impacted by COVID.

We do expect the second half of the year for ORTHOVISC and MONOVISC in the U.S., the product purchase to be lighter in the second half of the year comparing to the first half of the year as a result of inventory leveling by our commercial partner. At the same time, we think that the royalty revenue will continue to pick up as office-based procedure resumes in the U.S. So at this point, we're not really in a position to provide quantitative numbers in terms of those expectations.

And I think, you may remember this, we do get compensation from our partner in two different ways. First is the product transfer price when we sell them products. And second is as a royalty when they sell the product into the markets. And the dynamic of the two components that I discussed just now and what Cheryl was talking about, will impact the first half and the second half from a revenue mix standpoint. So first half, we had more product revenue less royalty revenue. The second half of the year, we'll be seeing the reverse. But in terms of dollar size, we're not in a position to provide that information.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. But you do expect it will be lower? The combined revenue will probably be lower in the second half than the first half, is that right?

Sylvia Cheung -- Chief Financial Officer

There is the potential. At this time, it's difficult to say because the royalty component is very much driven by the in-market sales. And with the uncertainty surrounding COVID, it's very difficult to project what that revenue trend will continue to look like.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. So I think what I'm hearing is if procedures pick up significantly that the increase in royalty revenue might be enough to offset the decline in product sales?

Sylvia Cheung -- Chief Financial Officer

Yeah. That's very much dependent upon the COVID recovery and the in-market sales. That's correct.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. And then the acquisition-related expense, is that entirely non-cash amortization, that $3.8 million or were there other expenses in there?

Sylvia Cheung -- Chief Financial Officer

So there are two components to it. Roughly about half of it is related to amortization of intangible assets and the remaining is related to amortization of inventory mark-up, which we do expect to deplete between now and some time in 2021. And the rate of that obviously is tied to the sales and the COVID recovery of Parcus and Arthrosurface products.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay. So the faster that things would cover, the quicker that step-up in inventory charge goes away. But it sounds like there will always be around $2 million of per quarter of non-cash amortization going forward?

Sylvia Cheung -- Chief Financial Officer

For the -- yes. For the near-term, related to the intangible asset amortization, that is correct. And within that bucket, that there are three different categories of intangible assets and the use -- and the estimated economic lives ranges from five years to 15 years. So depending on the remaining useful life, obviously, it will impact the sizing of the amortization expense. But those are much longer term comparing to the inventory mark-up amortization, which are expected to be completed by some time in 2021.

Jim Sidoti -- Sidoti & Company -- Analyst

Right. And depending on how sales go, that could come sooner or later?

Sylvia Cheung -- Chief Financial Officer

That's exactly right.

Jim Sidoti -- Sidoti & Company -- Analyst

All right. And then can you just repeat the monthly breakout? I think you said it was on procedures 25%, 50%, 80%. Is that what you said?

Cheryl Blanchard -- President and Chief Executive Officer

Yeah. This is, Cheryl. I said, in April, we were at about 25% of historical. This was for the joint preservation and restoration part of the business. 25% of historical levels on a pro forma basis. May was at 50%. June was over 80% and then July is tracking at around 75%.

Jim Sidoti -- Sidoti & Company -- Analyst

And are you seeing any physicians report increase in activity from patients who maybe are a little bit hesitant to go into the hospital and to get the total knee replacement?

Cheryl Blanchard -- President and Chief Executive Officer

Yeah, that's a -- it's a conversation we've had with a lot of customers and marketing partners. I think that there is an element of that taking place, but it's difficult to track with data so well. I would tell you that we believe that's an intuitive -- a reasonable intuitive assumption to make. We don't have a lot of data to back it up. But we certainly hear of cases where that is happening. And I think that as COVID progresses, we could be seeing that as a trend.

Jim Sidoti -- Sidoti & Company -- Analyst

And then the last one for me. In the quarter, SG&A was around $14.5 million. And I think you said there was about $1 million of one-time charges in that from the -- one of the acquisition charges. So should we think of SG&A at around $13.5 million a quarter at this sales level, and obviously, if sales go up, it would go up from there? But is $13.5 million a good baseline?

Sylvia Cheung -- Chief Financial Officer

So Jim, the baseline number is difficult to give a comment on, because we are currently under COVID. So assuming that all the conditions are similar to this past Q2, I would say that it's a good baseline number. The $1 million non-recurring item was related to the product rationalization activity, which we spoke about. You are correct in saying that the SG&A line will scale with the top-line revenue increase because part of that is related to commission and other sales-related expenses associated with top-line revenue. At this point, we are not providing any baseline or projection information for our operating expenses. I think we'll be in a much better position to do so as we have -- as we exit from COVID and have a more normalized business to speak of.

Jim Sidoti -- Sidoti & Company -- Analyst

Okay, all right. That was it for me. Thank you. And again, good luck, Sylvia.

Sylvia Cheung -- Chief Financial Officer

Thank you very much, Jim.

Cheryl Blanchard -- President and Chief Executive Officer

Thanks, Jim.

Operator

Thank you. [Operator Instructions] The next question comes from Mike Petusky from Barrington Research. Please go ahead.

Michael Petusky -- Barrington Research -- Analyst

Hi, thank you. So I just want to clarify. The 25%, 50%, 80%, 75%, that's procedure volume in the space or that's your, sort of your revenue trends in joint preservation and restoration?

Cheryl Blanchard -- President and Chief Executive Officer

Yes. That is our...

Sylvia Cheung -- Chief Financial Officer

That was...

Cheryl Blanchard -- President and Chief Executive Officer

Procedure volume trends.

Michael Petusky -- Barrington Research -- Analyst

Okay, all right. And then...

Cheryl Blanchard -- President and Chief Executive Officer

Yeah. It's our procedure volume trends.

Michael Petusky -- Barrington Research -- Analyst

Got you. Okay, great. And then on the product rationalization, Sylvia, is it $1 million for the quarter or is it $1 million annualized or is there more to come? Can you just talk about sort of the totality of what you guys are doing on rationalizations and how much revenues that are in play here? Thanks.

Sylvia Cheung -- Chief Financial Officer

Sure. So in total, the product rationalization-related charge was $2.9 million. $1.9 went through cost of product revenue and $1 million went through SG&A. So this is related to deprioritizing or defocusing on non-core low-margin and low-volume products, and mostly in the wound care business area. So they're not material to our revenue and certainly in the non-core aspects of our business. So it is a one-time event.

Michael Petusky -- Barrington Research -- Analyst

Okay, all right. So it's like $1 million or $2 million a year or something less than that?

Sylvia Cheung -- Chief Financial Officer

Yeah. It's much less than that.

Michael Petusky -- Barrington Research -- Analyst

Okay, OK. All right, great. What about sometimes you guys have given sort of pricing trends in MONOVISC and ORTHOVISC. Was there any price cutting in Q2? And is there anything you can share about your best guess as to the second half?

Sylvia Cheung -- Chief Financial Officer

Yeah. So from a pricing and the U.S. standpoint for ORTHOVISC and MONOVISC, what we saw was on a sequential quarter basis, there was -- the pricing for ORTHOVISC was pretty stabilized. For MONOVISC, we saw a modest decline in the second quarter in a low-single-digit range. And it's difficult to project what second half of the year would look like. As you know, we don't have control and don't have full visibility into that aspect of the business. The information that I shared in terms of the Q2 activities, I think are within expectation from our standpoint.

Michael Petusky -- Barrington Research -- Analyst

All right, great. And then, Cheryl, I may have heard this more optimistically than you meant it. The commentary around visibility for CINGAL and other trials, it seems -- you seem to be saying that you thought you would have some visibility in terms of restarting those when you guys do your Q3 conference call that I figured that -- is that what you were saying or did I misshear what you were trying to get across there?

Cheryl Blanchard -- President and Chief Executive Officer

No, you heard me correctly. We feel like we're optimistic for the Q3 call that we will be able to provide an update on progress and timing for those trials. It's still obviously very dependent on the COVID environment and specific to clinical trial site geographies relative to what's going on with COVID in a given geography. But we've continued to make progress with spinning up new sites with the HYALOFAST trial, as we had talked about doing on prior calls, and implementing all of the start-up work for the CINGAL pilot trial. So work has continued there. And we're obviously staying very close to the site through our own communications and through our CRO partner communications. And we feel like by Q3 we'll be able to provide some update.

Michael Petusky -- Barrington Research -- Analyst

Okay. I just want to be absolutely crystal clear on this that you're making progress in terms of like site certification and that sort of thing, but there aren't actual active trials going on in the company at this point, are there?

Cheryl Blanchard -- President and Chief Executive Officer

So the HYALOFAST trial is an active trial that has suspended enrollment because of COVID.

Michael Petusky -- Barrington Research -- Analyst

Right. Okay, OK.

Cheryl Blanchard -- President and Chief Executive Officer

So that trial remains active. The CINGAL pilot trial has sort of completed all the start-up activities to the point that we can take them up until we start enrolling patients, which we have not done yet because we won't do that until we feel like we can do it safely and execute on the trial according to the protocol. So yeah, that's correct. We've either suspended or not yet started enrollment. And that's the update we feel like we'll be able to -- we're optimistic we can provide on the next call.

Michael Petusky -- Barrington Research -- Analyst

Got you. Okay, last question. Obviously, some key sort of retiree states, Florida, Arizona, Southern California, places like that, have been hit hard with COVID the last, let's say, four weeks to six weeks. I would assume that those are also places where you guys have pockets of strength in your business, particularly in like MONOVISC and ORTHOVISC and so on. Do you have any sense of how much exposure you have in some of these sort of Southern or Sunbelt Southwest type states that are heavy with retirees?

Cheryl Blanchard -- President and Chief Executive Officer

Yeah. We've obviously kept as close the track of those dynamics as we can. And what I can tell you is that in those states, and frankly in other places, we have business around the world and around the United States that as these hotspots are popping, we see elective procedures shut down in a city or a state for a week, for a month. And so there is definitely some impact, and I would say very active start-stop activities in some of those regions. What that impact looks like is very difficult to predict. And that's why we felt like the best we could do was at least give you how we're tracking in the month of July because that's pretty close to actual data at this point in time. And then we're going to obviously continue to tracking closely going forward.

Michael Petusky -- Barrington Research -- Analyst

Can I just ask one clarifying question. In July, do you actually -- have you seen any sort of dip in second half of July versus first half of July? We came off a call yesterday where essentially they communicated they had seen a material dip in the second half versus first half.

Cheryl Blanchard -- President and Chief Executive Officer

I would say that we have not seen that.

Michael Petusky -- Barrington Research -- Analyst

Okay, all right. Very good. Thank you.

Cheryl Blanchard -- President and Chief Executive Officer

Thank you very much, Mike. Have a nice day.

Operator

Thank you. This concludes the question-and-answer session. I would now like to turn the conference back over to Cheryl Blanchard for any closing remarks.

Cheryl Blanchard -- President and Chief Executive Officer

Thank you, Carl, and thank you for your time today everyone. We look forward to updating you as we continue to deliver progress on our strategic initiatives. Have a great evening. And please, everyone stay well.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Kristen P. Galfetti -- Director of Investor Relations

Cheryl Blanchard -- President and Chief Executive Officer

Sylvia Cheung -- Chief Financial Officer

Jim Sidoti -- Sidoti & Company -- Analyst

Michael Petusky -- Barrington Research -- Analyst

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