Anika Therapeutics Should Rise on European Approval

Yesterday Anika announced that it has received European approval for the sale of
its cosmetic dermatology product Elevess. Elevess is an injectable dermal filler used for the treatment of wrinkles, scar remediation, and lip augmentation.

CE Mark approval for Elevess is a major step forward for Anika. The worldwide dermal filler market is estimated at about $600 million and is experiencing steady growth. The European Union represents approximately 25% of worldwide demand for dermal filler products.

Elevess was approved by the FDA in December of 2006, but the company has filed a supplement to the pre-market approval [PMA] documents. Final approval is expected in mid 2007. Anika expects to commence a worldwide launch of Elevess in the second half of 2007.

Considering current yearly revenues of about $27 million, the launch of Elevess should transform Anika into a growth stock. If Anika can capture just 5% of the worldwide market for dermal fillers (a conservative estimate) that would translate into an additional $30 million a year in revenue for Anika. Few analysts currently follow Anika, but we expect that to change with the worldwide launch of Elevess later this year. Analysts love growth stocks and with the launch of Elevess, Anika’s growth story will be hard to ignore.

We recommended Anika a few months ago at $13.30. Although it has taken longer than expected to get into the green with this trade, the EU approval of Elevess is a major step forward for Anika and should lead to significant European sales.

Shares of Anika have a reasonable valuation without even considering the addition of Elevess sales. Anika has a P/E of about 33, a strong cash position of about $47 million, and no significant long term debt. After factoring in the growth that the launch of Elevess should provide, Anika appears to be significantly undervalued at the current price of $13.85 and market cap of about $150 million.

Full disclosure: Wall Street Mayhem is long ANIK

ANIK 1-yr. chart:

Related Articles: Anika Therapeutics Receives FDA Approval for Cosmetic Tissue Enhacement Product; Anika Therapeutics: Keep an Eye on the Chart; Anika Therapeutics Outshines its Peers

Comments

[Alan Brochs...:]

In reviewing your posts, I agree with a lot of your points. I would point out, however, that Elevess will compete with Restylane (MRX) and Juvederm (AGN), not Botox. They are complementary products that work for different types of facial wrinkles. I also think, unfortunately, that one can't extrapolate the success of Orthovisc to Elevess, as it is a totally different "market" (ortho vs derma/cosmetic). I posted the following to another poster:

I started a position this morning, having been watching for a while. They reported a pretty disappointing quarter, but no sellers emerged. Not a surprising reaction, given that the launch of Elevess is imminent.

I am buying for the following reasons: Orthovisc and Elevess cater to high growth markets, the stock is very reasonably priced in terms of PE, P/B and P/S, it is virtually uncovered by Wall Street and it has a stellar balance sheet. I am willing to ride the coattails of Royce, and there are some other smart guys too (DFA). I see this as a value stock today and a growth stock tomorrow (well, later this year!).

My concerns: Not sure about management (due to my lack of knowledge only), not sure about competitive landscape. Galderma is a great partner, but AGN and MRX are marketing machines.

I am not betting the ranch at 13.45, but there should be enough upside to get more exposure later after the launch happens. If this stock can get a 25 multiple on 2008 EPS, it is headed to 19 (or higher if the earnings come in ahead of projections).

2007 May 07 10:49 AM