Anika Therapeutics: A Success Story in the Making

Anika Therapeutics, Inc. (ANIK) is a success story in the making. This Woburn, Massachusetts company makes products based on hyaluronic acid for treating arthritis, aiding tissue recovery after eye surgery and more recently enhancing skin cosmetically. In the second half of 2007, ANIK may begin to sell cosmetic tissue augmentation products [CTA] used in flattening wrinkles and healing scars under the Elevess brand. I like Elevess’ growth potential, strong balance sheet, high operating leverage, solid partnership agreements, growth potential in international markets, and a core product portfolio amenable to long-term demographic trends.

ANIK received approval in Europe to sell CTA products in April 2006. Its collaboration with Galderma, a world leader in skin care products, should give ANIK the distribution firepower it needs to quick ramp up sales. In December 2006, ANIK received FDA approval to sell CTA products in USA. ANIK estimates that the world-wide market for its CTA products which is growing at 20%+ is $500 million, with approximately 50% and 25% of market in USA and Europe respectively. A realistic global market share of 2% or $10 million in sales should be highly accretive to ANIK’s earnings in 2007 and beyond.

I also like growth potential of ANIK’s Orthovisc franchise, which represented 42% of ANIK’s total 2006 sales and earned 47% gross margin. A 10-year partnership with DePuy Mitek, a Johnson and Johnson subsidiary, should lead to increased sales in the future. ANIK in association with Depuy is expanding Orthovisc into new uses. Furthermore, ANIK is in the process of procuring product registrations and signing up distribution agreements in at least 5 international markets. In the fourth quarter of 2006, ANIK received a unique reimbursement code for Orthovisc from the US government. This event I believe should encourage physicians to switch to Orthovisc. I believe all these developments will lead to spectacular growth of Orthovisc in 2008 and beyond.

ANIK is highly under valued at current price levels. The shares have traded in $13-14 territory in the past few months. ANIK which has no long or short term debt has $47.3 million or approximately 32% of market capitalization in cash. After adjusting for cash and after tax interest income, ANIK’s adjusted trailing P/E is 26 and PEG ratio less than 1. ANIK is also a strong buyout candidate by one of its partners or ANIK may declare a special dividend of $3-4 per share. I think the ANIK should jump to $18-$21 range in the next few months.

Disclosure: Author has a long position in ANIK

ANIK 1-yr chart