The Henry Fund
Henry B. Tippie School of Management
Krishnakumar Bakthisaran [[email protected]]
November 19, 2015
Anika Therapeutics (ANIK)
SELL
Stock Rating
Healthcare– Biotechnology
Investment Thesis
Anika Therapeutics is a small cap global biotechnology company that
specializes in the development, manufacturing and commercialization of
products that help in tissue protection healing and repair using its proprietary
technology which is based on “Hyaluronic Acid”. At current prices we think the
company is overvalued.
Drivers of Thesis
 Beyond Cingal, which is approved for launch in Canada and the US and
there are no significant drugs in the pipeline.
 Anika has an above average risk profile with a high beta and a high
calculated WACC;
 PRP therapy, which has been shown to be more efficient than Hyaluronic
Acid therapy, if approved in the US will pose a significant risk to Anika’s
earnings
 Anika faces competition in the orthobiologics segment from established
and larger competitors like Sanofi, Stryker and Allergan
Risks to Thesis
 Global Hyaluronic Acid market is expected to grow at a 9.2% CAGR till 2020.
 Global increase in obesity, incidence of arthritis and a general increase in
old aged population in the developed world is expected to contribute to
solid long term growth.
Target Price
Henry Fund DCF
Henry Fund DDM
Relative Multiple
Price Data
Current Price
52wk Range
Consensus 1yr Target
Key Statistics
Market Cap (M)
Shares Outstanding (M)
Institutional Ownership
3 Year Beta
Dividend Yield
Est. 5yr Growth
Price/Earnings (TTM)
Price/Earnings (FY1)
Price/Sales (TTM)
Price/Book (mrq)
Profitability
Operating Margin
Profit Margin
Return on Assets (TTM)
Return on Equity (TTM)
200
ANIK
Healthcare
150
165.8
$36-$40
$26.68
$26.32
$43.09
$41.70
$31.36 – $45.35
$52.00
$510.37
14.63
68.70
2.33
0%
8.5%
20.90
22.80
6.10
2.75
48.14%
30.24%
13.02%
14.35%
Biotechnology
Source: Yahoo Finance
100
50
Earnings Estimates
Year
EPS
growth
2012
$0.85
37 %
2013
$1.44
70%
2014
$2.58
79%
2015E
$2.41
-7%
2016E
$2.67
11%
2017E
$2.95
11%
12 Month Performance
ANIK
30%
20%
15%
10%
5%
0%
-5%
-10%
O
N
D
J
15.4
19.2
P/E
ROE
Company Description
Source: Yahoo Finance
S
14.4
S&P 500
25%
A
40.3
20.9
0
F
M
A
M
J
Anika Therapeutics, Inc. is a global medical
technology that specializes in the
manufacture of products designed to help
protect, heal, and regenerate tissue. Its
proprietary technology is based on
hyaluronic acid (HA), a naturally occurring
polymer found throughout the body vital for
proper joint health and tissue function.
J
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY
Anika Therapeutics, Inc., develops, manufactures, and
commercializes therapeutic products for tissue protection,
healing, and repair in the United States, Europe, and
internationally. The company has more than 82% of its
revenue coming from orthobiologics which as a market
segment is expected to grow at 12% CAGR through 2016.
However we feel the company is at a disadvantage to
bigger players and also faces stiff competition from the
relatively deep pipeline of 134 products in this segment
that are expected to make their way sometime in the
future1. We thus model growth lesser than the market
growth rate at 8.5% CAGR compared to the 9.2% CAGR of
the HA market.
We think the current stock price is has priced in the
impending launch of CINGAL, a first of its kind HA acid and
steroid combination viscosupplement and the company’s
foray into international markets. But at the current
valuation levels, we think the company’s stock is
overpriced and rate it a ‘Sell’ given the lack of upside from
the current stock price.
COMPANY DESCRIPTION
Anika Therapeutics (Anika), along with its subsidiaries,
develops, manufactures and commercializes therapeutic
products for tissue protection, healing and repair. These
products are based on hyaluronic acid (HA), a naturally
occurring, biocompatible polymer found throughout the
body2.
The company has a portfolio of hyaluronic acid (HA)-based
products that are used in orthobiologics, dermal,
ophthalmic, veterinary and surgical areas.
Opthalmic, 4%
Surgical, 8%
2014 SALES
Veterinary, 4%
Dermal, 2%
Anika 2014 10-K
Orthobiolo
gics, 82%
The company has distribution agreements with several
companies for its various products across several
geographies. Depuy Mitek is the largest customer that
brought in 72% of all product revenue in 20144.
SALES BY CUSTOMER
Nordic Pharma,
2%
Others,
15%
Bausch &
Lomb, 3%
Medtronic
XoMEd, 4%
DePuy Mitek, 72%
Boehringer, 4%
Anika 2014 10-K
Orthobiologics
Orthobiology is a branch of science that deals with bone
and tissue replacement materials for skeletal and tissue
healing. Orthobiologics has been gaining popularity since
it provides accelerated healing, faster recovery and
reduction in number of hospital visits3.
Orthobiologics is the Anika’s largest revenue segment
contributing to 82% of total revenues. Orthobiologics is
also the company’s fastest growing segment with an
annual average growth rate close to 20% since 20114.
Anika's orthobiologics products include joint health and
orthopedic products, used in various treatments such as
providing relief from the pain of osteoarthritis and
regenerating damaged tissue such as cartilage defects. The
company uses viscosupplementation, a therapy that treats
Osteoarthritis (OA) pain at the joint by injecting a
hyaluronic acid solution into the joint space. Anika's
products for this therapy include Orthovisc and Monovisc.
Orthovisc is used for the treatment of knee pain and for
other synovial joint pain. Monovisc is a single injection
product used for the treatment of all synovial joints. One
of the competitive advantages of Monovisc is that it is the
only non-animal sourced hyaluronic acid (HA) single
injection treatment approved for use in the United States,
and it delivers the highest concentration of HA currently
available in a single injection treatment.
Monovisc and Orthovisc have been able to capture close
to 26% of the US viscosupplements market and with the
company signing new distribution requirements for
Page 2
Monovisc in India and Australia, we expect the Monovisc
segment to grow above the market growth rate. In the US,
Orthovisc has had 38 consecutive quarters of growth year
over year. Overall, however it has seen a decrease of 23%
in international markets in 2014 primarily due to increased
price competition from Hyalgan (by Sanofi-Aventis),
Synvisc (by Genzyme), Euflexxa (by Ferring
Pharmaceuticals) and Supartz (by Smith & Nephew). Other
orthobiologics products include Hyalofast, Hyalonect and
Hyaloglide12. We model a 10% 2015 growth rate in this
segment almost in line with the company’s 10.72% in 2014
and aligning with management’s opinion of a steady
growth based on sales from existing customers as well as
new partners.
Dermal
Anika has various dermal products such as Hyalomatrix
and Hyalofill, for the treatment of wounds such as burns
and ulcers; and Hyalograft 3D and Laserskin scaffolds, for
use in connection with the regeneration of skin12. The
dermal products are commercialized through a network of
distributors, primarily in Europe, the Middle East and
Korea. It also has Jaloskin, a transparent film dressing
composed of HYAFF, a benzyl ester of hyaluronic acid12.
The company’s aesthetic dermatology business has
products for facial wrinkles and scar remediation such as
ELEVESS (HYDRELLE in the US). The company’s dermal
segment performed badly recording a 27% decrease in
year over year sales in 2014 primarily due to lower revenue
in Argentina as a result of the financial crisis there4. We
expect the company’s dermal segment to improve on its
poor 2014 revenues because of the planned geographic
expansion especially in the US4. We model a 4% growth
rate for Dermal based on the existing distribution
agreements in 9 South American countries as well as the
new agreement with Medline Industries to commercialize
Hyalomatrix in the United States till 2019. This growth rate
is also in line with management’s commentary that the
wound care revenue will increase in 2015 based on
geographic expansion4.
The ophthalmic segment contributed to 4% of the sales in
2014 decreasing 32% primarily due to a reduced minimum
contractual purchase commitment in the supply
agreement with one of the its distributors Bausch and
Lomb. The management recognizes that this is not a core
segment and has seen continuous decline year over year,
we expect the company to spin off or sell this division in
the long term. In the short term we expect the revenue in
this segment to decrease year over year from 2014 at 2%
every year.
Veterinary segment contributed 4% to 2014 revenue and
decreased 19 % from the previous year. Management
cited order timing to be the cause for this decrease4. Also,
HYVISC is currently sold to only one customer under an
agreement that expires in December 20164. We expect
sales to remain at 2.5% before increasing to 4% once this
exclusive agreement expires in 2016 and HYVISC can be
supplied to other customers.
Licensing revenues got a big boost in 2015 due to the
settlement of a patent litigation with Genzyme which
resulted in a milestone payment of $17.5 million and $10
million in milestone revenues. We record these as onetime
payments and adopt a 3% CAGR licensing revenues closer
on the 2013 figures compared to 2014 figures.
Below is the pipeline of Anika’s products:
Surgical and others
Anika’s surgical products contribute to 8% of the revenue
and saw an increase year over year primarily due to
increased market penetration in Korea4. We model a 4%
CAGR of the surgical segment due to continued expansion
in the US and Asian markets as noted by the management.
Page 3
Source: Anika Company website
RECENT DEVELOPMENTS
INDUSTRY TRENDS
CINGAL trial results announced
Osteoarthritis & Viscosupplementation
Cingal is one of Anika’s pipeline products that has gone
through the regulatory process in US, Europe and Canada
and is expected to be launched in late 2015 or early 2016.
Cingal combines the cross-linked hyaluronic acid
formulation of Monovisc, approved to provide long-term
relief of the symptoms of OA, with an FDA-approved
steroid to provide additional short-term pain relief8.With
its CINGAL 13-01 study Anika demonstrated the efficacy
achieving a 72% improvement in patients8. The CINGAL 1302 study was done to evaluate the safety of a repeat
injection in OA patients that have already received one
dose of CINGAL. In June 2015 the results of this test were
announced to be positive and hence provides a major
boost for the safety profile of CINGAL. According to the
company’s press release, CINGAL could be safely
administered to patients requiring repeat injection, and
enable physicians to have greater flexibility to meet the
individual needs of each OA patient8. We are optimistic
about CINGAL and model a 10% growth in orthobiologics
2015 and an 11% growth rate post the launch of CINGAL.
Osteoarthritis (OA) is the most common joint disorder in
the United States. People with osteoarthritis (OA) of the
knee have lower levels of hyaluronic acid in their synovial
fluid6. Among adults 60 years of age or older the
prevalence of symptomatic knee OA is approximately 10%
in men and 13% in women5. Viscosupplementation is a
popular treatment for OA of the knee that injects
hyaluronic acid into the affected knee in order to return
some mobility to the joint and help patients manage the
symptoms and the pain. Currently the FDA has approved
this treatment only for OA of the knee and not any other
joint in the body. While viscosupplements are known to
work in the short term, their effectiveness over the long
term is unknown5. Even in the short term, it provides
comfort and pain relief for some people with mild to
moderate OA, but may not prevent or even delay the
likelihood that a patient will need knee replacement
surgery at a later point in their life5. As a result, we are very
cautious about adopting a high growth rate for the
orthobiologics segment despite several long term growth
rate drivers. Moreover competing therapies such as PRP
(platelet-rich plasma) have been shown to be more
effective in younger and earlier stage patients7. So we
prefer to wait until further research offers conclusive
proof of the effectiveness and longer term impact of
Viscosupplementation before changing our growth rate
assumptions.
2015 Q2 Earnings call
Anika announced its Q2 2015 earnings on July 30, 2015.
One of the biggest takeaways was that the Orthovisc and
Monovisc combined had captured 26% of the market
share9. The company also provided a detailed overview of
the CINGAL 13-02 trial results, which we have
incorporated in our DCF model. Another aspect of the
earnings call was the announcement of a partnership with
University of Massachusetts to develop a treatment for
Rheumatoid Arthritis9. While this is too early to affect our
view of the company’s future earnings potential, we
believe it does bode well for promising future research as
it brings together the University of Massachusetts’
preclinical research and Anika’s HA expertise. The earnings
call also put the company’s product revenue growth rate
at 8% slightly below our 8.5% revenue that we modelled
for the year 2015. However as the management noted,
one of the major customers, Mitek’s inventory adjustment
will complete in Q3 and hence will drive a higher demand
for the company’s products9.
Hyaluronic Acid
Hyaluronic acid is a natural fluid found in the body of every
human being. It is used the most in joints and as a fluid
inside the eyes11. Its most common application is in
viscosupplementation where it helps joint problems by
increasing the natural cushion within the joints and other
tissue material. However several new avenues for the
application of Hyaluronic Acid have opened up such as Ear
Surgery, Drug delivery, Hemostasis, Stem Cells apart from
the existing use for Eye Care, Wound care and dermal
fillers. The market for HA continues to expand both with
the growth in current applications as well as with new
research and understanding of the uses of Hyaluronic
Acid11. One of the key forces shaping the industry is the use
of animal free sourcing of the HA. This has been driven by
regulatory pressure in Europe and Asia as well as by
Page 4
marketing claims. HA market has also seen growth in
emerging markets especially India and China 11. Overall,
both the demand drivers for HA (Anika’s Orthovisc and
Monovisc are from non-animal sources) and the
geographic expansion of Anika into emerging markets
bodes well; we would like to see how successful these
products turn out to be in these regions before making
changes to the long term growth rates.
Single Injection Treatment
The HA market can be classified into 3 major product
segments: single injection cycle, 3 injection cycle and 5
injection cycle products. While 3 injection cycle was the
most popular in 2013, the market has seen growing
demand for shorter regimens, particularly because the
longer duration treatments entail more side effects.
Therefore the single injection market is expected to gain
more popularity and grow at a 10% CAGR over the next 5
years till 201913. We feel this represents a significant
growth opportunity for Anika as Monovisc is the only
single injection non animal sourced HA product cleared for
use in the United States. However we also feel that
Monovisc might expand at the expense of Orthovisc and
hence use a moderate growth rate below the
Orthobiologics and single injection market growth rate.
Anika itself does not have a distribution network and sells
most of its products to businesses that have distribution
networks around the globe. The company has distribution
agreements with its customers that are product specific
and also cater to specific geographies. Also since a few
customers constitute a high proportion of its sales, they
can exert considerable leverage over Anika. This is in stark
contrast to some of its bigger competitors who have their
own distribution networks and also have access to cheaper
credit.
So it follows that some of the larger companies command
a substantial market share such as Medtronic, DePuy (a
J&J subsidiary) and Genzyme (a Sanofi subsidiary) account
for 40% of revenues as shown below:
ORTHOBIOLOGICS 2014 SALES
Medtronic
, 18%
Source:
Orthoworld
Others, 61%
Sanofi
(Genzyme)
, 12%
DePuy, 9%
Anika is the supplier for Medtronic and DePuy and hence
has access to a considerable portion of the market.
However legislation and regulation have sparked a trend
of consolidation among market makers such as hospitals
and group purchasing organizations and any future
demand for price concessions might affect Anika more
severely than some of its competitors4.
Source: Grand View Research
MARKETS AND COMPETITION
Orthobiologics is a niche space and has relatively lesser
competition than other crowded areas of Biotech like
oncology or virology. There are close to 300 companies
globally despite the high levels of specialization and
experience and high barriers to entry in this space. These
companies compete on a variety of different geographic
and product landscapes aided by research and
development as well as strategic distribution networks.
The company also hires third party service providers to
support certain aspects of clinical trials and as per
management commentary will continue to do so for the
foreseeable future4. As a result, the company will have less
control over the conduct, timing and completion of clinical
trials. This is another significant disadvantage to bigger
competitors with better research and development
resources who have most aspects of the trials in house and
hence have better control over the timelines.
Firms compete in this space primarily on the quality and
breadth of their product portfolio and also on their ability
to successfully complete clinical studies and obtain
regulatory approvals prior to their competitors.
Page 5
Thus far, orthobiologics have experienced three
generations
of
evolution,
starting
with
viscosupplementation as hyaluronic acid (HA), progressing
to platelet-rich plasma (PRP), and now emerging are
cellular therapies such as bone marrow concentrate 14.
Although PRP has exhibited a larger array of treatment
applications, larger clinical trials are still required to
understand efficacy and mechanism of this treatment14.
Some of Anika’s competitors such as Stryker have a
significant PRP product offering as well which might
adversely impact Anika in the future as its revenues are
concentrated on the HA based therapies15.
Peer Comparisons
EV/EBITDA Gross Margin EBIT Margin P/E
P/B P/S
D/E
Company
Anika Therapeutics
8.72x
75.1%
48.1% 20.76x 2.75x 6.39x
0.0%
Allergan
34.67x
32.7%
0.7% -1.75x 6.61x 59.5%
Sanofi
11.10x
60.7%
19.1% 22.28x 2.07x 3.05x 26.0%
Emergent BioSolutions
-69.6%
-11.3% 30.44x 2.31x 4.35x 45.0%
Zimmer Biomet Holdings
18.45x
69.2%
28.7% 52.71x 2.10x 3.90x 119.0%
AMAG Pharmaceuticals
14.47x
81.0%
36.2% 8.55x 2.60x 8.86x 67.8%
Harvard Bioscience
23.80x
42.2%
2.3% -1.57x 1.39x 21.8%
Medtronic Plc
20.15x
65.6%
23.4% 30.82x 1.98x 5.28x 68.0%
Stryker
11.47x
63.6%
28.6% 40.76x 4.40x 3.86x 40.8%
Average
19.16x
60.6%
16.0% 30.92x 2.35x 4.66x 56.0%
Source: Factset
that the company is not exactly attractively priced for a
buy.
One of the other significant aspects is the near zero debt
to equity ratio of Anika. Thus if the company decides to
take on debt we actually think this might be beneficial as
it might be able to allocate more resources to research and
development. We also think this will have a significant
impact on the company's future growth strategy of moving
into international markets.
If we examine the operating metrics, Anika’s business
model has been highly efficient in both generating a high
Gross Margin (highest in the peer group) and a high EBIT
margin. We put this down to primarily the company’s
efficient manufacturing processes and also its admirable
negotiation of distribution agreements. The margins are
also a result of Anika’s skewed revenues from the high
margin Orthobiologics segment and lesser revenue
contribution from other segments4. The high EBIT margin
indicates that the company’s business model of selling to
businesses has reduced significant administrative and
staffing overhead that some of its competitors seem to
have been suffering from. We also expect these margins to
stay unaffected for the foreseeable future or even improve
depending on the launch of its CINGAL product.
ECONOMIC OUTLOOK
To get a balanced view of the peer financial and operating
metrics with Anika and we take companies that operate in
the similar space such as Allergan, Medtronic, Sanofi,
Stryker and Zimmer but are much bigger and others like
Harvard Bioscience which are of similar size as well.
The P/E ratio indicates that Anika is undervalued
compared to its peer group and overall industry average.
We believe that although Anika has managed to deliver
solid earnings growth, it is underpriced because of some
of its operating risks such as the relative lack of customer
and geographic diversity of its revenues. We also believe
that the company’s product lines are undiversified
compared to peers like Medtronic, Stryker and Zimmer
which operate in a variety of areas in the medical devices
segment and elsewhere. We believe that this is also being
priced into the low P/E multiple. We also believe this to be
the cause for a low EV/EBITDA multiple for Anika which
makes it a likely takeover candidate.
Increasing Geriatric population:
In the United States, the average age of the population as
well as the percentage of people above 65 is expected to
increase substantially till 2050. This is primarily driven by
the baby boomers that began turning 65 in 2011. By 2030
an estimated 20% of the population is expected to be
above 65. With Osteoarthritis (OA) affecting as much as
33.6% of 65+ adults now, the demand for
viscosupplements to treat individuals with OA is also
expected to steadily increase. We are however very
cautious in using a high terminal growth rate for the
orthobiologics segment due to 2 reasons: a) because
viscosupplements are relatively new, it is unclear about
how it affects the long-term trajectory of OA of the knee
b) it is only suitable for reliving pain in the short term and
may not prevent or even delay the likelihood of surgery6.
However other relative valuation tools such as an above
average Price to Book and a high Price to Sales indicate
Page 6

A renewed focus on reformulation of existing products
for improved results through development of
combination medical device / drug products would
also act as a significant catalyst for change such as
CINGAL.
INVESTMENT POSITIVES



Source: Census Bureau
Increasing Obesity worldwide
Once a problem of only developed nations, obesity now
impacts countries at all economic levels, bringing with it all
the health consequences. In the US, obesity rates could
reach 50% of all adult populations by 2030. Europe faces a
much worse situation with 68% of the entire population
expected to be obese. This is expected to increase the
incidence of osteoarthritis and other obesity related
health issues 5. This unfortunate trend will likely drive a
steady demand for Anika’s orthobiologics but like we
mentioned earlier, we are wary of using a high terminal
growth rate given the lack of studies on the side effects of
viscosupplementation.
Anika has little to no long term debt and does not have
a dividend or share repurchase program. Thus, it has a
lot of room financially to either make strategic
acquisitions or invest heavily in emerging areas
Hyaluronic Acid
market and the specific
viscosupplementation market is expected to grow
steadily over the long term
Incidence of Osteoarthritis is expected to increase
driven by increasing world population and average age
and increasing obesity. While these trends are
unfortunate, it can be expected to drive a steady
demand for Anika’s orthobiologics products
INVESTMENT NEGATIVES



Anika’s revenues are undiversified and demonstrate
an increasing dependence on Orthobiologics (which
grew from 75% of revenues in 2013 to 82% of
revenues)
Company has a high stock volatility and hence a high
WACC which require a high return on invested capital
that is not sustainable in the long run
The company faces stiff competition from bigger
players that have access to cheaper credit
VALUATION
Our DCF model gave us an intrinsic share price of $26.68
for Anika. Like we mentioned elsewhere, we have used the
following growth assumptions for our model:
Source: Mercola.com
CATALYSTS FOR GROWTH

Any future research or success with competing
therapies such as PRP can significantly change the
landscape of the viscosupplementation market.
Product Revenue
2015E
2016E
2017E
2018E
2019E
Orthobiologics
10.0%
11.0%
11.0%
11.0%
11.0%
Dermal
4.0%
4.0%
4.0%
4.0%
4.0%
Surgical
4.0%
4.0%
4.0%
5.0%
5.0%
Ophthalmic
-2.0%
-2.0%
-2.0%
-2.0%
-2.0%
Veterinary
2.5%
2.5%
4.0%
4.0%
4.0%
Total Product Revenue
8.6%
9.5%
9.7%
9.8%
9.9%
Licensing
3.0%
3.0%
3.0%
3.0%
3.0%
Total Sales
7.7%
8.5%
8.7%
8.8%
9.0%
Page 7
Our Orthobiologics revenue assumption was primarily
driven by the impending launch of Cingal. We believe that
this will increase the growth rate of Orthobiologics from
10% to 11%. y/y till 2019.
Another significant growth assumption comes in the
Licensing segment where the company received a onetime
payment of $17.5 million in 2014 from the resolution of a
litigation with Genzyme, another $5 million for first
commercial sale of Monovisc as well as another $5 million
for the CMS J Code approval milestone payment. As a
result of this, we have decided to base our future growth
rate assumptions after deducting these onetime
payments.
As explained in our individual sections on each revenue
stream, our growth assumptions for each of these is based
primarily on management’s commentary and other
external factors that we feel relevant.
We model Cost of Goods sold at a 5 year average of 29.14%
even though it has been continuously decreasing. This is
because we model we believe that overall the company’s
product mix will remain the same with Orthobiologics
seeing an increase from 82% in 2015 to 87% in 2019 being
the biggest mover.
We model Selling and General Administrative expenses at
23% of sales year over year. This has steadily increased
over the time period of our DCF and we believe this fairly
reflects the company’s effort to grow its business
internationally and domestically and is in line with
management’s expectation for 2015.
We model overall revenue growth rate of 8.5% CAGR for
Anika below the expected 9% CAGR of the orthobiologics
market, as we are skeptical about the company’s ability to
retain market share and grow at this rate in the face of
competition from established players.
We use a terminal value growth rate of 2.5% in line with
the long term Henry Fund estimate of GDP growth and all
the future cash flows are discounted at the WACC of
13.84%. We calculated the stock beta of 2.33 based on a
36 month period of weekly stock prices.
We also maintain the company’s near zero debt levels
given the lack of any insights from management on this.
We also continue the company’s no dividend policy and no
share repurchases as management has specifically stated
it does not expect to do either for a considerable period of
time.
Our Dividend Discount Model gave us a share price $26.32
which is basically just the product of the Price Earnings
ratio in 2019 and the EPS in 2019 as there are no
intermediate dividend payments that need to be
discounted.
Our relative P/E model gave us a share price of $43.09 for
Anika. Overall we arrive at a target price of $36 for Anika
as the average of the DCF and Relative PE model prices,
with a price range of $36.00 to $40.00.
KEYS TO MONITOR



Anika’s geographic expansion and product
performance in emerging markets as these will likely
drive future growth
The company’s drug pipeline and product results in
each phase
Further studies on Viscosupplementation that are
more conclusive about the exact effectiveness and if
an increase in scope of this treatment is approved by
the FDA in other joints
REFERENCES
1. Orthobiologics Market to 2016 - Alternatives to
Surgery and Superior Outcomes are Driving Wider
Adoption
of
Orthobiologics:
http://www.companiesandmarkets.com/Market/He
althcare-and-Medical/MarketResearch/Orthobiologics-Market-to-2016Alternatives-to-Surgery-and-Superior-Outcomes-areDriving-Wider-Adoption-ofOrthobiologics/RPT980256
2. Market Line— Company Profile: Anika therapeutics:
www.lib.uiowa.edu
3. Orthobiologics Market (Allografts, Viscosupplements,
DBM, BMP, Stem Cell and Others) - Global Industry
Analysis, Size, Share, Growth, Trends and Forecast,
2013-2019:
http://www.marketwatch.com/story/orthobiologicsmarket-allografts-viscosupplements-dbm-bmpstem-cell-and-others-global-industry-analysis-sizeshare-growth-trends-and-forecast-2013-2019-201405-22
Page 8
4. Anika
Therapuetics
10-K:
http://ir.anikatherapeutics.com/secfiling.cfm?filingI
D=1171843-15-1395&CIK=898437
5. NCBI: Epidemiology of Osteoarthritis:
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC292
0533/
6. Healthline: Viscosupplements for OA of the Knee:
http://www.healthline.com/health/osteoarthritisviscosupplements-for-oa-of-the-knee
7. Platelet-Rich Plasma Intra-Articular Injection Versus
Hyaluronic Acid Viscosupplementation as Treatments
for Cartilage Pathology:
http://www.arthroscopyjournal.org/article/S07498063(11)00523-8/abstract
8. Anika
reports
on
CINGAL
13-02:
http://www.businesswire.com/news/home/201504
17005436/en/Anika-Therapeutics-ReportsCingal%C2%AE-13-01-Study-Clinical#.VdqznvlVg3l
9. Anika
announces
Q2
2015
earnings:
http://files.shareholder.com/downloads/ABEA5FDIBY/540153184x0x842272/98A77A16-88554162-B2995ED88E9866CA/ANIK_Q2_Presentation_vFINAL.pdf
10. What is Hyaluronic Acid?
http://hyaluronicacidwiki.com/
11. Hyaluronic acid; technology, market & timing:
http://www.novozymes.com/en/investor/eventspresentations/Documents/10_NZCMD_TVI_Hyaluro
nic%20Acid_FINAL.pdf
12. Anika
Therapeutics
Company
website:
http://www.anikatherapeutics.com/products/overvi
ew/
13. Global Hyaluronic Acid Market Analysis By Product:
http://www.grandviewresearch.com/industryanalysis/hyaluronic-acid-market
14. Orthobiologics: A New Generation of Orthopedics:
http://www.orthopreneurpub.com/component/con
tent/article/498-the-history-of-orthobiologics-anew-frontier-of-orthopaedics
15. Orthoworld:
https://www.orthoworld.com/orthoknow/theorthobiologics-market
16. Obesity and Overweight:
http://www.who.int/mediacentre/factsheets/fs311/
en/
IMPORTANT DISCLAIMER
Henry Fund reports are created by student enrolled in the
Applied Securities Management (Henry Fund) program at
the University of Iowa’s Tippie School of Management.
These reports are intended to provide potential employers
and other interested parties an example of the analytical
skills, investment knowledge, and communication abilities
of Henry Fund students. Henry Fund analysts are not
registered investment advisors, brokers or officially
licensed financial professionals. The investment opinion
contained in this report does not represent an offer or
solicitation to buy or sell any of the aforementioned
securities. Unless otherwise noted, facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the Henry
Fund may hold a financial interest in the companies
mentioned in this report.
Page 9
Anika Therapeutics, Inc.
Key Assumptions of Valuation Model
Ticker Symbol
Current Share Price
Current Model Date
Fiscal Year End
Pre-Tax Cost of Debt
Beta
Risk-Free Rate
Equity Risk Premium
CV Growth of NOPLAT
CV Growth of EPS
Current Dividend Yield
Marginal Tax Rate
Effective Tax Rate
WACC
Total Shares outstanding
Dividend growth Rate
DCF Share price
ANIK
$36.00
6/27/2015
12/31/2014
12/31/2014
6.00%
2.29
2.73%
4.85%
2.00%
0.00%
37.70%
14,678,240
0.00%
Beta
CV
Growth
Rate
$26.68
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
2.2
27.75
27.75
27.75
27.75
27.75
27.75
27.75
27.75
2.25
27.14
27.14
27.14
27.14
27.14
27.14
27.14
27.14
2.3
26.57
26.57
26.57
26.57
26.57
26.57
26.57
26.57
2.35
26.02
26.02
26.02
26.02
26.02
26.02
26.02
26.02
2.4
25.49
25.49
25.49
25.49
25.49
25.49
25.49
25.49
2.45
24.98
24.98
24.98
24.98
24.98
24.98
24.98
24.98
2.5
24.49
24.49
24.49
24.49
24.49
24.49
24.49
24.49
2.55
24.02
24.02
24.02
24.02
24.02
24.02
24.02
24.02
2.2
2.25
2.3
2.35
2.4
2.45
2.5
2.55
Risk
Free
Rate
$26.68
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
29.04
28.35
27.69
27.07
26.47
25.89
25.34
24.82
28.38
27.72
27.09
26.49
25.92
25.37
24.84
24.33
27.75
27.12
26.52
25.94
25.39
24.86
24.36
23.87
27.15
26.55
25.97
25.42
24.89
24.38
23.89
23.42
26.57
26.00
25.44
24.91
24.40
23.92
23.45
23.00
26.02
25.47
24.94
24.43
23.94
23.47
23.02
22.58
25.49
24.96
24.45
23.96
23.49
23.04
22.60
22.19
24.99
24.48
23.99
23.51
23.06
22.63
22.21
21.80
7.00%
7.50%
8.00%
8.50%
9.00%
9.50%
10.00%
10.50%
SG&A
$26.68
20.00%
22.00%
23.00%
24.00%
25.00%
26.00%
27.00%
28.00%
31.35003
29.59124
28.71185
27.83245
26.95306
26.07366
25.19427
24.31487
30.91033
29.15154
28.27215
27.39276
26.51336
25.63397
24.75457
23.87518
30.47064
28.71185
27.83245
26.95306
26.07366
25.19427
24.31487
23.43548
30.03094
28.27215
27.39276
26.51336
25.63397
24.75457
23.87518
22.99578
29.59124
27.83245
26.95306
26.07366
25.19427
24.31487
23.43548
22.55608
29.15154
27.39276
26.51336
25.63397
24.75457
23.87518
22.99578
22.11639
28.71185
26.95306
26.07366
25.19427
24.31487
23.43548
22.55608
21.67669
28.27215
26.51336
25.63397
24.75457
23.87518
22.99578
22.11639
21.23699
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
R&D Expense
$26.68
7.50%
8.00%
8.50%
9.00%
9.50%
10.00%
10.50%
11.00%
28.83
28.39
27.95
27.51
27.07
26.63
26.19
25.75
28.65
28.21
27.77
27.33
26.89
26.45
26.01
25.57
28.46
28.02
27.58
27.14
26.70
26.26
25.82
25.38
28.27
27.83
27.39
26.95
26.51
26.07
25.63
25.19
28.08
27.64
27.20
26.76
26.32
25.88
25.44
25.00
27.89
27.45
27.01
26.57
26.13
25.69
25.25
24.81
27.69
27.25
26.81
26.37
25.93
25.49
25.05
24.61
27.49
27.05
26.61
26.17
25.73
25.29
24.85
24.41
11.00%
11.50%
12.50%
13.00%
13.50%
14.00%
14.50%
15.00%
Risk Premium
$26.68
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
42.69
36.71
32.21
28.71
25.90
23.60
21.69
20.08
Beta
R&D Expense
PPE Growth
WACC
Anika Therapeutics, Inc.
Common Size Balance Sheet
Fiscal Years Ending 12/31/2014
ASSETS
Cash & Short-Term Investments
Accounts Receivables, Net
Inventories
Other Current Assets
Total current assets
Property, plant & equipment, Gross
Accumulated Depreciation
Property, plant & equipment, net
Goodwill
Other intangible assets, net
Deferred income taxes
Other long-term assets
Total assets
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
50.76%
26.68%
16.11%
7.83%
101.38%
89.45%
22.89%
66.57%
16.37%
46.37%
0.71%
0.69%
232.08%
55.23%
26.72%
11.27%
5.79%
99.01%
78.50%
22.20%
56.30%
13.71%
35.73%
0.00%
0.32%
205.07%
61.76%
30.08%
11.61%
5.00%
108.44%
73.40%
24.19%
49.21%
12.70%
28.50%
0.00%
0.24%
199.09%
84.35%
24.96%
14.65%
2.03%
125.99%
69.81%
25.94%
43.87%
12.58%
25.30%
0.00%
0.09%
207.83%
101.24%
16.24%
11.75%
2.42%
131.66%
50.78%
20.79%
29.99%
7.90%
14.11%
0.00%
0.07%
183.72%
55.38%
25.00%
13.00%
4.62%
98.00%
27.91%
9.21%
18.70%
4.25%
7.60%
0.00%
0.04%
128.59%
67.58%
25.00%
13.00%
4.62%
110.20%
26.24%
8.66%
17.58%
3.92%
7.01%
0.00%
0.03%
138.67%
79.02%
25.00%
13.00%
4.62%
121.64%
24.63%
8.13%
16.50%
3.61%
6.45%
0.00%
0.03%
148.17%
89.73%
25.00%
13.00%
4.62%
132.35%
23.08%
7.62%
15.47%
3.32%
5.92%
0.00%
0.03%
157.02%
99.77%
25.00%
13.00%
4.62%
142.39%
21.61%
7.13%
14.48%
3.04%
5.44%
0.00%
0.03%
165.31%
LIABILITIES AND SHAREHOLDERS' EQUITY
Short Term Debt
Accounts Payable
Income Tax Payable
Accrued Payroll
Miscellaneous Current Liabilities
Total current liabilities
Long-Term Debt
Deferred Tax Liabilities
Other Liabilities
Deferred Income
Total Liabilities
Common Stock + Additional contributed capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total equity
Total Liabilities & Equity
0.00%
17.45%
0.00%
3.41%
11.12%
31.99%
20.16%
11.19%
2.81%
9.72%
75.86%
111.27%
46.41%
-4.59%
153.10%
153.10%
232.08%
0.00%
6.64%
0.70%
3.65%
8.99%
19.97%
14.82%
11.39%
2.39%
7.75%
56.32%
97.94%
52.88%
-4.73%
146.08%
146.08%
205.07%
0.00%
3.28%
2.52%
3.47%
8.74%
18.01%
11.21%
9.81%
2.16%
3.02%
44.20%
91.69%
64.48%
-3.72%
152.45%
152.45%
199.09%
0.00%
3.72%
1.03%
3.63%
3.98%
12.36%
0.00%
10.57%
1.51%
2.74%
27.18%
94.04%
88.68%
-2.26%
180.46%
180.46%
207.83%
0.00%
1.14%
0.00%
2.64%
1.88%
5.66%
0.00%
8.46%
0.85%
0.10%
15.06%
73.43%
99.35%
-4.26%
168.52%
168.52%
183.72%
0.00%
6.45%
1.11%
3.36%
3.00%
13.92%
0.00%
5.01%
0.46%
0.05%
19.44%
39.57%
71.81%
-2.29%
109.08%
109.08%
129.09%
0.00%
6.45%
1.13%
3.36%
3.00%
13.94%
0.00%
5.08%
0.42%
0.05%
19.49%
36.48%
84.82%
-2.11%
119.18%
119.18%
138.67%
0.00%
6.45%
1.15%
3.36%
3.00%
13.96%
0.00%
5.15%
0.39%
0.04%
19.53%
33.57%
97.01%
-1.95%
128.64%
128.64%
148.17%
0.00%
6.45%
1.17%
3.36%
3.00%
13.98%
0.00%
5.20%
0.36%
0.04%
19.57%
30.84%
108.40%
-1.79%
137.45%
137.45%
157.02%
0.00%
6.45%
1.18%
3.36%
3.00%
13.99%
0.00%
5.25%
0.33%
0.04%
19.61%
28.30%
119.05%
-1.64%
145.71%
145.71%
165.31%
Anika Therapeutics, Inc.
Revenue Decomposition
All figures in USD Millions
Fiscal Years Ending 12/31/2014
Product Revenue
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
Orthobiologics
30.74
39.86
29.67%
3.68
3.37%
4.98
28.35%
10.96
-8.44%
2.48
-3.50%
61.96
17.53%
2.82
0.07%
126.74
#DIV/0!
49.95
25.31%
1.38
-62.50%
5.02
0.80%
8.78
-19.89%
2.87
15.73%
68.00
9.75%
3.35
18.71%
139.35
9.95%
55.96
12.02%
1.33
-3.31%
5.45
8.48%
4.66
-46.96%
3.90
35.85%
71.29
4.84%
3.31
-1.27%
145.89
4.69%
61.96
10.72%
1.82
36.15%
5.85
7.51%
3.15
-32.28%
3.17
-18.58%
75.96
6.54%
30.12
810.70%
182.03
24.77%
68.152557
10.00%
1.89
4.00%
6.09
4.00%
3.09
-2.00%
3.25
2.50%
82.48
8.58%
31.02
3.00%
195.97
7.66%
75.64933827
11.00%
1.96
4.00%
6.33
4.00%
3.03
-2.00%
3.34
2.50%
90.31
9.50%
31.96
3.00%
212.58
8.47%
83.97076548
11.00%
2.04
4.00%
6.59
4.00%
2.97
-2.00%
3.47
4.00%
99.04
9.66%
32.91
3.00%
230.99
8.66%
93.20754968
11.00%
2.13
4.00%
6.92
5.00%
2.91
-2.00%
3.61
4.00%
108.76
9.82%
33.90
3.00%
251.43
8.85%
103.4603801
11.00%
2.21
4.00%
7.26
5.00%
2.85
-2.00%
3.75
4.00%
119.53
9.90%
34.92
3.00%
273.99
8.97%
Y/Y Growth (%)
Dermal
3.56
Surgical
3.88
Ophthalmic
11.97
Y/Y Growth (%)
Y/Y Growth (%)
Y/Y Growth (%)
Veterinary
Y/Y Growth (%)
Total Product Revenue
Y/Y Growth (%)
Licensing, milestone and contract revenue
Y/Y Growth (%)
Total Sales
Y/Y Growth (%)
2.57
52.72
2.82
Anika Therapeutics, Inc.
Income Statement
All figures in USD Millions
Fiscal Years Ending 12/31/2014
Net sales
Cost of Goods sold
Depreciation & Amortization Expense
Gross Profit
SG&A expense & Other expenses
Research & development expenses
Net interest expense
Net Income (loss) before income taxes
Income tax expense
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income attributable to Anika
Weighted average shares outstanding - basic
EPS basic
Payout Ratio
2010
2011
2012
2013
55.56
64.78
71.36
75.08
(20.51)
(22.78)
(24.46)
(17.99)
(3.32)
(4.00)
(4.53)
(4.77)
31.73
37.99
42.37
52.32
(17.32)
(17.86)
(17.27)
(13.22)
(6.87)
(6.17)
(5.39)
(7.06)
(0.19)
(0.18)
(0.19)
(0.13)
7.34
13.79
19.53
31.91
(3.03)
(5.32)
(7.77)
(11.91)
4.32
8.47
11.76
20.57
4.32
8.47
11.76
20.57
13.48
13.63
13.87
14.29
$
0.32 $
0.62 $
0.85 $
1.44 $
2014
105.59
(16.22)
(4.71)
84.66
(15.02)
(8.14)
61.51
(23.19)
38.32
38.32
14.85
2.58 $
2015E
195.97
(57.11)
(18)
120.82
(45.07)
(18.25)
57.50
(21.68)
35.82
35.82
14.85
2.41 $
2016E
212.58
(61.94)
(18)
132.22
(48.89)
(19.79)
63.54
(23.95)
39.58
39.58
14.85
2.67 $
2017E
230.99
(67.31)
(19)
144.90
(53.13)
(21.50)
70.27
(26.49)
43.78
43.78
14.85
2.95 $
2018E
251.43
(73.27)
(19)
159.01
(57.83)
(23.41)
77.77
(29.32)
48.45
48.45
14.85
3.26 $
2019E
273.99
(79.84)
(20)
174.61
(63.02)
(25.51)
86.09
(32.45)
53.63
53.63
14.85
3.61
Anika Therapeutics, Inc.
Balance Sheet
All figures in USD Millions
Fiscal Years Ending 12/31/2014
ASSETS
Cash & Short-Term Investments
Accounts Receivables, Net
Inventories
Other Current Assets
Total current assets
Property, plant & equipment, Gross
Accumulated Depreciation
Property, plant & equipment, net
Goodwill
Other intangible assets, net
Deferred income taxes
Other long-term assets
Total assets
28.20
35.78
44.07
63.33 106.91 108.54 143.65 182.53 225.60 273.35
14.82
17.31
21.46
18.74
17.15
48.99
53.14
57.75
62.86
68.50
8.95
7.30
8.28
11.00
12.41
25.48
27.63
30.03
32.69
35.62
4.35
3.75
3.57
1.52
2.56
9.05
9.82
10.67
11.62
12.66
56.32
64.14
77.38
94.59 139.03 192.06 234.25 280.98 332.76 390.12
49.70
50.85
52.38
52.41
54
55
56
57
58
59
12.72
14.38
17.26
19.47
22
18
18
19
19
20
36.98
36.47
35.11
32.94
31.67
36.64
37.38
38.12
38.89
39.66
9.09
8.88
9.07
9.44
8.34
8.34
8.34
8.34
8.34
8.34
25.76
23.15
20.33
19.00
14.89
14.89
14.89
14.89
14.89
14.89
0.39
0.38
0.21
0.17
0.07
0.07
0.07
0.07
0.07
0.07
0.07
128.94 132.84 142.07 156.04 194.00 252.01 294.78 342.25 394.80 452.94
LIABILITIES AND SHAREHOLDERS' EQUITY
Short Term Debt
Accounts Payable
Income Tax Payable
Accrued Payroll
Miscellaneous Current Liabilities
Total current liabilities
Long-Term Debt
Deferred Tax Liabilities
Other Liabilities
Deferred Income
Total Liabilities
Common Stock + Additional contributed capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total equity
Total Liabilities & Equity
9.69
4.30
2.34
2.79
0.45
1.80
0.77
1.90
2.37
2.48
2.73
6.18
5.82
6.23
2.99
17.77
12.94
12.85
9.28
11.20
9.60
8.00
6.22
7.38
7.00
7.94
1.56
1.55
1.54
1.13
5.40
5.02
2.15
2.05
42.15
36.48
31.54
20.41
61.82
63.44
65.43
70.61
25.79
34.25
46.01
66.58
(2.55)
(3.07)
(2.65)
(1.70)
85.06
94.63 108.79 135.49
85.06
94.63 108.79 135.49
128.94 132.84 142.07 156.04
2010
2011
2012
2013
2014
1.20
2.79
1.98
5.97
8.93
0.89
0.10
15.90
77.54
104.90
(4.49)
177.95
177.95
194.00
2015E
12.64
2.17
6.58
5.88
27.27
9.82
0.89
0.10
38.09
77.54
140.73
(4.49)
213.77
213.77
252.98
2016E
13.71
2.40
7.14
6.38
29.63
10.81
0.89
0.10
41.43
77.54
180.31
(4.49)
253.36
253.36
294.78
2017E
14.90
2.65
7.76
6.93
32.24
11.89
0.89
0.10
45.12
77.54
224.09
(4.49)
297.13
297.13
342.25
2018E
16.22
2.93
8.45
7.54
35.14
13.07
0.89
0.10
49.21
77.54
272.54
(4.49)
345.59
345.59
394.80
2019E
17.67
3.25
9.21
8.22
38.34
14.38
0.89
0.10
53.72
77.54
326.17
(4.49)
399.22
399.22
452.94
Anika Therapeutics, Inc.
Cash Flow Statement
All figures in USD Millions
Fiscal Years Ending 12/31/2014
2015E 2016E 2017E 2018E 2019E
36
Net income (loss)
Adjustments
Depreciation & amortization
Change in deferred income tax assets
Change in Accounts & other current receivables, net
Change in Inventories
Change in other current assets
Change in Accounts payable, trade
Change in income taxes payable
Change in Accrued Compensation
Change in deferred income tax liabilities
Other Misc current liabilities
Net cash flows from operating activities
18
(32)
(13)
(6)
11
2
4
1
4
25
Capital expenditures
Change in other intangible assets, net
Change in goodwill
Change in other long-term assets
Net cash flows from investing activities
40
44
18
-
48
19
-
54
19
-
20
-
(4)
(2)
(1)
1
0
1
1
0
54
(5)
(2)
(1)
1
0
1
1
1
58
(5)
(3)
(1)
1
0
1
1
1
63
(6)
(3)
(1)
1
0
1
1
1
68
(23)
(23)
(19)
(19)
(20)
(20)
(20)
(20)
(20)
(20)
Change in short-term debt
Change in total debt & capital lease obligations
Payment of dividends
Proceeds from issuance of common stock
Repurchases of common stock
Change in total other LT liabilities
Change in Non controlling interests
Net cash flows from financing activities
-
-
-
-
-
-
-
-
-
-
Change in Cash
Cash at the Beginning of the year
Cash at the end of the year
2
107
109
35
109
144
39
144
183
43
183
226
48
226
273
Anika Therapeutics, Inc.
Cash Flow Statement
All figures in USD Millions
Fiscal Years Ending 12/31/2014
2010
2011
2012
2013
2014
Net income (loss)
Net Income / Starting Line
Depreciation, Depletion & Amortization
Deferred Taxes & Investment Tax Credit
Other Funds
Changes in Working Capital
Net cash flows from operating activities
4.32
3.32
1.95
2.04
(3.78)
7.85
8.47
4.00
1.99
2.68
(6.96)
10.17
11.76
4.53
(0.01)
3.75
(9.47)
10.55
20.57
4.77
2.21
0.22
(2.60)
25.17
38.32
4.71
0.82
(7.64)
3.78
39.98
Capital expenditures
Acquisitions & investments
Divestitures & other investing activities
Net cash flows from investing activities
(2.78)
0.11
(2.68)
(1.40)
(1.40)
(1.50)
(1.50)
(0.44)
0.19
(0.25)
(1.55)
(6.75)
(8.30)
Change in Capital Stock
Issuance/Reduction of Debt, Net
Other Funds
Net cash flows from financing activities
0.20
(1.60)
0.16
(1.60)
0.27
(1.17)
0.39
(1.60)
0.45
(0.76)
3.05
(9.60)
0.86
(5.69)
2.05
3.28
5.33
(1.40)
Anika Therapeutics, Inc.
Value Driver Estimation
All figures in USD Millions
Fiscal Years Ending 12/31/2014
Net Sales
Cost of Goods Sold (after Depreciation removed)
SG&A and Other Expenses
Research & development expenses
Depreciation & Amortization
Add: Operating Lease Interest
Adjusted EBITA
2010
56
(21)
(17)
(7)
(3)
1
8
2011
65
(23)
(18)
(6)
(4)
1
15
2012
71
(24)
(17)
(5)
(5)
1
20
2013
75
(18)
(13)
(7)
(5)
1
33
2014
106
(16)
(15)
(8)
(5)
0
62
2015E
196
(57)
(45)
(18)
(18)
0
58
2016E
213
(62)
(49)
(20)
(18)
64
2017E
231
(67)
(53)
(22)
(19)
70
2018E
251
(73)
(58)
(23)
(19)
78
2019E
274
(80)
(63)
(26)
(20)
86
Adjusted Taxes
Provision for Income Taxes
Add: Tax Shield on Interest Expense
Add: Tax Shield on Implied Lease Interest
Less: Tax Shield on Other Income (Loss)
Total Adjusted Taxes
3
0
0
3
5
0
0
6
8
0
0
8
12
0
0
12
23
0
23
22
0
22
24
24
26
26
29
29
32
32
Plus: Change in Deferred Tax Assets/Liabilities
Current Year Deferred Tax Assets
Current Year Deferred Tax Liabilities
Previous Year Deferred Tax Assets
Previous Year Deferred Tax Liabilities
Net Change in Deferred Taxes
0
6
6
9
2
-
2
0
6
(3)
2
-
3
-
3
-
7
-
7
-
8
-
8
-
9
-
2
0
2
0
3
0
3
4
7
1
7
1
8
1
8
1
EBITA
Less: Total Adjusted Taxes
Add: Change in Deferred Taxes
NOPLAT
8
(3)
2
7
15
(6)
(3)
5
20
(8)
0
12
33
(12)
0
21
62
(23)
0
39
58
(22)
4
40
64
(24)
1
40
70
(26)
1
44
78
(29)
1
49
86
(32)
1
54
Invested Capital Computation
Operating Current Assets:
Normal Cash (at 6% of sales)
Accounts Receivable, Net
Inventory
Prepaid Expenses & Operating Current Assets
Total Operating Current Assets
3
15
9
4
31
3
17
7
4
32
4
21
8
4
37
4
19
11
2
35
5
17
12
3
37
10
49
25
9
93
11
53
28
10
101
12
58
30
11
110
13
63
33
12
120
14
68
36
13
130
10
2
2
9
13
3
1
6
9
1
8
18
4
0
8
13
5
6
13
2
12
27
14
2
14
30
15
3
15
32
16
3
16
35
18
3
17
38
Net Operating Working Capital
14
19
24
26
31
66
72
78
85
92
Net PPE
37
36
35
33
32
37
37
38
39
40
Other intangible assets, net
Other long-term assets
PV of Operating Leases
Other Operating LT Assets
26
0
10
36
23
0
11
34
20
0
9
29
19
0
8
27
15
0
8
23
15
0
9
24
15
0
9
24
15
0
9
24
15
0
9
24
15
0
9
24
Operating Current Liabilities:
Accounts Payable
Income Taxes Payable
Other Current Liabilities
Total Operating Current Liabilities
Other Operating LT Liabilities
Invested Capital
Add: Net Operating Working Capital
Add: Net PPE
Add: Other Operating LT Assets
Less: Other Operating LT Liabilities
Total Invested Capital
Return on Invested Capital
NOPLAT
/ Beginning Invested Capital
ROIC
Economic Profit
Beginning Invested Capital
ROIC
WACC
Economic Profit [Beg IC*(ROIC-WACC)]
FCF
NOPLAT
Add: Beg Invested Capital
Less: Current Invested Capital
FCF
-
-
-
14
37
36
-
-
19
36
34
-
87
-
24
35
29
-
-
-
26
33
27
-
-
-
-
31
32
23
66
37
24
72
37
24
78
38
24
85
39
24
92
40
24
88
86
86
126
133
140
148
156
5
87
6.3%
12
89
13.9%
21
88
23.4%
39
86
45.0%
40
86
46.1%
40
126
31.8%
44
133
33.5%
49
140
35.2%
54
148
36.9%
87
6.3%
0.0%
5
89
13.9%
0.0%
12
88
23.4%
0.0%
21
86
45.0%
0.0%
39
86
46.1%
0.0%
40
126
31.8%
0.0%
40
133
33.5%
0.0%
44
140
35.2%
0.0%
49
148
36.9%
0.0%
54
40
86
126
0
40
126
133
34
44
133
140
37
49
140
148
41
54
148
156
46
89
5
87
89
3
-
-
12
89
88
14
-
21
88
86
23
39
86
86
38
Anika Therapeutics, Inc.
Common Size Income Statement
Fiscal Years Ending 12/31/2014
Net sales
Cost of Goods sold
Depreciation & Amortization Expense
Gross Profit
SG&A expense & Other expenses
Research & development expenses
Net interest expense
Net Income (loss) before income taxes
Income tax expense
Net income (loss)
Less: Net income attributable to noncontrolling interests
Net income attributable to Anika
2010
2011
2012
2013
2014
100.00% 100.00% 100.00% 100.00% 100.00%
-36.91% -35.17% -34.28% -23.96% -15.37%
-5.98% -6.18% -6.34% -6.36% -4.46%
57.11% 58.65% 59.38% 69.68% 80.18%
-31.17% -27.57% -24.20% -17.61% -14.22%
-12.37% -9.52% -7.55% -9.40% -7.71%
-0.35% -0.28% -0.26% -0.17%
0.00%
13.22% 21.28% 27.37% 42.50% 58.25%
-5.45% -8.21% -10.89% -15.86% -21.96%
7.77% 13.07% 16.48% 27.40% 36.29%
0.00%
0.00%
0.00%
0.00%
0.00%
7.77% 13.07% 16.48% 27.40% 36.29%
2015
100.00%
-29.14%
-9.21%
61.65%
-23.00%
-9.31%
0.00%
29.34%
-11.06%
18.28%
0.00%
18.28%
2016
100.00%
-29.14%
-8.66%
62.20%
-23.00%
-9.31%
0.00%
29.89%
-11.27%
18.62%
0.00%
18.62%
2017
100.00%
-29.14%
-8.13%
62.73%
-23.00%
-9.31%
0.00%
30.42%
-11.47%
18.95%
0.00%
18.95%
2018
100.00%
-29.14%
-7.62%
63.24%
-23.00%
-9.31%
0.00%
30.93%
-11.66%
19.27%
0.00%
19.27%
2019
100.00%
-29.14%
-7.13%
63.73%
-23.00%
-9.31%
0.00%
31.42%
-11.85%
19.57%
0.00%
19.57%
Present Value of Operating Lease Obligations (2014)
Present Value of Operating Lease Obligations (2013)
Operating
Leases
2.28
1.07
1.07
1.01
1.01
2.75
9.17
1.79
7.38
Fiscal Years Ending Dec. 31
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2012)
Operating
Leases
1.63
1.61
1.61
0.97
0.97
3.72
10.51
2.28
8.23
Fiscal Years Ending 12/31/2014
2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
6.00%
2.7
Lease
Commitment
2.276
1.065
1.065
1.005
1.005
1.005
PV Lease
Payment
2.1
0.9
0.9
0.8
0.8
1.8
7.4
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2011)
Operating
Leases
1.52
1.47
1.47
0.97
0.97
4.86
11.27
2.73
8.53
Fiscal Years Ending
2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
6.00%
3.8
Lease
Commitment
1.627
1.61
1.61
0.97
0.97
0.97
PV Lease
Payment
1.5
1.4
1.4
0.8
0.7
2.4
8.2
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2010)
Operating
Leases
2.8
1.7
1.7
1.30
1.30
4.86
13.75
2.92
10.83
Fiscal Years Ending
2012
2013
2014
2015
2016
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
6.00%
5.0
Lease
Commitment
1.52
1.4725
1.4725
0.9715
0.9715
0.9715
PV Lease
Payment
1.4
1.3
1.2
0.8
0.7
3.1
8.5
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Present Value of Operating Lease Obligations (2009)
Operating
Leases
2.61
1.66
1.66
1.64
1.64
3.12
12.34
2.33
10.01
Fiscal Years Ending
2011
2012
2013
2014
2015
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
6.00%
3.7
Lease
Commitment
2.844
1.726
1.726
1.297
1.297
1.297
PV Lease
Payment
2.7
1.5
1.4
1.0
1.0
3.2
10.8
Capitalization of Operating Leases
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Operating
Leases
1.75
1.49
1.49
1.56
1.56
3.92
11.76
2.49
9.27
Fiscal Years Ending
2010
2011
2012
2013
2014
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
6.00%
1.9
Lease
Commitment
2.61
1.661
1.661
1.6425
1.6425
1.6425
PV Lease
Payment
2.5
1.5
1.4
1.3
1.2
2.1
10.0
Pre-Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
6.00%
2.5
Lease
Commitment
1.75
1.49
1.49
1.5565
1.5565
1.5565
PV Lease
Payment
1.7
1.3
1.3
1.2
1.2
2.6
9.3
Anika Therapeutics, Inc.
Weighted Average Cost of Capital (WACC) Estimation
Marginal Tax Rate
Cost of equity Calculation
Risk Free Rate
+
Beta*
Market Risk Premium
= Cost of Equity
WACC Calculation
Shares outstanding*
MV of share
=Total MV of Equity [E]
37.70%
2.73% (30Y Treasury Yield from Treasury Website)
2.29
4.85%
13.84%
All figures in millions
$
MV of debt [D]
Cost of Debt
MV of equity
+
MV of debt
= MV of the firm [V]
Cost of Equity *
(E/V)
+
Cost of Debt *
(1-Marginal tax Rate)
(D/V)
= WACC
14.678
$36.00
528.42
4.14%
$
528.42
$
$
528.42
13.84%
100.00%
4.14%
62.30%
0.00%
13.84%
Link
Anika Therapeutics, Inc.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
Fiscal Years Ending 12/31/2014
DCF Model
Discount period
NOPLAT
Continuing Value
PV of Continuing Value
Free Cash Flow
PV of free cash flows
Value of Operations
2.50%
36.87%
13.84%
13.84%
2015E
2016E
2017E
2018E
2019E
1
40
2
40
3
44
5
54
0
0
342
34
26
37
25
4
49
447
266
41
25
2
40
3
44
4
49
5
54
30
393
54
447
266
29
Non Operating Assets
Excess Cash
Value of Non Operating Assets
97
97
Non Operating Liabilities
PV of Operating Leases
Total Debt
PV of Pension Obligations
PV of employee stock options
Value of Non Operating Liabilities
8
0
0
35
43
Equity Value
Shares outstanding
Intrinsic Share Price
EP Model
Periods to discount
Economic Profit
PV of Terminal Year EP
PV of Incremental Reinvested EP
Continuing Value
PV of continuing value
PV of Economic Profit
Initial Invested Capital
Value of Operations
Non Operating Assets
Excess Cash
Value of Non Operating Assets
46
396
15
26.68
1
40
35
86
478
97
97
Non Operating Liabilities
PV of Operating Leases
Total Debt
PV of Pension Obligations
PV of employee stock options
Value of Non Operating Liabilities
8
0
0
34818
34827
Equity Value
Shares outstanding
Intrinsic Share Price
396
15
26.68
31
Anika Therapeutics, Inc.
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending 12/31/2014
Periods of Discount
EPS
$
Key Assumptions
CV growth
CV ROE
Net Income
Average Sharholders' equity
Cost of Equity
2015E
2016E
2017E
2018E
1
2
3
4
2.41 $ 2.67 $ 2.95 $ 3.26 $
2019E
5
3.61
2.50%
14.40%
54
372
13.84%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends per share
Future Cash Flows
Discounted Cash Flows
$
-
Fraction since 12/31/2014
Intrinsic Value EOY
Price Today
$
$
26.32
36.00
$
-
$
-
$
-
$
$
7.29
3.61
26.32
$
$
26.32
26.32
Anika Therapeutics, Inc.
Relative Valuation Models
Company
Allergan
Sanofi
Emergent BioSolutions
Zimmer Biomet Holdings
AMAG Pharmaceuticals
Harvard Bioscience
Medtronic Plc
Stryker
Price
EPS
2015E
EPS
2016E
298.57
99.86
33.48
104.36
59.95
4.39
74.27
99.37
17.51
6.48
1.23
6.71
5.27
0.22
4.38
5.11
19.50
6.74
1.49
7.79
7.98
0.32
4.76
5.60
Average
Anika Therapeutics, Inc.
Implied Value:
Relative P/E (EPS15)
Relative P/E (EPS16)
$36.00
$
$
$
2.41 $
43.09
40.24
2.67
P/E 15
17.1
15.4
27.1
15.6
11.4
20.0
17.0
19.5
17.9
P/E 16
15.3
14.8
22.5
13.4
7.5
13.9
15.6
17.7
15.1
14.9
13.5
Anika Therapeutics, Inc.
Key Management Ratios
Fiscal Years Ending 12/31/2014
Liquidity Ratios
Current Ratio (Current Assets/ Current Liabilities)
Operating Cash Flow Ratio (Operating CF/ Current Liabilities)
Quick Ratio (current assets – inventories) / current liabilities
Activity or Asset-Management Ratios
Asset Turnover Ratio (Sales/Total Assets)
Inventory Turnover Ratio (Sales/Total Inventory)
Receivables Turnover Ratio (Sales/Average Accounts Receivable)
Financial Leverage Ratios
Debt-to-Equity Ratio (Total Debt/Total Equity)
Equity Ratio (Shareholders Equity/ Total Assets)
Interest Coverage (Operating Income) / (Interest Expense)
Profitability Ratios
Return on Assets (Net Income/Total Assets)
Return on Equity (Net Income/Shareholders Equity)
Gross Margin (Revenue-COGS)/COGS
EBIT Margin (EBIT/Sales)
Profit Margin (Net Income/Sales
Payout Policy Ratios
Total Payout Ratio (Dividends paid + Repurchases)/NI
Payout Ratio (Divident Payout Ratio)
2011
2012
2013
2014 2015E 2016E 2017E 2018E 2019E
4.96
0.79
2.67
6.02
0.82
4.39
10.19
2.71
5.38
23.27 7.04
0.00 0.90
9.01 21.20
49%
6.2
3.7
50%
8.9
3.7
48%
8.6
3.3
54%
6.8
4.0
78%
8.5
6.2
7.91
1.83
6.11
8.72
1.81
6.97
9.47 10.17
1.79 1.78
7.78 8.54
72%
7.7
4.0
67%
7.7
4.0
64%
7.7
4.0
60%
7.7
4.0
0.39 0.29
0.15
0.09 0.18 0.16 0.15 0.14 0.13
0.71 0.77
0.87
0.92 0.85 0.86 0.87 0.88 0.88
38.73 76.58 104.99 251.86 N/A
N/A
N/A
N/A
N/A
8.9%
58.7%
21.6%
13.1%
10.8%
59.4%
27.6%
16.5%
15.2%
69.7%
42.7%
27.4%
21.5%
80.2%
58.2%
36.3%
14.2%
16.8%
61.7%
29.3%
18.3%
13.4%
15.6%
62.2%
29.9%
18.6%
12.8%
14.7%
62.7%
30.4%
19.0%
12.3%
14.0%
63.2%
30.9%
19.3%
11.8%
13.4%
63.7%
31.4%
19.6%
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
#REF!
0%
0%
0%
0%
0%
0%
0%
0%
Anika Therapeutics, Inc.
Quarterly Income Statement
All figures in USD Millions
Fiscal Years Ending 12/31/2014
Sales
COGS excluding D&A
Depreciation & Amortization Expense
Gross Income
SG&A Expense
Research & Development
Interest Expense
Pretax Income
Income Taxes
Consolidated Net Income
Q1-2013
15.25
3.64
1.20
10.41
5.53
1.58
0.04
4.97
1.90
3.07
Q2-2013
20.83
5.24
1.07
14.52
5.23
1.83
0.04
9.36
3.47
5.89
Q3-2013
17.75
4.07
1.31
12.38
4.81
1.62
0.03
7.73
2.78
4.96
Q4-2013
21.25
5.04
1.19
15.02
4.43
2.03
0.02
10.41
3.76
6.65
Q1-2014
34.01
3.16
1.20
29.65
5.78
2.29
0.00
23.87
8.84
15.03
Q2-2014
26.27
4.13
1.20
20.94
5.74
1.87
0.00
15.21
5.91
9.30
Q3-2014
22.06
4.51
1.21
16.33
6.04
2.00
0.00
10.30
4.13
6.17
Q4-2014
23.25
4.38
1.13
17.74
5.66
1.98
0.00
12.13
4.31
7.82
Q1-2015
15.52
3.40
0.91
11.21
5.70
2.10
0.00
5.53
2.01
3.52
Q2-2015
22.90
4.36
0.91
17.63
5.20
1.81
0.00
12.45
4.63
7.82
Q3-2015E
78.78
32.43
0.91
45.99
27.99
1.81
0.00
19.76
14.16
12.24
Q4-2015E
78.78
32.43
0.91
45.99
27.99
1.81
0.00
19.76
14.16
12.24