Anika Therapeutics Takes Major Step in Strategic Transformation with Acquisition of Parcus Medical and Arthrosurface

Orthopedic companies of all sizes are examining ways to leverage their existing strengths in new or underserved market segments, as we saw with Globus Medical’s entry into joint replacement and Stryker’s pending acquisition of Wright Medical. At the beginning of 2020, Anika Therapeutics took a leap forward in their long-term strategic transformation to a hybrid commercial organization with agreements to acquire Parcus Medical and Arthrosurface.

In mid-2018, Anika CEO Joseph Darling said that the company historically had too little control over its destiny, noting, “…our contracts are structured such that our partners determine end-market pricing and other decisions for a large portion of our exceptional product line. However, our capabilities go far beyond those of just a contract manufacturer.” It has been a long year-and-a-half journey for Anika, during which they faced sales challenges due to price erosion and one-sided partnership agreements.

Anika sales declined from 2017 to 2018 (-0.2%), and the company believed those losses would continue into 2019. The U.S. viscosupplement market faced significant price pressure in 2018, with Anika observing low- to mid-double-digit price declines on their ORTHOVISC and MONOVISC products. This erosion made Anika’s contractual $5 million annual milestone from DePuy Mitek Sports Medicine unachievable going forward, despite growth of patient volumes.

However, 2019 brought higher sales of viscosupplements for Anika and the market in general. Leadership noted that the company’s improved performance was driven by greater focus on international distributor effectiveness, increased marketing efforts from Mitek, and the continuing growth of patient volumes amid modest price stabilization. At the end of the third quarter in 2019, Anika’s ex-U.S. sales were up almost 23% compared to the prior year. As shown in Exhibit 1, we project Anika’s 2019 total revenue at $102.6 million, +9.6% compared to 2018.

Exhibit 1: Anika Therapeutics Revenue by Year by Quarter ($ Millions)

*Projected

It was also in the third quarter that Mr. Darling laid the groundwork for what would ultimately be the Parcus and Arthrosurface announcements. He said, “Through our five-year strategic plan, we are actively working to expand our portfolio beyond our primary historical focus on osteoarthritis, pain management into regenerative therapies for joint preservation and restoration. Our legacy commercial partnerships have historically focused on the office-based call point exclusively. But going forward, we plan to activate the second important channel with our new hybrid commercial structure in our direct sales team squarely focused on the operating room.”

Shortly thereafter, Anika Therapeutics signed agreements to acquire Parcus Medical, a sports medicine company, and Arthrosurface, a provider of joint surface and motion preservation products. Anika will acquire Parcus for an upfront payment of approximately $35 million in cash, with an additional $60 million contingent upon achievement of certain commercial milestones. Arthrosurface’s acquisition is for an upfront payment of around $60 million, with an additional $40 million contingent upon achievement of certain regulatory and commercial milestones. The expected close for both transactions is 1Q20, with positive EBITDA and cash flow in 2021 and beyond. Exhibit 2 shows the capabilities and product by company.

Exhibit 2: Anika Capabilities and Products by Company

Parcus Medical’s portfolio of over 400 products has application in sports medicine procedures that repair the shoulder, knee, hip and distal extremities. This gives Anika direct access to a new call-point in ambulatory surgery centers, where unmet demand and a growing patient population will provide growth tailwinds for several years. Parcus’ expected 2019 revenue is between $12 and $13 million, with a topline growth rate around 15%. Anika is retaining several key employees and founders who bring with them ample industry experience with firms like Arthrex, ConMed and Smith+Nephew.

In addition to Arthrosurface’s innovative R&D pipeline, Anika will gain an expansive product portfolio that includes more than 150 different surface implant curvatures for the knee, shoulder, hip, ankle, wrist and toe to treat orthopedic conditions caused by trauma, injury and arthritis. It provides ample cross-selling opportunities due to the same sales call-point and procedural adjacency to current Anika offerings. Arthrosurface’s 2019 revenue is expected to be between $28 and $30 million with topline growth of around +10%. Arthrosurface’s executive team, led by President and Chief Executive Officer Steven Ek, will join Anika and continue to lead the Arthrosurface business innovation.

In sum, these implant portfolio acquisitions diversify Anika’s revenue streams across a continuum of care in orthobiologics and sports medicine while positioning the company to expand on a base of fast-growing revenue, in what company leadership estimates is a $7 billion market. Parcus and Arthrosurface fast-track Anika’s buildout of their hybrid sales force with the addition of 40 direct reps and over 200 distributors. Armed with these new tools for 2020, Anika looks ready to complete a major step in its five-year strategic plan to become a leader in joint preservation and restoration.

Mike Evers is ORTHOWORLD’s Digital Content Strategist.