Good afternoon, ladies and gentlemen, and welcome to Anika's Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. I will now turn the call over to Mark Namaroff, Executive Director of Investor Relations and Corporate Communications. Please proceed..

Thank you, and good evening, everyone. Thank you for joining us for Anika's third quarter conference call and webcast.

Our Q3 earnings press release was issued after the close of the market today, and is available on our Investor Relations website located at www.anika.com as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Dr.

Cheryl Blanchard, President and Chief Executive Officer; and Mike Levitz, Executive Vice President, Chief Financial Officer and Treasurer. Please take a moment to open up the slide presentation and refer to Slide number 2.

Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934.

These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties and the company's actual results could differ materially from any anticipated future results, performance or achievements.

We make no obligation to update these statements should future financial data or events occur that differ from forward-looking statements presented today. Please also see our SEC filings and our most recent 10-K and 10-Q for more information about Risk Factors that could affect our performance.

In addition, during the call, we may refer to a number of adjusted or non-GAAP financial measures, which include adjusted gross margin, adjusted EBITDA, adjusted net income and adjusted earnings per share which are used in addition to results presented in accordance with GAAP financial measures.

We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance, but when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of our business.

A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the available presentation slides and in our third quarter press release. And now, I'll turn the call over to our President and CEO, Dr. Cheryl Blanchard..

Thanks Mark. Good evening, everyone, and thanks for joining us. Please turn to Slide 3. Let me start by expressing my hope that everyone has been able to stay safe during these disruptive times and that we continue to prioritize the health and safety of our employees.

I'll plan to review some highlights from the quarter and then Mike will go into the financial details and review the outlook for the remainder of 2021. I'm pleased to report another solid quarter, with revenue up 25% over Q3 last year, primarily due to some COVID recovery and related timing of orders in our joint pain business.

Our joint pain management business was up by 42%, as last year, the Q3 orders were the first to be impacted by COVID and this year on J&J Mitek order timing. While there is lumpiness on a quarterly basis, the full-year for this part of our business is coming in just as we expected as end market injection volumes have largely stabilized.

ORTHOVISC and MONOVISC combined remain the number one HA viscosupplements in the U.S. Joint Preservation & Restoration revenue was lower by 4% over last year due to larger than expected COVID headwinds, driven by the Delta variant causing rolling shutdowns at various sites of care.

As a result, elective surgery volumes were lower than expected in the quarter. And even as the Delta spike begins to wane, we're seeing and expect to continue to see healthcare worker shortages constrain surgery volumes in line with broader market reports.

As a reminder, Q3 of last year was where we saw a significant recovery from the first wave of COVID in our Joint Preservation & Restoration business.

Unfortunately, this year, we also saw industry events either dramatically scaled back or canceled, and the lack of access to surgical centers and hospitals that has had an ongoing impact on our ability to engage surgeons with our now fully integrated product portfolio.

Another set of COVID challenges that we continue to carefully manage through are the supply chain issues that most industries are facing. Despite these challenges, we remain confident that we will deliver above-market revenue growth in our Joint Preservation & Restoration segment for 2021.

Adjusted gross margins for the quarter came in at 66%, in line with our targets for the year, translating to positive adjusted EBITDA and positive operating cash flow, and we ended the quarter with $90 million of cash on the balance sheet.

Our third quarter was highlighted with progress against our key milestones that we described during our Investor Day in June. During the quarter, we fully launched our WristMotion Total Wrist Arthroplasty system, a key advancement expanding our portfolio beyond our existing hemi wrist implant product.

Our new product restores the natural risk motion for arthritis patients and provides a motion-preserving solution, eliminating the need for joint fusion.

The launch of this product at the American Society for Surgery of the Hand, or the ASSH Annual Meeting in September, received a lot of positive interest and attention from the hand and risk surgical community.

Also during the quarter, we received an additional 510(k) clearance for TACTOSET, our hyaluronic acid-based bone-void filler expanding its capability beyond treating insufficiency fractures to be used for the augmentation of hardwire in support of bone fragments during surgical procedures.

This additional indication will expand TACTOSET's addressable market, further cementing our strategy in the ASC-based Sports Medicine business by allowing surgeons to use TACTOSET as an adjunct to suture anchor fixation when performing soft tissue repairs.

These surgeries include rotator cuff repairs or anchoring futures into fragile or low-quality bone can lead to inferior mechanical fixation and clinical outcomes. Once injected, TACTOSET hardens and mimics the properties of normal trabecular bone initially and then remodels into healthy bone over time.

The use of TACTOSET in this new indication has been shown to increase the pullout strength of the suture anchor by twofold, providing for a secure suture anchor fixation construct. This indication was launched in October and not only expands our addressable market, but it also allows us to define a new market where one doesn't currently exist.

Additional indications for the use of TACTOSET continue to evolve, and we see this as a game-changing regenerative solution, with a number of applications in the joint preservation space. Despite the growing concern over the spread of the Delta variant during the summer, the AAOS Annual Meeting was held in San Diego in August.

The American Academy of Orthopedic Surgeons is the preeminent industry meeting for orthopedists, and it was the first industry event that Anika was able to attend as a fully integrated company and to really showcase our new story to the surgeon community.

Even though surgeon attendance was 80% lower than in prior years, feedback from surgeons who were there was very positive, reinforcing our portfolio strategy in joint preservation as procedures are transitioning more to the ASC, a trend that is only accelerating with COVID dynamics, especially in the strategic areas where we're focused along that early intervention continuum of care.

On the talent front, we've continued to strengthen both our leadership team and Board of Directors with experienced leaders in the joint preservation space with the addition of two industry veterans. I'm happy to welcome Anne Nunes to the Anika leadership team as our Vice President of Operations.

Anne comes to Anika from Smith & Nephew, where she held senior operational supply chain and transformation roles. Anne brings over 20 years of orthopedic and biotech operational experience and will focus her attention on optimizing Anika's global operations, driving improvements in supply chain management and ensuring cost targets are met.

In addition, Monday, we announced that our Board of Directors appointed Sheryl Conley as an independent director.

Sheryl comes with over 35 years of experience in orthopedics and healthcare, with 25 of those years spent at Zimmer, where she was last Group President, Americas and Global Brand Management and Chief Marketing Officer, focusing on global brand management, marketing, sales, product development and operations.

I've known Sheryl for many years, and she brings in-depth commercial and operational experience to the Board to help guide our strategy. Both Anne and Sheryl are great additions to the Anika team and I'm thrilled they've decided to join us as we continue on our transformational journey.

Over the last couple of quarters, I've been discussing our investment in people, processes and systems as we position Anika for growth.

During the third quarter, we made significant progress on this front, not only with adding new talent, some of which I just described, but also with systems as we rolled out our global ERP system, SAP, across all Anika businesses, including the Parcus and Arthrosurface entities.

This will give us the tools necessary to drive operational efficiency and synergy in support of our growth strategy. Before I turn the call over to Mike to review our financials for the quarter, I'd like to take a few more minutes to provide an update to our product development pipeline on Slide 4.

As I described earlier, we fully launched our Total Wrist Platform as scheduled in September and is now available for sale nationally. TACTOSET continues to see great momentum in the U.S. and our expansion plans for TACTOSET continue with our recent launch, and we're planning an additional 510(k) filing in 2022.

We continue to make progress on our rotator cuff system with the initiation of the preclinical animal study. This system is a core part of our ASC strategy, and we're excited with our progress on this project.

Clinical study enrollment for both our single-stage cartilage repair product, HYALOFAST and our second-generation OA pain solution, CINGAL, continues. Despite clinical trial enrollment challenges related to COVID, I am very pleased to report that enrollment in the CINGAL pilot is on track to be completed in November.

We'll continue to provide clinical trial updates as enrollment progresses, as we remain focused on bringing these two exciting products into the U.S. market. Please turn now to Slide 5.

I'd like to put into context where we are with respect to our strategy and highlight that we're still in the early innings and navigating through COVID dynamics to position ourselves to succeed well considering the disruption being created.

The remainder of 2021 and into 2022 is still part of what we call the transformation phase, as we continue to invest in the business to drive scale and grow and focus on the 2021 new product launches, with training on their safe and effective use as COVID lifts, and we can again become more customer-facing.

In the second half of 2022, and in 2023, we expect to have additional new product launches targeting the ASC call point and additional system implementations to drive commercial excellence. We're making tremendous progress here and have already described setting us up for the next phase of growth as we move into 2023 and 2024.

In the 2023/2024 time frame is where we expect to see the real impact of our R&D pipeline with additional 510(k) product launches and revenue growth accelerating. Also through 2024, we'll continue to invest in HYALOFAST and CINGAL, with ongoing clinical development to bring them to the market in the United States.

As I said before, 2024 is not the end game and is truly just the beginning for Anika as we drive accelerated growth and profitability. Now I'll turn the call over to Mike for a review of our Q3 financials and then I'll wrap things up.

Mike?.

Thank you, Cheryl. I will now walk you through our results for the third quarter of 2021. Please turn to Slide 6. Total revenue for the third quarter of 2021 was $39.5 million. That's an increase of 25% from the third quarter last year.

The year-over-year increase was due primarily to recovery from the initial impact of COVID on prior year sales and unfavorable order timing in our joint pain management product family, where revenues rose 42% to $26.2 million in the quarter.

As a reminder, for year-over-year comparisons, ordering patterns in the prior year delayed a significant portion of last year's initial impact of the COVID pandemic on this product family from the second quarter of 2020 to the second half of last year.

Revenues in our joint pain management family that can be lumpy from quarter-to-quarter based on ordering patterns, but that quarterly volatility generally stabilizes on an annual basis.

The Delta variant presented headwinds for our Joint Preservation & Restoration business in the third quarter, where revenues totaled $11.2 million, down 4% from last year.

Elective procedures were limited in the quarter due to the surge of the Delta variant of COVID, which resulted in cancellation or delay of procedures as well as reduced access to potential surgeon customers, with a cancellation or significant reduction of planned Trade Shows and medical education events.

Our other revenue rose to $2.2 million in the third quarter compared with $1.5 million last year. Our gross margin in the third quarter was 58%. That's up from 55% in the same period last year.

That includes the impact of $3 million of non-cash acquisition accounting related amortization and fair value step-up expenses associated with the 2020 acquisitions of Arthrosurface and Parcus.

Excluding these charges, adjusted gross margin was 66%, down from 70% in the same period last year due primarily to unfavorable revenue mix and production volumes based on the timing of the impact of COVID on our results year-over-year.

From a spending standpoint, we continue to manage our operating expenses prudently, while also intentionally investing in product development as well as processes and systems to meet our commercial growth objectives. Our research and development and SG&A expenses together totaled $25.2 million in the third quarter.

That's up from $21.1 million in the same period of 2020, reflecting increased clinical trials expense which had largely been curtailed last year at the outset of COVID, along with increased marketing and other investments in our commercial and related support organizations.

As Cheryl mentioned, in the third quarter, we delivered on significant operating objectives, including the launch of the Total Wrist solution, 510(k) clearance for an additional TACTOSET indication as well as rollout of our ERP system to Arthrosurface and Parcus.

We are pleased with the team's operational execution in support of our longer-term growth and profitability objectives.

During the third quarter, we also recorded a net benefit of $3.5 million or $1.9 million net of tax, resulting from the reduction in fair value of the contingent consideration liability associated with the acquisitions of Arthrosurface and Parcus due primarily to a decreased likelihood that certain milestones will be met.

As of quarter end, the fair value of our remaining contingent consideration was $3.5 million. As a reminder, we evaluate the estimated fair value of contingent consideration every quarter.

Our net income for the quarter was approximately $600,000 or $0.04 per diluted share compared to a net loss of $6.4 million or $0.45 per diluted share in the third quarter of last year. Our net income included the benefit associated with the change in the fair value of contingent consideration.

Excluding this benefit, along with the non-cash charges and adjustments described in our earnings release and online earnings presentation, we achieved adjusted net income of approximately $800,000 or $0.05 per diluted share. That's in line with the same period last year. We generated adjusted EBITDA in the third quarter of $5.7 million.

That's up from $4.9 million in the third quarter of last year. The increase in adjusted EBITDA was primarily due to the recovery from the initial impact of COVID, offset by the incremental investments supporting our future growth and business transformation.

Lastly, with regards to our cash flow and our capital structure, we have positive operating cash flow of $2.1 million for the quarter. We also made an earnout payment of $10 million in the quarter for achievement of the regulatory milestone we detailed in last quarter's earnings call.

Of that $10 million, $2.8 million was treated as a reduction in this quarter's operating cash flows. Our balance sheet remains strong with $91 million in cash and investments at the end of the third quarter. Please turn to Slide 7. Now I'd like to review our full year outlook for 2021.

Due to the impact of the Delta variant limiting elective procedures, marketing events and overall customer access in the third quarter, and the expected impact through the remainder of the year, we are revising our revenue expectations for 2021. We now expect our fiscal 2021 revenues to grow 9% to 11% over last year.

That's down from our previous guidance of 11% to 14% growth. Our faster growth continues to come from Joint Preservation & Restoration, where we now expect revenue to grow in the upper teens percent over last year.

This is down from our previous expectation of high 20s to low 30% growth as that growth had assumed that the impact of COVID would lift in the second half of 2021. But the emergence of the Delta variant and its broad impact has significantly reduced the expected recovery in the second half of this year as we saw in the third quarter.

In Joint Pain Management, we continue to expect mid-single-digit revenue growth over last year, in line with our previous guidance. As such, due to the volatility and ordering patterns that we saw in the third quarter, this guidance implies sequentially lower shipments in the fourth quarter.

Apart from the volatility in quarterly ordering patterns by our strategic partners, our Joint Pain Management business has stabilized on an annual basis, in line with our expectations. Lastly, we expect revenue in our other product family to grow mid-single-digits over 2020.

With regards to gross margin, we continue to expect adjusted gross margins for 2021 to remain consistent with 2020 in the upper 60% range. As a reminder, our adjusted gross margin excludes the impact of Arthrosurface and Parcus acquisition-related expenses as well as any product rationalization charges.

Please see the definition of this and other non-GAAP metrics in our earnings release and online earnings presentation.

With regards to spending, in 2021, we continue to prudently invest in commercial infrastructure and capabilities, including people, systems and processes that support our transformation and will enable us to scale as we grow, as well as investing in research and development according to the product pipeline outlined during our Investor Day earlier this year.

Overall, as we invest ahead of growth in support of our longer-term growth and profitability targets, we continue to expect the operating expenses for 2021 to increase over 2020 as a percentage of revenue. Due to the impact of COVID on our revenues this year, we now expect adjusted EBITDA margin in 2021 to be in the low teens.

That's down slightly from our previous expectation of low to mid-teens as we invest thoughtfully in driving our exciting business transformation. In summary, while COVID has presented a near-term headwind, we remain focused on driving operational execution in support of our longer-term revenue and profitability growth targets.

As we detailed during our Investor Day, the transformative investments we're making today in product development and commercial execution, build the foundation to drive accelerated revenue growth and profitability in the 2023 and 2024 timeframe.

We are very excited about the opportunities and growth catalysts in front of us to achieve our mission and drive significant value creation for our stakeholders. I will now turn the call back over to Cheryl..

Thanks Mike. Please turn to Slide 8, everyone. While we expect to see some short-term fluctuations, both positive and negative, as we transform the business during COVID, Anika remains focused on executing our growth story, and we remain on track to achieve our stated long-term targets.

We made meaningful progress this quarter on our new product development pipeline, commercial execution, and building out the people, processes and systems to scale this business, and these efforts will drive real value for all of our stakeholders into the future.

Lastly, I'd like to note that this quarter was one marked by tremendous operational execution and the team is continuing to really come together. As always, I'd like to thank the Anika employees for their hard work through these trying times as we continue our transformation. We're happy to take your questions now..

[Operator Instructions]. And we can go to Young Li of UBS..

All right, great. Thank you. Good evening, everyone. Thanks for taking our questions. I guess maybe to start, just on the guidance. As it implies Q4 revenue is that the -- it's going to be the lowest dollar number for the year despite typically Q4 seasonally stronger.

Can you maybe talk a little bit about some of the assumptions that you have baked in and the level of conservatism there? And then maybe within that, if you can focus a little bit on the Joint Preservation & Restoration guidance, the revenue implies sort of a flattish number from Q3.

I guess I was just wondering if you can flesh that out a little bit, given it's typically seasonally stronger as well?.

Absolutely. Hi, Young, it's Mike. Let's see, first of all, so the guidance for Q4, we're giving guidance for the year and obviously, with only one quarter left that highlights Q4. Let's just take it in pieces. So the largest part of our business is Joint Pain Management, obviously.

And what we said there is that we are leaving that guidance unchanged for the year at the mid-single-digits. What we saw in the third quarter of this year was higher transfer sales due to order timing from our strategic partners, including J&J Mitek. That was purely timing on their part. And so we did not change our guidance at all for the year.

And so due to that same timing, those transfer shipments will go down. So there was volatility in those orders. That does happen from time-to-time as our strategic partners will manage their own businesses.

As it relates to that business, one of the things that we saw there was the variance between -- in Q3 was really around the timing of those transfer shipments. The underlying -- we also get royalty revenue from -- in that business based on end user sales.

And that was -- that royalty revenue was actually down low-single-digits, somewhat consistent with what we've seen in our direct business as well. So really, the timing in Q3 was a function of just the timing of ordering patterns.

So because that's the largest part of our business, it does mean that we're going to have lower sequential shipments still larger than last year in the same quarter, but lower sequential shipments in Joint Pain Management and it's just due to timing. As it relates to joint preservation, you're absolutely right.

Based on our guidance, it implies that at the midpoint, we're consistent in Q4 from Q3. So as we thought about our guidance, obviously, with the way that COVID is working and we saw that in the third quarter, it's hard to lay all of this stuff out clearly.

What I will say is we would have normally expected, and we said this on our previous guidance, we would normally expect the fourth quarter to be higher. Seasonally, that's always the case. However, really nothing normal about how things are operating in COVID and the related staffing shortages.

And so what we did is we basically said, let's presume that we're going to be flat from Q3 to Q4 at the midpoint. Because the other thing that we don't know is last year at this time, things were looking really good, and then there was the spike that happened post holidays on COVID. And so that's a risk as well.

So we try to factor in the risk into our guidance. We -- our previous guidance as a total company was 11% to 14%. Our current guidance is 9% to 11%. We still have line of sight to the low-end of our previous guidance, absolutely. But we recognize the unpredictability of COVID at this time.

So that's what we've tried to build into our guidance for the fourth quarter..

And Young, I would just add, just to keep in mind that even in light of the COVID disruption and the staffing shortages and the unpredictability that we're still looking at upper teens percent growth, which is above market growth in that Joint Preservation & Restoration business..

All right, great. Appreciate all the details there Cheryl and Mike. I guess maybe just a follow-up. I was wondering, can you make any comments about what you saw in October? Just some of the companies in MedTech have made some comments about October trends. I was curious if you can share a little bit about what you're seeing..

Sure. Young, it's Mike. Any one month, obviously, is only one month, and there's a lot of volatility in different regions. We did see a nice recovery in the United States in October, but we saw a pull back outside the United States in October. And I'm speaking on our direct business.

So I think there are things that could make us more optimistic coming out of October from what we saw. At the same time, we've all been through this together on COVID, and it is volatile. So I think we're comfortable with the guidance that we're seeing. It's too early to see how things are going to go at. But so far, the business is solid.

We're not seeing losses from a competitive standpoint. It's really around what's going on in the marketplace outside of us that's really driving these dynamics..

Yes. And I would say that I think we, along with every other report you read right now, are seeing just volumes impacted, surgical volumes impacted because of the healthcare worker shortages, and trying to be predictive around where that goes right now, especially with the vaccine mandates coming online, I think, is difficult.

And so we just wanted to be thoughtful about that..

The next question comes from Jim Sidoti of Sidoti & Co..

Hi, good afternoon. Thanks for taking the questions.

I just want to be clear, the slowdown on joint preservation do you think this is a relatively short-term phenomenon? I mean it sounds like you're still, I think your long-term goal of doubling revenue by 2024 is intact; is that correct?.

Yes, hi, Jim, it's Mike. Absolutely. Yes, we are laser-focused on those longer-term targets. And we're really excited, and we tried to highlight in some of our prepared remarks around just the operational execution that's happening.

We're very pleased with the risk launch; we're pleased with the additional indication for TACTOSET, with the integration with Parcus and Arthrosurface with our ERP system. So all of the things that we've been saying that we were focusing on, we're really driving that execution. We obviously can't control the market in the short-term.

I think there is the opportunity that COVID could longer term be a benefit for us because it's accelerating the trend to the ASC, the surgery centers. So -- but in the near term, COVID is definitely a headwind and -- but it does not, in any way, diminish our climate around the Joint Preservation business.

One of the things we said at the Investor Day and we've tried to lay out is they're really -- we're making the investments now that are going to be driving that accelerated growth in the 2023 and 2024 time frame. And that's exactly what we expect at this point..

So it doesn't sound like you're making any change to those plans as a result of this pickup you had in Q3 and Q4?.

We're not making any changes to our long-term objectives, no.

One of the things that we'll do is we're going to continue to see, as I think the other folks in the space are looking to see, how long does COVID last? How long does this continue? And we look forward to speaking to you and our investors in our year-end call, and we can see how this all plays out. So there is a near-term impact, absolutely.

But in terms of the value drivers, the catalysts, the -- our differentiated products and our focus in joint preservation in a large and growing market, none of those dynamics have changed. But definitely, COVID is a near-term headwind..

All right. And then on the balance sheet, inventory came down pretty significantly.

Is that related to the shipments to Mitek? Or was there something else there?.

There was nothing meaningful on the inventory side. Sometimes things will swing between categories on the balance sheet, if there's long-term inventory or short-term inventory between current assets and long-term, and sometimes that can lead to swings. But there's nothing meaningful changing on our inventory levels.

We are watching on the supply chain side, as Cheryl mentioned, the same things that other people are seeing, we also see as risks and we always try to make sure that we have enough inventory so that we don't experience any challenges, but it's something we're watching very closely as we go into 2022..

And then last question is on the sales force.

I mean has the recent pickup in COVID cases kind of slowed you down in terms of expanding the sales force? Or what are your plans going forward with regards to sales force expansion?.

Good question, Jim. This is Cheryl. I'm happy to talk about that. We've talked about the fact that we really don't have specific sales force expansion plans from the point in time where we completed the Parcus and Arthrosurface acquisitions.

It was really about integrating and optimizing the sales force, the distribution network, implementing the systems and processes to really scale the commercial execution, and that's what we've been focused on. It is going well.

It's obviously been frustrating for all of us that we haven't been able to get in front of customers, like we would otherwise have planned notwithstanding COVID, getting to congresses and meetings, implementing training on the safe and effective use of our products, all those opportunities have just been made much more difficult by the COVID dynamic.

That said, we haven't stopped. We've pushed through, I think, as best as everyone has been trying to. And I think it's a broader market dynamic. But for us, it really has hampered our ability to get in front of the surgeon community to tell the Anika story. The AAOS example I gave was a perfect example of that.

We have plans coming into the end of this year and into next year for significant training and the safe and effective use of our products, for presence at all of the meetings. And I think we, like everyone else, have our fingers crossed that they all go ahead the way that they're planned.

But the sales force, I would tell you, is extremely excited about the portfolio of products that we've put together, about the new product launches that we've announced late last year and into this year, and the new product development pipeline, and the tools that we're giving them to really get the news out about what Anika is doing.

So we're in a good place, and we look forward to kind of emerging from this dynamic that we all find ourselves in..

Yes. I guess I do have one more.

I mean is there any reason to think that these procedures that have been postponed in Q3 and Q4 are going to be lost? Or do you think that there's a fairly significant likelihood that there's some pent-up demand out there and those folks will get these procedures done at some point in 2022?.

Yes. I don't think they're lost. I mean pain is a motivator, and these orthopedic conditions don't just magically go away. That's why people have them treated. I think the question is a matter of timing.

And I think the question is also a matter of bandwidth for the healthcare system, because we really are seeing the impact of lack of availability of healthcare resources to actually do the surgical volumes that used to be done all the time. So I don't think these cases are lost.

I think it's just a matter of timing and what the recovery curve looks like..

And our next question comes from Mike Petusky of Barrington Research..

Good evening. A few questions.

Cheryl, did you say -- I didn't quite catch it, did you say the enrollment was done in November on CINGAL pilot or will be done later this month?.

It will be complete by the end of this month..

Okay. Got it..

Yes..

Okay. All right. And then, Mike, I guess, on the pain management quarter, obviously, big quarter, favorable timing.

Do you have any concerns around sort of another stocking issue that sort of then impacts the next couple, two, three quarters? Or what are your thoughts around that?.

Hi, Mike. In answer to your question, that's always something that we watch. And the short answer is we do not expect that there will be stocking excess stocking at the end of the year.

So one of the reasons that we -- we and our partners, the largest of which is J&J Mitek, we're in regular contact with them, and we know they need to manage their business. And so they're -- if they want to buy product, they're going to buy product. We also don't want to have excess stock and so -- and neither do they.

So we believe that the takedown in the lower shipments in the fourth quarter is sufficient based on the demand that they expect that we will not have excess inventory going into the year. Obviously, with COVID, it's hard not just for us, but it's hard for our partners to perfectly predict things. So it's something we're watching.

Outside of the COVID dynamics, things -- there's a lot of positives across our business. But it's just uncertain at this point how COVID is going to play out. So short answer is no, we do not expect excess inventory coming out of 2021..

Can you talk about -- and I know at times we've talked about this before, but just sort of refresh everybody's memory, including mine. In terms of -- you've got $90 million on the balance sheet. Certainly, I suspect that you're always considering various ideas, assets that may be out there.

Can you just talk about and prioritize in general capital allocation priorities?.

Yes. Absolutely happy to. So the company historically had a much higher amount of cash on the balance sheet and deployed that cash in 2020 in a few different areas. One of -- first of all, M&A was a big piece of buying Parcus and Arthrosurface as well as investing in the commercial business, which we've done in 2020 and 2021.

So we recognize the value of acquisitions as to augment the strategy, but our first priority in terms of use of cash is investing in the organic business. And you've seen that this year in how we've accepted lower than historic EBITDA because we want to build the capabilities and team and all those things enable us to scale this business.

So we are intentionally investing organically. We also recognize, as I said, with Parcus and Arthrosurface, as an example, that acquisitions can be an important part of our strategy. But our expectation is that we would be doing tuck-in acquisitions, not major acquisitions at this point. We have a significant opportunity in front of us.

When we increased the addressable market from $1 billion to $8 billion by moving into joint preservation, we're still a very small player. And so we are focused on driving the organic and inorganic investments that will help us in the future.

But those are -- because of the big opportunity in front of us, our capital deployment would be for growth, first organically and secondarily with tuck-ins in the near term where they make sense. Valuations are always something we watch..

Okay.

And I would assume that even though the company historically has done a bit of share repurchase here and there, I assume that's not really on -- not a front-burner item at this point?.

The company has done share repurchases in the past. And I mean that's always something that the company can consider, but we believe the primary drivers of shareholder value are one, we've diversified our revenue over the line, by doing the acquisitions we did and the product launches.

We believe that the primary way that we're going to drive shareholder value is deploying this -- the cash for growth first. That said, if we don't see those opportunities in front of us, then we definitely recognize buybacks or can be a meaningful opportunity..

Do you guys have any way to quantify sort of the impact of COVID in the third quarter on your Joint Preservation & Restoration business? I mean, is there any way to say, hey, that cost us we think it cost us $2.5 million or $3 million.

I mean, do you have any way to assess that?.

That's a really hard -- that's a really thing -- that's a really hard number to quantify, frankly. I think -- if you think about our guidance for the year, that guidance was based upon the opportunities that we had in front of us, had we been able to -- I mean, had COVID been lifting.

We expected the COVID would have lifted in the second half of the year before the Delta variant. That's what it look like it was going to happen. So I think we were comfortable with our guidance, had they not been the Delta variant.

And so I don't know that I could quantify it, but because it had a direct impact in terms of electric procedures, it had an indirect impact in terms of shortages of staff as well as the lack of ability at these conferences that we attended or conferences that were canceled to get in front of surgeons with the -- with our products and our capabilities.

So it had a wide impact on us, and -- but it's a hard number to quantify..

Yes. Mike, I would just add, obviously, keeping track of other companies reporting out in our space. On the Joint Preservation & Restoration piece of our business, I actually think we're either in line or better than they are.

So I don't think it was an outsized impact on us by any means because I think we've got a lot of innovative products that there's interest in. So I think we do find ourselves in an interesting position from that perspective, but it's very difficult to quantify..

And Cheryl, just one last thing, and I'll let others get in, if there are others. TACTOSET, I mean, I know you all are excited about it. I'm sort of excited about what I think it could be. You always -- not always, but you always say some language around, hey, great momentum, great traction. We're getting somewhere with this.

Is there any like either anecdotal or sort of actually putting numbers to the progress you're making? Either, hey, the spending new docs to try the product or whatever, like I'd love to have a sense of what great momentum, great traction actually means I suspect I'm not the only person that feels that way.

Is there anything you could add to that?.

Yes. I mean we've talked about the fact that we're not going to breakout individual products, but it's a fair question. I'll tell you that it's doubled in size this year. So we see very nice growth numbers around it.

We have just opened up an additional market expansion opportunity for ourselves with this new 510(k) that we just got cleared that is an indication that nobody else has in the space and a very meaningful one at that. So and you've heard me say there's another 510(k) that we plan to file next year to continue to expand off that platform.

We also talked about the fact that the insufficiency fracture market, which is the first indication we launched that into was about $100 million accessible market opportunity in the United States. So perhaps that helps kind of size out for you..

No, it seems like an exciting opportunity. Would -- again, one more detail, but yes, it's absolutely exciting. All right. And that's all I got. Thank you so much..

Great. Thanks Mike..

Ladies and gentlemen, that concludes the question-and-answer session. I'd now like to turn the call back to Dr. Blanchard for any additional or closing remarks..

Great. Thank you all very much for your attention and interest in Anika, and we look forward to speaking to you all next on our Q4 call next year. Have a great night..

Ladies and gentlemen that concludes today's conference call. We thank you for your participation. You may now disconnect..