UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2018~~2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-21326

Anika Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3145961
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)

32 Wiggins Avenue, Bedford, Massachusetts	01730
(Address of Principal Executive Offices)	(Zip Code)

(781) 457-9000

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share	ANIK	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ☒☐

Accelerated filer ☐☒

Non-accelerated filer ☐

Smaller reporting

company ☐

Emerging growth

company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of October ~~18, 2018,~~17, 2019, there were ~~14,211,457~~14,269,367 outstanding shares of Common Stock, par value ~~$.01~~$0.01 per share.

ANIKA THERAPEUTICS, INC.

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Financial Statements (unaudited):	3
	Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the ~~three-~~three and ~~nine-months~~nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	4
	Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine-months~~nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	56
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2025
Item 4.	Controls and Procedures	2025
Part II	Other Information
Item 1.	Legal Proceedings	2126
Item 1A.	Risk Factors	2126
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2227
Item 6.	Exhibits	2428
Signatures		2529

References in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and other similar references refer to Anika Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.

ANIKA, ANIKA THERAPEUTICS, CINGAL, HYAFF, MONOVISC, and ORTHOVISC are our registered ~~trademarks.~~trademarks, and TACTOSET is our trademark. This Quarterly Report on Form 10-Q also contains additional registered marks, trademarks, and trade names, including ones that are the property of other companies and licensed to us.

PART I:

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except ~~share data and~~ per share data)

(unaudited)

							September 30,			December 31,
ASSETS		September 30, 2018			December 31, 2017		2019			2018
Current assets:
Cash and cash equivalents	$	81,825		$	133,256		$	103,381		$	89,042
Investments		67,186			24,000			69,825			69,972
Accounts receivable, net of reserves of $1,771 and $1,914 at September 30, 2018 and December 31, 2017, respectively		20,771			23,825
Accounts receivable, net of reserves of $981 and $1,525 at September 30, 2019 and December 31, 2018, respectively								23,889			20,775
Inventories, net		23,828			22,035			25,243			21,300
Prepaid expenses and other current assets		1,981			3,211			1,479			1,854
Total current assets		195,591			206,327			223,817			202,943
Property and equipment, net		55,041			56,183			51,750			54,111
Operating lease right-of-use assets								23,082			-
Other long-term assets		1,109			1,254			5,761			4,897
Intangible assets, net		9,564			10,635			7,680			9,191
Goodwill		7,959			8,218			7,489			7,851
Total assets	$	269,264		$	282,617		$	319,579		$	278,993

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,462		$	6,747		$	2,702		$	3,143
Accrued expenses and other current liabilities		6,843			6,326			8,493			8,146
Total current liabilities		9,305			13,073			11,195			11,289
Other long-term liabilities		574			660			372			550
Deferred tax liability		4,120			5,393			4,727			3,542
Commitments and contingencies (Note 12)
Operating lease liabilities								21,603			-
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $.01 par value; 1,250 shares authorized, no shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		-			-
Common stock, $.01 par value; 90,000 and 60,000 shares authorized, 14,211 and 14,688 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		142			147
Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								-			-
Common stock, $0.01 par value; 90,000 shares authorized, 14,269 and 14,210 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								143			142
Additional paid-in-capital		49,836			68,617			46,482			50,763
Accumulated other comprehensive loss		(5,228	)		(4,784	)		(6,318	)		(5,526	)
Retained earnings		210,515			199,511			241,375			218,233
Total stockholders’ equity		255,265			263,491			281,682			263,612
Total liabilities and stockholders’ equity	$	269,264		$	282,617		$	319,579		$	278,993

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~Anika Therapeutics, Inc. and Subsidiaries~~

~~Condensed Consolidated Statements of Operations and Comprehensive Income~~

~~(in thousands, except per share data)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Product revenue $ 26,781 $ 27,178 $ 78,581 $ 78,899
Licensing, milestone and contract revenue 6 6 18 5,133
Total revenue 26,787 27,184 78,599 84,032

Operating expenses:
Cost of product revenue 8,282 6,250 24,279 18,648
Research & development 4,232 5,842 14,126 14,521
Selling, general & administrative 5,700 4,823 28,207 14,862
Total operating expenses 18,214 16,915 66,612 48,031
Income from operations 8,573 10,269 11,987 36,001
Interest and other income, net 522 261 907 335
Income before income taxes 9,095 10,530 12,894 36,336
Provision for income taxes 1,496 3,643 1,890 12,587
Net income $ 7,599 $ 6,887 $ 11,004 $ 23,749

Basic net income per share:
Net income $ 0.53 $ 0.47 $ 0.76 $ 1.63
Basic weighted average common shares outstanding 14,237 14,579 14,524 14,572
Diluted net income per share:
Net income $ 0.53 $ 0.46 $ 0.74 $ 1.58
Diluted weighted average common shares outstanding 14,377 15,115 14,820 15,065

Net income $ 7,599 $ 6,887 $ 11,004 $ 23,749
Foreign currency translation adjustment (113 ) 690 (444 ) 2,270
Comprehensive income $ 7,486 $ 7,577 $ 10,560 $ 26,019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Product revenue $ 29,615 $ 26,781 $ 84,745 $ 78,581
Licensing, milestone and contract revenue 82 6 93 18
Total revenue 29,697 26,787 84,838 78,599

Operating expenses:
Cost of product revenue 5,951 8,282 20,098 24,279
Research & development 4,158 4,232 12,581 14,126
Selling, general & administrative 7,539 5,700 22,713 28,207
Total operating expenses 17,648 18,214 55,392 66,612
Income from operations 12,049 8,573 29,446 11,987
Interest and other income, net 482 522 1,513 907
Income before income taxes 12,531 9,095 30,959 12,894
Provision for income taxes 3,331 1,496 7,817 1,890
Net income $ 9,200 $ 7,599 $ 23,142 $ 11,004

Basic net income per share:
Net income $ 0.65 $ 0.53 $ 1.65 $ 0.76
Basic weighted average common shares outstanding 14,070 14,237 14,065 14,524
Diluted net income per share:
Net income $ 0.64 $ 0.53 $ 1.62 $ 0.74
Diluted weighted average common shares outstanding 14,387 14,377 14,266 14,820

Net income $ 9,200 $ 7,599 $ 23,142 $ 11,004
Foreign currency translation adjustment (622 ) (113 ) (792 ) (444 )
Comprehensive income $ 8,578 $ 7,486 $ 22,350 $ 10,560

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in thousands)

(unaudited)

For the nine months ended September 30, 2019
Accumulated
Common Stock Other Total
Number of $0.01 Par Additional Paid Retained Comprehensive Stockholders'
Shares Value in Capital Earnings Loss Equity
Balance, January 1, 2019 14,210 $ 142 $ 50,763 $ 218,233 $ (5,526 ) $ 263,612
Issuance of common stock for equity awards 7 - 5 - - 5
Retirement of common stock for minimum tax withholdings (3 ) - (124 ) - - (124 )
Stock-based compensation expense - - 1,386 - - 1,386
Net income - - - 4,507 - 4,507
Other comprehensive loss - - - - (315 ) (315 )
Balance, March 31, 2019 14,214 $ 142 $ 52,030 $ 222,740 $ (5,841 ) $ 269,071
Issuance of common stock for equity awards 30 1 851 - - 852
Forfeiture of restricted stock (7 ) - - - - -
Stock-based compensation expense - - 1,443 - - 1,443
Repurchase of common stock (452 ) (5 ) (29,995 ) - - (30,000 )
Net income - - - 9,435 - 9,435
Other comprehensive income - - - - 145 145
Balance, June 30, 2019 13,785 $ 138 $ 24,329 $ 232,175 $ (5,696 ) $ 250,946
Issuance of common stock for equity awards 488 5 20,962 - - 20,967
Forfeiture of restricted stock (2 ) - - - - -
Stock-based compensation expense - - 1,311 - - 1,311
Retirement of common stock for minimum tax withholdings (2 ) - (120 ) - - (120 )
Net income - - - 9,200 - 9,200
Other comprehensive loss - - - - (622 ) (622 )
Balance, September 30, 2019 14,269 $ 143 $ 46,482 $ 241,375 $ (6,318 ) $ 281,682

For the nine months ended September 30, 2018
Accumulated
Common Stock Other Total
Number of $0.01 Par Additional Paid Retained Comprehensive Stockholders'
Shares Value in Capital Earnings Loss Equity
Balance, January 1, 2018 14,688 $ 147 $ 68,617 $ 199,511 $ (4,784 ) $ 263,491
Issuance of common stock for equity awards 89 1 511 - - 512
Retirement of common stock for minimum tax withholdings (32 ) (1 ) (1,735 ) - - (1,736 )
Stock-based compensation expense - - 7,565 - - 7,565
Net loss - - - (6,686 ) - (6,686 )
Other comprehensive income - - - - 620 620
Balance, March 31, 2018 14,745 $ 147 $ 74,958 $ 192,825 $ (4,164 ) $ 263,766
Issuance of common stock for equity awards 273 3 2,372 - - 2,375
Stock-based compensation expense - - 1,322 - - 1,322
Repurchase of common stock (434 ) (4 ) (29,996 ) - - (30,000 )
Net income - - - 10,091 - 10,091
Other comprehensive loss - - - - (951 ) (951 )
Balance, June 30, 2018 14,584 $ 146 $ 48,656 $ 202,916 $ (5,115 ) $ 246,603
Stock-based compensation expense - - 1,177 - - 1,177
Repurchase of common stock (373 ) (4 ) 3 - - (1 )
Net income - - - 7,599 - 7,599
Other comprehensive loss - - - - (113 ) (113 )
Balance, September 30, 2018 14,211 $ 142 $ 49,836 $ 210,515 $ (5,228 ) $ 255,265

The accompanying notes are an integral part of these consolidated financial statements.

Anika Therapeutics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	11,004		$	23,749		$	23,142		$	11,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,433			3,224			4,459			4,433
Non-cash operating lease cost								880			-
Loss on disposal of fixed assets		172			-			927			172
Loss on impairment of intangible asset								303			-
Stock-based compensation expense		10,064			3,940			4,140			10,064
Deferred income taxes		(1,205	)		943			941			(1,205	)
Provision for doubtful accounts		(87	)		(1	)
Provision (recovery) for doubtful accounts								(450	)		(87	)
Provision for inventory		4,073			609			1,062			4,073
Accretion to amortized cost of investments								(1,075	)		-
Changes in operating assets and liabilities:
Accounts receivable		3,136			4,388			(2,751	)		3,136
Inventories		(5,891	)		(4,668	)		(6,600	)		(5,891	)
Prepaid expenses, other current and long-term assets		1,304			(922	)		440			1,304
Accounts payable		(2,449	)		2,030			(335	)		(2,449	)
Operating lease liabilities								(796	)		-
Accrued expenses, other current and long-term liabilities		509			(106	)		(681	)		509
Income taxes		(158	)		645			377			(158	)
Net cash provided by operating activities		24,905			33,831			23,983			24,905

Cash flows from investing activities:
Proceeds from maturity of investments		34,500			31,250			87,594			34,500
Purchase of investments		(77,683	)		(36,500	)		(86,368	)		(77,683	)
Purchase of property and equipment		(4,493	)		(6,506	)		(2,559	)		(4,493	)
Net cash (used in) investing activities		(47,676	)		(11,756	)
Net cash (used in) provided by investing activities								(1,333	)		(47,676	)

Cash flows from financing activities:
Repurchases of common stock		(30,000	)		-			(30,000	)		(30,000	)
Cash paid for tax withheld on vested restricted stock awards		(1,735	)		-			(245	)		(1,735	)
Proceeds from exercise of equity awards		2,886			310			21,825			2,886
Net cash (used in) provided by financing activities		(28,849	)		310
Net cash used in financing activities								(8,420	)		(28,849	)

Exchange rate impact on cash		189			314			109			189

(Decrease) Increase in cash and cash equivalents		(51,431	)		22,699
Decrease in cash and cash equivalents								14,339			(51,431	)
Cash and cash equivalents at beginning of period		133,256			104,261			89,042			133,256
Cash and cash equivalents at end of period	$	81,825		$	126,960		$	103,381		$	81,825
Supplemental disclosure of cash flow information:
Non-cash Investing Activities:
Right-of-use assets obtained in exchange for operating lease liabilities as of January 1, 2019							$	24,110		$	-
Non-cash activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	197		$	1,208		$	132		$	197

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ANIKA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share amounts or as otherwise noted)

(unaudited)

Nature of Business

Anika Therapeutics, Inc. (the “Company”) is a global, integrated ~~orthopedic~~joint preservation and regenerative ~~medicines~~therapies company based in Bedford, Massachusetts. The Company is committed to ~~improving~~delivering innovative therapies to improve the lives of patients ~~with degenerative orthopedic diseases and traumatic conditions with clinically meaningful therapies along the~~across a continuum of care from ~~palliative~~osteoarthritis pain management to ~~regenerative tissue repair.~~joint preservation and restoration. The Company has over two decades of global expertise ~~developing, manufacturing, and~~ commercializing more than 20 products based on its proprietary ~~Hyaluronic Acid~~hyaluronic acid (“HA”) technology. The Company’s ~~orthopedic medicine~~therapeutic portfolio includes ORTHOVISC, MONOVISC, and CINGAL, viscosupplements which alleviate osteoarthritis pain and restore joint function by replenishing depleted HA, TACTOSET, a surgically-delivered therapy for bone repair procedures, and HYALOFAST, a solid HA-based scaffold to aid cartilage repair and regeneration.

The Company is subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S. Food and Drug Administration (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”). The financial statements include the accounts of Anika Therapeutics, Inc. and its subsidiaries. Inter-company transactions and balances have been eliminated. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements. The December 31, ~~2017~~2018 balances reported herein are derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial position of the Company as of September 30, 2018, the results of its operations for the three- and nine-month periods ended September 30, 2018 and 2017, and cash flows for the nine-month periods ended September 30, 2018 and 2017.statements.

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The results of operations for the three- and nine-month periods ended September 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2018.~~

At the Company’s annual stockholders’ meeting on May 31, 2018, the Company’s stockholders approved an increase in the number of shares of common stock that the Company is authorized to issue from 60 million to 90 million and ratified a change in the Company’s state of incorporation from the Commonwealth of Massachusetts to the State of Delaware, pursuant to a plan of domestication. The Company became a Delaware corporation with the authorization to issue up to 90 million shares of its common stock on June 6, 2018. Upon its domestication in Delaware, the affairs of the Company became subject to the Delaware General Corporation Law, the Company implemented a new certificate of incorporation and new bylaws, and each previously outstanding share of the Company’s common stock as a Massachusetts corporation (Anika Massachusetts) converted into an outstanding share of common stock of the Company as a Delaware corporation (Anika Delaware). The domestication was a tax-free reorganization under the U.S. Internal Revenue Code, and it did not affect the Company’s business operations.2019.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,Leases ~~(Topic 842)~~, which, ~~amends existing leasing accounting requirements. The most significant change will result~~among other things, results in the recognition of lease assets and lease liabilities ~~by lessees~~on the Company’s balance sheets for virtually all leases. ~~The new~~ASU 2016-02 supersedes most previous lease accounting guidance ~~will also require significant additional disclosures about the amount, timing,~~ and ~~uncertainty of cash flows from leases. ASU 2016-02~~ is effective for ~~fiscal years~~interim and ~~interim~~annual periods beginning after December 15, 2018. ~~Upon adoption, entities are required to recognize and measure leases at~~The Company adopted the ~~beginning~~new guidance as of ~~the earliest period presented~~January 1, 2019 using athe modified retrospective ~~approach. Early~~ adoption ~~is permitted, and~~method, which did not require restatement of prior periods. The adoption of this standard did not have a ~~number~~material impact on the condensed consolidated statement of optional practical expedients may be elected to simplify the impact of adoption. The Company has commenced work to assess ASU 2016-02 and the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures. The Company anticipates recognition of material additional assets and corresponding liabilities related to the Company’s leases on its consolidated balance sheet.

operations. See Note 12 for further details.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40), which amends ASU No. 2015-05,Customers Accounting for Fees in a Cloud Computing Agreement, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The most significant change will align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. Accordingly, the amendments in ASU 2018-15 require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as ~~an asset~~assets related to the service contract and which costs to expense. ASU 2018-15 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim ~~period for all entities.~~period. The Company is assessing ASU 2018-15 and the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

~~Revenue~~7

~~The Company adopted the guidance in the FASB’s Accounting Standards Codification (“ASC”)~~~~Revenue from Contracts with Customers~~ (ASC 606) using the modified retrospective method effective January 1, 2018. The adoption of ASC 606 was applied to all contracts not completed as of the date of adoption. The adoption did not have a material impact on the amount and timing of revenue recognized in the condensed consolidated financial statements. The Company made no adjustments to its previously reported product and total revenue, as those periods continue to be presented in accordance with the Company’s historical accounting practices under Topic 605,~~Revenue Recognition~~.

Pursuant to ASC 606, revenue is recognized by the Company when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct or distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Revenue

~~Product Revenues~~Distribution Model

The Company sells its products principally to a number of distributors (i.e., its customers) under legally-enforceable, executed contracts. The Company’s distributors subsequently resell the products to sub-distributors and health care providers, among others. The Company recognizes revenue from product sales when the distributor obtains control of the Company’s product, which typically occurs upon shipment to the distributor, in return for agreed-upon, fixed-price consideration. Performance obligations are generally settled quickly after purchase order acceptance; therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial.

The Company’s payment terms are consistent with prevailing practice in the respective markets in which the Company does business. Distributors make payments based on fixed-price contract terms, which are not affected by contingent events that could impact the transaction price. Payment terms fall within the one-year guidance for the practical expedient, which allows the Company to forgo adjustment of the contractual payment amount of consideration for the effects of a significant financing component. The Company’s contracts with customers do not customarily provide a right of return, unless certain product quality standards are not met.

To identify variable consideration and determine the transaction price, the Company has reviewed its standard contractual terms and conditions and its customary business practices. Volume based discounts with tiered pricing are generally prospective in nature. These prospective discounts together with any free-of-charge sample units offered are evaluated as potential material rights. If the discounts or free-of-charge sample units are considered significant in the context of the contract, revenue is deferred.

The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. As of September 30, ~~2018,~~2019, deferred revenue was ~~$52~~$28 thousand.

Generally, distributor contracts contain Free on Board (FOB) or Ex-Works (EXW) shipping point terms where the customer pays the shipping company directly for all shipping and handling costs. In those contracts in which the Company pays for the shipping and handling, the associated costs are generally recorded along with the product sale at the time of shipment in cost of product revenue when control over the products has transferred to the customer. The Company does not collect sales tax on its product sales as it is not applicable. Value-add and other taxes collected by the Company concurrently with revenue-producing activities are excluded from revenue. The Company’s general product warranty does not extend beyond an assurance that the product or services delivered will be consistent with stated contractual specifications, which does not create a separate performance obligation. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that the Company otherwise would have recognized is one year or less in accordance with the practical expedient in paragraph ASC 340-40-25-4. These costs are included in selling, general & administrative expenses.

Included as a component of product revenue is sales-based royalty revenue, which represents the utilization of the Company’s intellectual property licensed by its commercial partners. The Company does not have future performance obligations under license arrangements as described in more detail below. The license is deemed to be the predominant item to which the royalties relate. The Company records royalty revenues based on estimated net sales of licensed products as reported to us by the Company’s commercial partners. Differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known.

~~License, Milestone and Contract Revenues~~

The Company has agreements with DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics, Inc. (“Mitek”) that include the grant of certain licenses, performance of development services, and supply of product. Revenues from the agreements with Mitek represent ~~73%~~71% and 70% of total Company revenues for the three- and nine-month periods ended September 30, ~~2018.~~2019, respectively. The Company has agreements with other customers that may include the delivery of a license and supply of product. ~~The adoption of ASC 606 did not impact the accounting for these agreements.~~

Hybrid Commercial Model

The ~~agreements with Mitek include variable consideration such as contingent development and regulatory milestones, sales-based milestones, and royalties.~~Company recently completed the implementation of a U.S.-based hybrid commercial model through which the Company launched TACTOSET, its surgically-delivered bone repair therapy, in the third quarter of 2019. The Company ~~completed~~sells TACTOSET utilizing a network of regional and local distributors in conjunction with its own small internal sales team.

The Company recognizes revenue from TACTOSET product sales when the ~~performance~~customer obtains control or upon utilization of the Company’s product in return for agreed-upon, fixed-price consideration. Revenues were not significant for the period. Performance obligations ~~related~~are settled upon transfer or utilization of the Company’s product to ~~granted licenses and development services under these agreements~~the customer. The Company’s payment terms are consistent with prevailing practice in ~~prior years. Agreements~~the respective markets in which the Company does business. The Company’s customers make payments based on fixed-price terms, which are not affected by contingent events that ~~include~~could impact the transaction price. Payment terms fall within the one-year guidance for the practical expedient, which allows the Company to forgo adjustment of the contractual payment amount of consideration for the effects of a ~~promise for future supply of product~~significant financing component. Product returns are only accepted at the ~~customer’s~~ discretion of the Company and are ~~generally considered as options.~~not expected to be significant. The Company accrues for sales returns and allowances on TACTOSET based upon research performed and current market conditions. The Company assesses ~~if these options~~the risk of loss on accounts receivable and adjusts the allowance for doubtful accounts based on this risk assessment, and this adjustment is not expected to be significant. Management believes that the allowance for doubtful accounts is adequate to provide for probable losses resulting from accounts receivable. The Company sells to a diversified base of customers and, therefore, believes there is no material ~~right to the licensee and if so, they are accounted for as separate performance obligations.~~ concentration of credit risk.

Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable to occur when the uncertainty associated with the variable consideration is subsequently resolved. Sales-based milestones

Product and royalties for these arrangements are excluded from this assessment and are only recognized when the later of the underlying sale occurs or the performance obligation to which some or all of the sales-based royalty has been satisfied (or partially satisfied). This is generally in the same period that the Company’s licensees complete their product sales in their territory, for which the company is contractually entitled to a percentage-based royalty.Total Revenue from sales-based royalties is included in product revenues as discussed above. Future revenue from sales-based or regulatory milestones will be subject to the constraints around variable consideration and will generally be recognized at the time the milestone is achieved.

~~There was no cumulative effect to relevant balance sheet accounts upon adopting the new standard using the modified retrospective method.~~

~~The following tables provide the disaggregated revenue by major product group and primary geographical market.~~ Product revenue by product group was as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Orthobiologics $ 26,765 $ 24,097 $ 74,975 $ 69,778
Surgical 578 1,191 4,071 3,700
Dermal 417 80 990 163
Other 1,855 1,413 4,709 4,940
Product Revenue $ 29,615 $ 26,781 $ 84,745 $ 78,581

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Orthobiologics $ 24,097 $ 23,990 $ 69,778 $ 68,686
Surgical 1,191 1,765 3,700 4,395
Dermal 80 358 163 1,235
Other 1,413 1,065 4,940 4,583
Product Revenue $ 26,781 $ 27,178 $ 78,581 $ 78,899

Total revenue by geographic location was as follows:

											Three Months Ended September 30,
	Three Months Ended September 30,										2019					2018
	2018					2017					Total		Percentage of			Total		Percentage of
	Total Revenue		Percentage of Revenue			Total Revenue		Percentage of Revenue			Revenue		Revenue			Revenue		Revenue
Geographic Location:
United States	$	21,695		81	%	$	22,227		82	%	$	23,512		79	%	$	21,695		81	%
Europe		3,132		12	%		2,832		10	%		3,943		13	%		3,132		12	%
Other		1,960		7	%		2,125		8	%		2,242		8	%		1,960		7	%
Total Revenue	$	26,787		100	%	$	27,184		100	%	$	29,697		100	%	$	26,787		100	%

Nine Months Ended September 30,
2019 2018
Total Percentage of Total Percentage of
Revenue Revenue Revenue Revenue
Geographic Location:
United States $ 66,538 78 % $ 63,377 81 %
Europe 11,396 14 % 9,021 11 %
Other 6,904 8 % 6,201 8 %
Total Revenue $ 84,838 100 % $ 78,599 100 %

Nine Months Ended September 30,
2018 2017

Total
Revenue

Percentage of
Revenue

Total
Revenue

Percentage of
Revenue
Geographic Location:
United States $ 63,377 81 % $ 68,624 82 %
Europe 9,021 11 % 9,743 11 %
Other 6,201 8 % 5,665 7 %
Total Revenue $ 78,599 100 % $ 84,032 100 %

On May 2, 2018, the Company publicly disclosed a voluntary recall of certain lots of its HYAFF-based products, HYALOFAST, HYALOGRAFT C, and HYALOMATRIX. The Company initiated the recall after internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout their entire shelf life. While there was no indication of any safety or efficacy issue related to the products at ~~this~~the time, the Company removed the products from the field as a precautionary measure. During the three-month period ended March 31, 2018, the Company recorded a revenue reserve for this voluntary recall of $1.1 million of which $0.9 million was related to revenue recorded in prior periods. The adjustments related to the initial revenue reserve ~~during the three-month period ended September~~subsequent to June 30, 2018 were immaterial. The revenue reserves impacted Dermal and Orthobiologics product groups and all geographic locations. Recall recovery activities were completed during the fourth quarter of 2018, and product shipments resumed in December 2018.

Investments

All of the Company’s investments are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income, net of related income taxes. The Company held investments, including U.S. treasury bills ~~and bank certificates of deposit,~~ totaling ~~$67.2~~$69.8 million and ~~$24.0~~$70.0 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Unrealized gains and losses ~~and~~as well as the associated tax impact on the Company’s available-for-sale securities were immaterial ~~compared to $0~~ as of September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018. All of the Company’s available-for-sale securities are estimated to mature in one year or less.

Fair Value Measurements

The Company’s investments are all classified within ~~Levels 1 and 2 of the fair value hierarchy. The Company’s investments classified within~~ Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. ~~Level 2 investments are based on matrix pricing compiled by third party pricing vendors, using observable market inputs such as interest rates, yield curves, and credit risk.~~ For cash and cash equivalents, current receivables, accounts payable, and interest accrual, the carrying amounts approximate fair value because of the short maturity of these instruments, and therefore fair value information is not included in the table below. The accretion to amortized cost included within interest and other income, net represented $1.1 million and $0.4 million as of September 30, 2019 and December 31, 2018.

The fair value hierarchy of the Company's cash equivalents and investments at fair value was as follows:

											Fair Value Measurements at Reporting Date Using
											Quoted Prices in
				Fair Value Measurements at Reporting							Active Markets		Significant Other		Significant
				Date Using							for Identical Assets		Observable Inputs		Unobservable Inputs
		September 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	September 30, 2019		(Level 1)		(Level 2)		(Level 3)		Amortized Cost
Cash equivalents:											��
Money market funds	$	7,083	$	7,083	$	-	$	-	$	6,406	$	6,406	$	-	$	-	$	6,406

Investments:
Bank certificates of deposit	$	3,500	$	-	$	3,500	$	-
U.S. treasury bills		63,686		63,686		-		-	$	69,825	$	69,825	$	-	$	-	$	69,821
Total investments	$	67,186	$	63,686	$	3,500	$	-

Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets Significant Other Significant
for Identical Assets Observable Inputs Unobservable Inputs
December 31, 2018 (Level 1) (Level 2) (Level 3) Amortized Cost
Cash equivalents:
Money market funds $ 4,984 $ 4,984 $ - $ - $ 4,984

Investments:
U.S. treasury bills $ 69,972 $ 69,972 $ - $ - $ 69,972

Fair Value Measurements at Reporting
Date Using
December 31, 2017
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Cash equivalents:
Money market funds $ 5,893 $ 5,893 $ - $ -
Bank certificates of deposit 500 - 500 -
Total cash equivalents $ 6,393 $ 5,893 $ 500 $ -

Investments:
Bank certificates of deposit $ 24,000 $ - $ 24,000 $ -

Equity Incentive Plan

The Company estimates the fair value of stock options and stock appreciation rights (“SARs”) using the Black-Scholes valuation model. Fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) ~~are~~is measured by the grant-date price of the Company’s shares. Fair value of performance restricted stock units (“PSUs”) is measured by the grant-date price of the Company’s shares with corresponding compensation cost recognized over the requisite service period. Compensation cost is recognized based on the estimated probabilities of achieving the performance goals. Changes to the probability assessment and the estimated shares expected to vest will result in adjustments to the related compensation cost that will be recorded in the period of the change. If the performance targets are not achieved, no compensation cost is recognized, and any previously recognized compensation cost is reversed.

The fair value of each stock option award during the nine-month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Nine Months Ended September 30,								Nine Months Ended September 30,
	2018				2017				2019			2018
Risk free interest rate		2.15%	-	2.82%		1.60%	-	1.78%	1.41%	-	2.54%	2.15%	-	2.82%
Expected volatility		37.12%	-	45.61%		41.36%	-	44.30%	44.27%	-	46.21%	37.12%	-	45.61%
Expected life (years)		4.0	-	4.5			4.0			3.5		4.0	-	4.5
Expected dividend yield			0.00%				0.00%			0.00%			0.00%

The Company recorded ~~$1.2~~$1.3 million and ~~$1.5~~$1.2 million of stock-based compensation expense for the three-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company recorded ~~$10.1~~$4.1 million and ~~$3.9~~$10.1 million of stock-based compensation expense for the nine-month periods ended September 30, 2019 and 2018, ~~and 2017, respectively, for stock-based compensation awards.~~respectively. Upon the retirement of the Company’s former Chief Executive Officer on March 9, 2018, all of his outstanding stock-based compensation awards vested in full and became exercisable in accordance with their terms, resulting in a one-time expense of $6.2 million that was fully recognized during the three-month period ended March 31, 2018.

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017		2019		2018		2019		2018
Cost of product revenue	$	39	$	107	$	(205	)	$	306	$	114	$	39	$	288	$	(205	)
Research and development		239		177		690			340
Selling, general and administrative		899		1,190		9,579			3,294
Research & development											50		239		318		690
Selling, general & administrative											1,147		899		3,534		9,579
Total stock-based compensation expense	$	1,177	$	1,474	$	10,064		$	3,940	$	1,311	$	1,177	$	4,140	$	10,064

On June 18, 2019, the Company’s stockholders approved an amendment to the Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”). The ~~decrease in stock-based compensation expense within~~amendment increased the ~~cost~~number of ~~product revenue line item during~~shares of common stock reserved under the ~~three-~~2017 Plan by 1,500,000 from 1,200,000 to 2,700,000. Additionally, the amendment provided greater clarity with respect to the sections governing minimum vesting and ~~nine-month periods ended September 30, 2018 is due~~tax withholding to ~~forfeitures associated with unvested stock option awards from~~facilitate plan administration. No other provisions of the ~~resignation of a former executive.~~2017 Plan were amended.

The following table sets forth share information for stock-based compensation awards granted and exercised during the three- and nine-month periods ended September 30, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Grants:
Stock options		18,500		60,609		228,300		470,744
Stock Options										87,250		18,500		218,867		228,300
RSAs		-		14,506		64,578		14,506		-		-		-		64,578
RSUs		3,624		-		11,754		9,970		9,000		3,624		185,507		11,754
PSUs										9,000		-		123,500		-
Exercises:
Stock options		-		3,329		284,548		12,766
Stock Options										488,586		-		511,486		284,548
SARs		-		-		-		5,000		-		-		-		-

During the three- and nine-month periods ended September 30, ~~2018 and 2017,~~2019, the Company granted stock-based compensation awards in the form of stock options, PSUs, and RSUs to employees and RSUs to non-employee directors, the majority of which become exercisable or vest ratably over a ~~four-year~~three-year period. The PSUs granted to employees contained performance conditions with business and ~~three-year period,~~financial targets. The business target, amounting to 30% of the total performance conditions, will be measured based on achievement in the 2019 fiscal year, while the financial targets, amounting to 70% of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the 2021 fiscal year. The Company recorded $0.3 million and $0.7 million of stock-based compensation expense associated with PSUs for the three- and nine-month periods ended September 30, 2019, respectively. In addition, the Company executed grants of RSUs to its non-employee directors. On March 9, 2018, upon the vesting of certain RSAs, 32,541 shares with a total fair value of $1.7 million were withheld for taxes and retired.

Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, SARs, RSAs, RSUs, and ~~RSUs~~PSUs using the treasury stock method.

The following table provides share information used in the calculation of the Company's basic and diluted earnings per share (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Shares used in the calculation of basic earnings per share		14,237		14,579		14,524		14,572		14,070		14,237		14,065		14,524
Effect of dilutive securities:
Stock options, SARs, RSUs and RSAs		140		536		296		493
Stock options, SARs, RSAs, RSUs and PSUs										317		140		201		296
Diluted shares used in the calculation of earnings per share		14,377		15,115		14,820		15,065		14,387		14,377		14,266		14,820

Stock options of ~~0.9~~0.4 million and ~~0.5~~0.9 million shares were outstanding for the three-month periods ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive. Stock options of 0.7 million and 0.6 million shares were outstanding for the nine-month periods ended September 30, ~~2018~~2019 and ~~2017~~2018 and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.

On May ~~24, 2018,~~2, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to $50.0 million shares of the Company’s common stock with $30.0 million to be repurchased through an accelerated share repurchase program and up to $20.0 million to be potentially repurchased on the open market from time-to-time. Through September 30, 2019, no open market repurchases had been executed. On May 7, 2019, the Company entered into an accelerated ~~stock~~share repurchase agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement") to purchase $30.0 million of shares of ~~its~~the Company’s common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $30.0 million cash to Morgan Stanley and received an initial delivery of ~~0.4~~0.5 million shares of the Company’s common stock on May ~~24, 2018~~8, 2019 based on a closing market price of ~~$41.41~~$39.85 and the applicable contractual discount. This was approximately 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. These shares were restored to the status of authorized but unissued shares. The initial delivery of shares resulted in an immediate reduction of the number of outstanding shares used to calculate the weighted-average of shares of the Company’s common stock outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.

~~On July 16, 2018,~~As of September 30, 2019, the Company ~~settled the~~has approximately $12.0 million remaining under the ASR Agreement, which was recorded as an equity forward sale contract and was included in additional ~~paid-in-capital~~paid-in capital in ~~stockholders'~~stockholders’ equity in the condensed consolidated balance sheet as it met the criteria for equity accounting. Pursuant to the terms of the ASR Agreement, the final number of shares and the average purchase price ~~was~~will be determined at the end of the applicable purchase period, which ~~was July 16, 2018. Based~~is expected to occur in the first quarter of 2020. Upon settlement of the ASR Agreement, the Company may receive additional shares or be required to either pay additional cash or deliver shares of its common stock (at its option) to Morgan Stanley, based on the forward price. If the ASR Agreement had been settled as of September 30, 2019, based on the volume-weighted average price since the effective date of the ASR Agreement, ~~less the applicable contractual discount,~~ Morgan Stanley ~~delivered 0.4~~would have been required to deliver approximately 0.2 million additional shares to the Company’s common stock. However, the Company ~~on July 19, 2016. The Company will not make further purchases under~~cannot predict the ~~program. In total, 0.8 million~~final number of shares ~~were repurchased~~to be received, or delivered, by it under the ASR ~~Agreement at an average repurchase price of $37.18 per share.~~Agreement. These shares are ~~held by~~not included in the Company as authorized but unissued shares. All shares were repurchased in accordance with the publicly announced program, and the Company will not make any further purchases under the program. The initial and final deliverycalculation of diluted weighted-average of shares ~~resulted in an immediate reduction~~ of common stock outstanding during the ~~number of outstanding shares used to calculate~~period because the ~~weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the ASR Agreement.~~

effect is anti-dilutive.

118.

8.	Inventories

Inventories consist of the following:

					September 30,		December 31,
	September 30, 2018		December 31, 2017		2019		2018
Raw materials	$	13,241	$	11,296	$	12,686	$	13,688
Work-in-process		5,948		6,062		7,762		4,626
Finished goods		4,639		4,677		10,234		6,819
Total	$	23,828	$	22,035	$	30,682	$	25,133

Inventories					$	25,243	$	21,300
Other long-term assets					$	5,439	$	3,833

~~As a result~~

Other long-term assets include $5.4 million and $3.8 million of ~~the voluntary recall more fully described in Note 3, the Company recorded an~~ inventory ~~reserve~~expected to remain on hand beyond one year as of $0.8 million for non-saleable inventory. In addition, the Company recorded a net inventory reserve of $1.4 million for certain HA raw materials, and it recorded a lower of cost or market adjustment of $1.2 million for certain HYAFF-based products during the nine-month period ended September 30, ~~2018.~~2019 and December 31, 2018, respectively.

Intangible Assets

Intangible assets as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:

			September 30, 2018								December 31, 2017												September 30, 2019											December 31, 2018
	Gross Value		Accumulated Currency Translation Adjustment			Accumulated Amortization			Net Book Value		Accumulated Currency Translation Adjustment			Accumulated Amortization			Net Book Value		Useful Life		Gross Value		Accumulated Currency Translation Adjustment			Impairment			Accumulated Amortization			Net Book Value		Accumulated Currency Translation Adjustment			Accumulated Amortization			Net Book Value		Useful Life
Developed technology	$	17,100	$	(2,744	)	$	(8,443	)	$	5,913	$	(2,550	)	$	(7,723	)	$	6,827		15	$	17,100	$	(3,056	)	$	(303	)	$	(9,448	)	$	4,293	$	(2,824	)	$	(8,672	)	$	5,604		15
In-process research & development		4,406		(1,122	)		-			3,284		(1,015	)		-			3,391		Indefinite		4,406		(1,316	)		-			-			3,090		(1,168	)		-			3,238		Indefinite
Distributor relationships		4,700		(415	)		(4,285	)		-		(415	)		(4,285	)		-		5		4,700		(415	)		-			(4,285	)		-		(415	)		(4,285	)		-		5
Patents		1,000		(164	)		(469	)		367		(152	)		(431	)		417		16		1,000		(184	)		-			(519	)		297		(169	)		(482	)		349		16
Elevess trade name		1,000		-			(1,000	)		-		-			(1,000	)		-		9		1,000		-			-			(1,000	)		-		-			(1,000	)		-		9
Total	$	28,206	$	(4,445	)	$	(14,197	)	$	9,564	$	(4,132	)	$	(13,439	)	$	10,635			$	28,206	$	(4,971	)	$	(303	)	$	(15,252	)	$	7,680	$	(4,576	)	$	(14,439	)	$	9,191

The aggregate amortization expense related to intangible assets was ~~$0.2~~$0.3 million and 0.2 million for the three-month periods ended September 30, 2019 and 2018, ~~and 2017.~~respectively. The aggregate amortization expense related to intangible assets was $0.8 million for each of the nine-month periods ended September 30, 2019 and ~~$0.7~~2018.

The Company recorded a $0.3 million impairment charge for the ~~nine- month periods~~HYALOSPINE developed technology asset in the three-month period ended March 31, 2019. HYALOSPINE was an adhesion prevention gel for use after spinal surgery and received initial CE Mark approval in January 2015. In March 2019, the Company made the decision not to renew the CE Mark as the product was not aligned with the Company’s core strategic focus. As a result, an impairment charge was recorded. This amount is included in selling, general & administrative expenses on the Company’s condensed consolidated statements of operations.

Through September 30, ~~2018~~2019, except as set forth in this paragraph, there have not been any other events or changes in circumstances that indicate that the carrying value of the other acquired intangible assets may not be recoverable. The Company was notified by the distributor of MEROGEL INJECTIBLE that it would not continue to order the product from the Company or market the product. As a result, the depreciation schedule of the remaining $0.1 million of net book value was accelerated. The Company continues to monitor and ~~2017, respectively.~~evaluate the financial performance of its business including the impact of general economic conditions, to assess the potential for the fair value of the reporting unit to decline below its recorded amount.

10.

Goodwill

The Company completed its annual impairment review as of November 30, ~~2017~~2018 and concluded that no impairment in the carrying value of goodwill exists as of that date. Through September 30, ~~2018,~~2019, there have been no events or changes in circumstances that indicate that the carrying value of goodwill may not be recoverable. Changes in the carrying value of goodwill were as follows:

September 30, 2018
Balance at January 1, 2018 $ 8,218
Effect of foreign currency adjustments (259 )
Balance at September 30, 2018 $ 7,959
September 30,
2019
Balance at January 1, 2019 $ 7,851
Effect of foreign currency adjustments (362 )
Balance at September 30, 2019 $ 7,489

11.	Accrued Expenses

Accrued expenses consist of the following:

September 30, December 31,
2019 2018
Compensation and related expenses $ 4,039 $ 4,446
Professional fees 1,333 1,989
Operating lease liability - current 1,109 -
Income taxes payable 766 385
Research grants 381 400
Clinical trial costs 497 577
Other 368 349
Total $ 8,493 $ 8,146

September 30,
2018 December 31,
2017
Compensation and related expenses $ 3,875 $ 2,893
Clinical trial costs 586 2,318
Accrued liabilities related to product recall 344 -
Research grants 406 419
Professional fees 1,233 448
Deferred revenue 52 -
Other 347 248
Total $ 6,843 $ 6,326

~~Included in Compensation and related expenses~~The lease liability as of September 30, ~~2018 are~~2019 is the ~~accrued and unpaid costs related to the retirement~~result of the ~~Company’s former Chief Executive Officer~~Company adopting ASU 2016-02 as of ~~March 9, 2018. On March 8, 2018 the Company entered into a $0.3 million one-year, post-retirement consulting agreement with the former Chief Executive Officer to provide certain services~~January 1, 2019 as may be requested by the Company through February 28, 2019. On the same date, the Company and the former Chief Executive Officer entered into a release agreement related to terms in his employment agreement. Under the terms of these agreements, the former Chief Executive Officer is entitled to receive from the Company, as a result of his retirement, aggregate benefits of $1.7 million over the 18-month period subsequent to March 9, 2018, among other benefits. The unpaid amounts under these agreements are included in accrued expenses and other long-term liabilities. As more fully described in Note ~~6, all of the former Chief Executive Officer’s outstanding equity awards vested in full and became exercisable upon his retirement.~~12.

Accrued liabilities related to product recall includes amounts due to customers for estimated product returns as a result of the voluntary recall more fully described in Note 3 as well as an accrual of $0.3 million for future expenses associated with the administration and remediation of the voluntary recall.

12.	Operating Leases

The Company adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective adoption method, which did not require it to restate prior periods, and there was no impact on retained earnings. The transition guidance associated with ASU 2016-02 also permitted certain practical expedients. The Company has elected the “package of 3” practical expedients permitted under the transition guidance which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company also adopted the practical expedient to use hindsight to determine the lease term. The Company adopted an accounting policy which provides that leases with an initial term of 12 months or less and no purchase option the Company is reasonably certain of exercising will not be included within the lease right-of-use assets and lease liabilities on its consolidated balance sheet. The Company elected an accounting policy to combine the non-lease components (which include common area maintenance, taxes and insurance) with the related lease component. The Company elected this practical expedient to all asset classes upon the adoption of ASU 2016-02.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use assets, lease liabilities, and, if applicable, long-term lease liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the lease terms. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid, incentives received or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability by using revised inputs as of the reassessment date, and adjust the right-of-use asset.

The Company has two primary leases, which are its real estate leases in Bedford, Massachusetts and Padova, Italy. The Company leases approximately 134,000 square feet of administrative, research and development, and manufacturing space in Bedford, Massachusetts (the “Bedford lease”), and approximately 33,000 square feet of office, research and development, training, and warehousing space in Padova, Italy (the “Padova lease”). The current term of the Bedford lease extends to 2022 with several lease renewal options into 2038, and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

The Company identified and assessed significant assumptions in recognizing the right-of-use asset and lease liability on January 1, 2019 as follows:

Incremental borrowing rate. The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do not provide implicit rates. As the Company did not have any external borrowings at the transition date with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at September 30, 2019 is 4.1%.

Lease term. The Company applied the hindsight practical expedient and as a result the lease term for the Bedford lease was determined to include all lease renewal options. There were no changes to the lease terms for its other leases. For the Padova lease, the Company considered the termination option when determining the lease term. The weighted average lease term at September 30, 2019 is 17.1 years.

The components of lease expense and other information are as follows:

For the three months ended
September 30, 2019 For the nine months ended
September 30, 2019
Lease cost
Operating lease cost $ 525 $ 1,568
Short-term lease cost - 6
Variable lease cost 43 155
Total lease cost $ 568 $ 1,729

Other information
Operating cash flows from operating leases $ 488 $ 1,482

Future commitments due under these lease agreements as of September 30, 2019 are as follows:

Operating Lease Obligation As Of
Years ended December 31, September 30, 2019
2019 (remaining 3 months) $ 497
2020 2,025
2021 2,024
2022 1,981
2023 1,965
Thereafter 23,530
Present value adjustment (9,310 )
Present value of lease payments 22,712
Less current portion included in Accrued expenses and other current liabilities (1,109 )
Operating lease liabilities $ 21,603

The following table summarizes the future minimum payments due for the Company’s operating leases under the prior lease guidance without the hindsight practical expedient for each of the next five years and the total thereafter as of December 31, 2018:

Years ended December 31,
2019 $ 1,879
2020 1,917
2021 1,924
2022 1,672
2023 414
2024 and thereafter 897
Total $ 8,703

13.

Commitments and Contingencies

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had no accrued warranties as of September 30, ~~2018~~2019 or December 31, ~~2017,~~2018 and has no history of claims paid.

The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.

~~13.~~14.

Income Taxes

The ~~provisions~~provision for income taxes ~~were~~was $3.3 million and $7.8 million for the three- and nine-month periods ended September 30, 2019, based on effective tax rates of 26.6% and 25.3%, respectively. The provision for income taxes was $1.5 million and $1.9 million for thethree- and nine-month periods ended September 30, 2018, based on effective tax rates of 16.4% and 14.7%, respectively. ~~Provisions~~The net increase in the effective tax rate for ~~income taxes were $3.6~~the three- and nine- month periods ended September 30, 2019, as compared to the same periods in 2018, was primarily due to the windfall tax benefit the Company realized in June 2018 related to exercises of employee equity awards offset by the limitation on the deductibility of executive compensation for accelerated stock vesting upon the retirement of the Company’s former Chief Executive Officer on March 9, 2018. In addition, the Company recorded a $0.3 million and ~~$12.6~~$0.4 million tax shortfall for the three- and nine-month periods ended September 30, 2017, based on an effective tax rate of 34.6%. The net decrease in the effective tax rate for the three- and nine-month periods ended September 30, 2018, as compared to the same periods in 2017, was primarily due to the reduction of Federal Corporate Income Tax rate as a result of the Tax Cuts and Jobs Act of 2017 (“Tax Act”) tax reform legislation. This legislation makes significant changes to the U.S. tax law, including a reduction in the corporate tax rate from 35% to 21% starting in 2018. In addition, the Company realized a windfall tax benefit for the nine-month period ended September 30, 20182019 related to exercises of employee equity awards resulting in a discrete period income tax benefit of $1.6 million and a reduction in the effective tax rate of 12.1%. The Company realized a $0.1 million windfall tax benefit for the three-month period ended September 30, 2018.

awards.

The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in Italy. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate.

In connection with the preparation of the financial statements, the Company assesses whether it was more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its net operating loss carry-forward. The Company has concluded that the positive evidence outweighs the negative evidence and, thus, the deferred tax assets not otherwise subject to a valuation allowance are realizable on a “more likely than not” basis. As such, the Company did not record a valuation allowance as of September 30, ~~2018~~2019 or December 31, ~~2017.~~

In accordance with Staff Accounting Bulletin No. 118, which provides guidance on accounting for the tax effects of the Tax Act, the Company has recorded the impact on the condensed consolidated financial statements. There were no significant changes in the provision amount recorded in 2017 related to the finalization of the Company’s analysis. The other provisions of the Tax Act did not have a material impact on the 2017 consolidated financial statements.

2018.

~~14.~~

~~Business Segment~~

The Company operates in a single segment engaged in the discovery, development, licensing, manufacturing, and sale of innovative medical therapies that improve the lives of patients with degenerative orthopedic diseases and traumatic conditions. The determination of a single segment is consistent with the financial information regularly reviewed by the Chief Executive Officer, who is the chief decision maker for the purposes of evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting future periods. For further information on product and geographic revenues, see Note 3.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (amounts in thousands, except per share amounts or as otherwise noted)

You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report. In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations. The Securities and Exchange Commission ("SEC") encourages companies to disclose forward-looking statements so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements regarding expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.

Please also refer to those factors described in ~~Part II,~~“Part I, Item ~~1A “Risk~~1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and in Part II, Item 1A “Risk Factors” of this report for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this ~~Quarterly Report on Form 10-Q~~report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management Overview

We are a global, integrated ~~orthopedic~~joint preservation and regenerative ~~medicines~~therapies company based in Bedford, Massachusetts. We are committed to ~~improving~~delivering innovative therapies to improve the lives of patients ~~with degenerative orthopedic diseases and traumatic conditions with clinically meaningful therapies along the~~across a continuum of care from ~~palliative~~osteoarthritis pain management to ~~regenerative tissue repair.~~joint preservation and restoration. We have over two decades of global expertise ~~developing, manufacturing, and~~ commercializing ~~our~~more than 20 products based on our proprietary hyaluronic acid (“HA”) technology. Our ~~orthopedic medicine~~therapeutic portfolio includes ORTHOVISC, MONOVISC, and CINGAL, viscosupplements which alleviate osteoarthritis pain and restore joint function by replenishing depleted HA, TACTOSET, a surgically-delivered therapy for bone repair procedures, and HYALOFAST, a solid HA-based scaffold to aid cartilage repair and regeneration.

Our therapeutic offerings consist of products in the following areas: Orthobiologics, Dermal, Surgical, and Other, which includes our ophthalmic and veterinary products. All of our products are based on HA, a naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells.

Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to therapeutic use. Our patented technology chemically modifies HA to allow for longer residence time in the body. We also offer products made from HA based on two other technologies: HYAFF, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Our technologies are protected by an extensive portfolio of owned and licensed patents.

Since our inception in 1992, we have utilized a commercial partnership model for the distribution of our products to end-users. Our strong, worldwide network of distributors has historically provided, and continues to provide, a solid foundation for our revenue growth and territorial expansion. ~~For near-term~~In the third quarter of 2019, we completed the implementation of a U.S.-based hybrid commercial model through which we launched TACTOSET, our surgically-delivered bone repair therapy. By utilizing a network of regional and local distributors in conjunction with our own small internal sales team, our hybrid model grants us a direct line of sight to our customers, enhanced commercial control over all aspects of sales, marketing, and market access, and the ability to scale our operations where and when appropriate. We intend to employ our hybrid commercial strategy for additional opportunities in the U.S. market, ~~we are evaluating a potential hybrid commercial approach that would see us balance a small direct model~~especially with respect to surgical products utilized in an ~~optimal form of strategic partnership.~~operating room environment. For longer-term future products in the U.S. market, especially those that are not utilized in an operating room environment, we intend to evaluate the appropriate commercial model for each instance on a case-by-case basis, based on market dynamics, product type and other factors. These models could include direct sales, distribution partnerships, or a hybrid of those forms. We believe that the combination of the direct and distribution commercial models will maximize the revenue potential from our current and future product portfolio.

Please see the section captioned “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management Overview” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, for a description of each of the above therapeutic areas, including the individual products.

On May 2, 2018, we publicly disclosed a voluntary recall of certain production lots of our HYAFF-based products, HYALOFAST, HYALOGRAFT C, and HYALOMATRIX. We communicated with all affected distributors in advance of that announcement, and we are taking all required or otherwise appropriate actions with respect to applicable regulatory bodies. We initiated the recall following internal quality testing, which indicated that the products were at risk of not maintaining certain measures throughout their entire shelf life. While there was no indication of any safety or efficacy issue related to the products, we are committed to the highest standards of quality and removed the products from the field as a precautionary measure. During the ~~three-month period ended March 31,~~fourth quarter of 2018, we recorded a revenue reserve for this voluntary recall of $1.1 million of which $0.9 million was related to revenue recorded in prior periods. The adjustments related to the initial revenue reserve during the three-month period ended September 30, 2018 were immaterial. As a result of the voluntary recall, we had an inventory charge of $0.8 million for the related non-saleable inventory during the nine-month period ended September 30, 2018. In addition, we incurred $0.6 million for future expenses associated with the administration and remediation of the voluntary recall. As of September 30, 2018, a majority of the affected products had been returned with no material change to the related reserves. Based on the facts currently known to us, we believe we can resolveresolved this matter and ~~resume production and~~resumed shipment of these ~~products by the end of 2018.~~products.

Key Developments during the Quarter Ended September 30, 2019

We deployed our hybrid commercial model in the U.S. by onboarding four regional sales directors and engaging our first U.S. distribution agent.

We completed the soft commercial launch and the first sale of TACTOSET, our first surgically-delivered regenerative therapy in the U.S. for bone repair procedures.

We expanded our experienced executive team with the addition of James Loerop as Executive Vice President of Business Development and Strategic Planning, and completed the recruitment efforts of the Vice President of Regulatory, Quality and Clinical Affairs, filled by Mira Leiwant.

We held an Analyst and Investor Day highlighting key facets of our 5-year strategic plan and providing updates on our transformation into a global commercial company.

Research and Development

Our research and development efforts primarily consist of the development of new medical applications for our HA-based technology, the management of clinical trials for certain product candidates, the preparation and processing of applications for regulatory approvals or clearances at all relevant stages of product development, and process development and scale-up manufacturing activities for our existing and new products. Our development focus is orthopedic and regenerative medicine and includes products for joint tissue ~~protection, repair,~~preservation and ~~regeneration.~~restoration, and we believe that our HA platform technology provides broad pipeline versatility and expansion opportunities within this targeted space. We routinely interact with key external stakeholders to leverage customer and patient insights in our development process to ensure that we bring needed therapies to the market. We anticipate that we will continue to commit significant resources in the near future to research and development activities, including in relation to preclinical activities and clinical trials. These activities are aimed at the delivery of a steady cascade of new product development and launches over the next several years.

In the third quarter of 2017, we submitted an application to the FDA for 510(k) clearance of TACTOSET, a surgically-delivered therapy for bone repair procedure that is reabsorbed by the body and replaced by the growth of new bone during the healing process. We received the 510(k) clearance from the FDA in December 2017, and we made this bone repair product commercially available in the United States during the third quarter of 2019 utilizing the previously-described hybrid commercial approach. In addition, we are working to expand our regenerative medicine pipeline with a new product candidate in the form of an implant for rotator cuff repair utilizing our proprietary solid HA, which could be used to repair partial and full-thickness rotator cuff tears. We finalized development of an initial product prototype during the fourth quarter of 2018. We are currently working on refining the prototype and performing preclinical testing of and developing the surgical instrumentation for the potential product. We anticipate that we will seek 510(k) clearance for this product in late 2020 or early 2021, with a potential commercial launch to occur in late 2021.

Our ~~second~~third generation, single-injection osteoarthritis product under development in the United States, CINGAL, which is composed of our proprietary cross-linked HA material combined with an approved steroid and is designed to provide both short- and long-term pain relief to patients, is ~~our lead~~a main pipeline product and a ~~critical~~ component of our growth strategy. We completed an initial CINGAL Phase III clinical trial ~~including the associated statistical analysis for 368 enrolled patients,~~ during the fourth quarter of 2014 ~~with data indicating that the product met all primary~~ and ~~secondary endpoints relative to placebo set forth for the trial. During~~an associated retreatment study in the first half of ~~2015, we completed a CINGAL retreatment study with 242 patients who had participated in~~2015. The results of the ~~Phase III clinical trial and reported safety data related to the retreatment study. This~~ initial Phase III clinical trial and the associated retreatment study supported the Health Canada and CE Mark approval of the product, and the commercial launch of the product in both Canada and the European Union occurred in the second quarter of 2016. In the United States, after discussions with the U.S. Food and Drug Administration (“FDA”) related to the regulatory pathway for CINGAL, ~~we conducted~~and a formal meeting with the FDA’s Office of Combination Products (“OCP”) ~~to present and discuss our data in September 2015, and~~, we submitted a formal request for designation with OCP ~~a month later.~~in October 2015. In its response, ~~to our formal request for designation,~~ OCP assigned the product to the FDA’s Center for Drug Evaluation and Research (“CDER”) as the lead agency center for premarket review and regulation. We then held discussions with CDER to understand the requirements for submitting a New Drug Application (“NDA”) for CINGAL. We held a meeting with CDER in September 2016 to align on an approval framework and on submission requirements for this NDA for CINGAL, including the execution of an additional Phase III clinical trial to supplement our existing CINGAL pivotal study data. We submitted an Investigational New Drug Application (“IND”) in late 2016, and discussions with CDER indicated that they did not have objections to our clinical protocol design. As a result, wesubsequently commenced work on ~~this~~a second Phase III clinical trial (“CINGAL 16-02 Study”) in the first quarter of 2017 and ~~the first patient was treated in the second quarter of 2017. Enrollment of the 576 patients in this second Phase III clinical trial was completed during October 2017, and we~~ completed the ~~six-month patient~~associated 6-month follow-up in April 2018. We received and analyzed the data from the CINGAL 16-02 Study during the second quarter of 2018, and, while substantial pain reduction associated with CINGAL was evident at each measurement point, we determined based on statistical analysis that it did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL and the approved steroid component of CINGAL at the six-month time point. In the ~~third~~first quarter of ~~2017,~~2019, we ~~initiated an additional three-month extended follow-up study in conjunction~~met with the CINGAL 16-02 Study to investigate the efficacy of CINGAL over this longer period. The first patients were enrolled in this follow-up study in the fourth quarter of 2017 and we completed the nine-month patient follow-up in the third quarter of 2018. Given the results of the CINGAL 16-02 Study, we continue to evaluate multiple strategies to optimize the potential U.S. regulatory pathway for CINGAL. After completing the analysis of the results from the three-month extended follow-up study, we intend to meet with FDA to discuss the ~~totality~~potential approval pathway for CINGAL in the United States moving forward in light of ~~our~~the work we have previously done. In the meeting, the FDA indicated that an additional Phase III clinical ~~data~~trial would be necessary to support U.S. marketing approval for CINGAL, and we received feedback from the FDA on the parameters and requirements for this additional clinical trial. After substantial internal review, we decided to ~~identify~~conduct a pilot study to enable us to evaluate our full-scale Phase III clinical trial design, including patient and ~~execute an optimal approach towards a potential future regulatory approval~~site selection criteria, and increase the probability of success for the Phase III trial. We expect to begin enrolling patients in the ~~United States.~~pilot study in the first half of 2020.

We have several research and development programs underway for new products, including for HYALOFAST (in the United States), an innovative product for cartilage tissue repair, and other early stage regenerative medicine development programs. HYALOFAST, which received CE Mark approval in September 2009, is commercially available in Europe and certain international countries. During the first quarter of 2015, we submitted an Investigational Device Exemption (“IDE”) for HYALOFAST to the FDA, which was approved in July 2015. We commenced patient enrollment in a clinical trial in December 2015 and ~~we are advancing~~advanced site initiations and patient enrollment activities. In the second quarter of 2016, a supplement to the HYALOFAST IDE was approved to expand the inclusion criteria for the clinical study, which was aimed at decreasing the time needed to complete the clinical trial. An additional supplement to the HYALOFAST IDE was approved in June 2019, amending the clinical protocol to allow worldwide trial site locations and to adjust inclusion criteria with the goal of accelerating trial enrollment and maximizing our probability of a successful trial outcome. Given the changing medical landscape with respect to the randomization arm for this trial, the microfracture procedure, we are also actively pursuing other alternative strategies to accelerate patient enrollment. The previously-described voluntary recall ~~described above does~~of certain production lots of our HYAFF-based products did not impact the HYALOFAST clinical trial, as the product used in the clinical trial is not sourced from the affected production lots. Given the changing medical landscape with respect to the randomization arm for this trial, the microfracture procedure, we are actively pursuing alternative strategies to accelerate patient enrollment.

We are also currently proceeding with other research and development programs, one of which utilizes our proprietary HA technology to treat pain associated with common repetitive overuse injuries, such as lateral epicondylitis, also known as tennis elbow. We submitted a CE Mark application for this treatment during the first quarter of 2016 and received a CE Mark for the treatment of pain associated with tennis elbow in December 2016. We ~~expect to begin~~began work intowards a post-market clinical study in relation to the CE Mark for this product ~~before~~in the ~~end~~fourth quarter of 2018. Outside of the United States, this product is marketed under the trade name ORTHOVISC-T. Additionally, in the second quarter of 2016, we submitted an IDE to the FDA to conduct a Phase III clinical trial for this treatment, which was approved by the FDA in June ~~2016~~2016. Notwithstanding that approval and in light of recent changes to the regulatory environment for HA-based products, in the first quarter of 2019, the FDA requested that we ~~expect will commence~~submit this product to OCP for designation, which we did early in the second quarter of 2019. We remain in discussions with the FDA with respect to the designation and approval pathway for this product. We also have several other research and development programs underway focused on expanding the indications of our current products, including one program being conducted and funded by our U.S. MONOVISC distribution partner, DePuy Synthes Mitek Sports Medicine, a division of DePuy Orthopaedics Inc., seeking to expand MONOVISC’s indication to include treatment of pain associated with osteoarthritis of the hip. In third quarter of 2017,MONOVISC. During 2019, we will also ~~submitted an application~~be performing post-market clinical work in relation to the ~~FDA~~CE Mark for 510(k) clearance of an injectable HA-based bone repair treatment, an injectable, self-setting, osteoconductive bone graft substitute that is reabsorbed by the body and replaced by the growth of new bone during the healing process. The 510(k) clearance was received from the FDA in December 2017, and we expect to make this product commercially available during 2019. MONOVISC.

In addition to other early stage research and development initiatives we ~~are currently undertaking,~~have undertaken, we are working to expand our regenerative medicine pipeline with a new product candidate in the form of an implant for rotator cuff repair utilizing our proprietary solid HA. This implant could be used to repair partial and full-thickness rotator cuff tears, and we expect to have a fully-developed prototype by the end of the year.

In June 2015, we entered into an agreement with the Institute for Applied Life Sciences at the University of Massachusetts Amherst to collaborate on research to develop a therapy for rheumatoid arthritis. The purpose of this research was to develop a novel modality for the treatment of rheumatoid arthritis. The agreement with the University of Massachusetts Amherst was extended in January 2018, and it was terminated in October 2018 after discussions between the parties. In January 2018, wepreviously entered into an agreement with the University of Liverpool in January 2018 to develop an injectable mesenchymal stem cell therapy for the treatment of age-related ~~osteoarthritis with~~osteoarthritis. This agreement was mutually terminated in August 2019 after discussions between the ~~goal of bringing a therapeutics candidate through clinical trials to market to meet an unmet therapeutic need.~~parties.

Results of Operations

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 $ Inc/(Dec) % Inc/(Dec) 2018 2017 $ Inc/(Dec) % Inc/(Dec)
(in thousands, except percentages) (in thousands, except percentages)
Product revenue $ 26,781 $ 27,178 $ (397 ) (1 %) $ 78,581 $ 78,899 $ (318 ) (0 %)
Licensing, milestone and contract revenue 6 6 - 0 % 18 5,133 (5,115 ) *
Total revenue 26,787 27,184 (397 ) (1 %) 78,599 84,032 (5,433 ) (6 %)

Operating expenses:
Cost of product revenue 8,282 6,250 2,032 33 % 24,279 18,648 5,631 30 %
Research and development 4,232 5,842 (1,610 ) (28 %) 14,126 14,521 (395 ) (3 %)
Selling, general & administrative 5,700 4,823 877 18 % 28,207 14,862 13,345 90 %
Total operating expenses 18,214 16,915 1,299 8 % 66,612 48,031 18,581 39 %
Income from operations 8,573 10,269 (1,696 ) (17 %) 11,987 36,001 (24,014 ) (67 %)
Interest and other income, net 522 261 261 100 % 907 335 572 171 %
Income before income taxes 9,095 10,530 (1,435 ) (14 %) 12,894 36,336 (23,442 ) (65 %)
Provision for income taxes 1,496 3,643 (2,147 ) (59 %) 1,890 12,587 (10,697 ) (85 %)
Net income $ 7,599 $ 6,887 $ 712 10 % $ 11,004 $ 23,749 $ (12,745 ) (54 %)
Product gross profit $ 18,499 $ 20,928 $ (2,429 ) (12 %) $ 54,302 $ 60,251 $ (5,949 ) (10 %)
Product gross margin 69 % 77 % 69 % 76 %
Three and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018

* Percentage increase has been omitted due to magnitude.
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 $ Inc/(Dec) % Inc/(Dec) 2019 2018 $ Inc/(Dec) % Inc/(Dec)
(in thousands, except percentages) (in thousands, except percentages)
Product revenue $ 29,615 $ 26,781 $ 2,834 11 % $ 84,745 $ 78,581 $ 6,164 8 %
Licensing, milestone and contract revenue 82 6 76 1,267 % 93 18 75 417 %
Total revenue 29,697 26,787 2,910 11 % 84,838 78,599 6,239 8 %

Operating expenses:
Cost of product revenue 5,951 8,282 (2,331 ) (28 %) 20,098 24,279 (4,181 ) (17 %)
Research & development 4,158 4,232 (74 ) (2 %) 12,581 14,126 (1,545 ) (11 %)
Selling, general & administrative 7,539 5,700 1,839 32 % 22,713 28,207 (5,494 ) (19 %)
Total operating expenses 17,648 18,214 (566 ) (3 %) 55,392 66,612 (11,220 ) (17 %)
Income from operations 12,049 8,573 3,476 41 % 29,446 11,987 17,459 146 %
Interest and other income, net 482 522 (40 ) (8 %) 1,513 907 606 67 %
Income before income taxes 12,531 9,095 3,436 38 % 30,959 12,894 18,065 140 %
Provision for (benefit from) income taxes 3,331 1,496 1,835 123 % 7,817 1,890 5,927 314 %
Net income $ 9,200 $ 7,599 $ 1,601 21 % $ 23,142 $ 11,004 $ 12,138 110 %
Product gross profit $ 23,664 $ 18,499 $ 5,165 28 % $ 64,647 $ 54,302 $ 10,345 19 %
Product gross margin 79.9 % 69.1 % 76.3 % 69.1 %

Product Revenue

Product revenue for the three-month period ended September 30, ~~2018~~2019 was ~~$26.8~~$29.6 million, ~~a decrease~~an increase of ~~$0.4~~$2.8 million as compared to ~~$27.2~~$26.8 million for the three-month period ended September 30, ~~2017.~~2018. Product revenue for the nine-month period ended September 30, ~~2018~~2019 was ~~$78.6~~$84.7 million, ~~a decrease~~an increase of ~~$0.3~~8%, or $6.2 million, as compared to ~~$78.9~~$78.6 million for the nine-month period ended September 30, ~~2017.~~2018. For the three-month period ended September 30, 2019, the increase in product revenue was driven by growth in our orthobiologics, dermal and other franchises. For the nine-month period ended September 30, ~~2018,~~2019, the ~~decrease~~increase in product revenue was ~~mainly~~ driven by ~~a decline~~growth in ~~ORTHOVISC revenue~~our orthobiologics, dermal and ~~the effects of the previously-described voluntary recall of certain production lots of our HYAFF-based products,~~surgical franchises, partially offset by ~~increases~~a decrease resulting from order timing in ~~MONOVSC and CINGAL revenue.~~our other franchise.
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The following tables present product revenue by product group:

Three Months Ended September 30, Three Months Ended September 30,
2018 2017 $ Inc/(Dec) % Inc/(Dec) 2019 2018 $ Inc/(Dec) % Inc/(Dec)
(in thousands, except percentages) (in thousands, except percentages)
Orthobiologics $ 24,097 $ 23,990 $ 107 0 % $ 26,765 $ 24,097 $ 2,668 11 %
Surgical 1,191 1,765 (574 ) (33 %) 578 1,191 (613 ) (51 %)
Dermal 80 358 (278 ) (78 %) 417 80 337 421 %
Other 1,413 1,065 348 33 % 1,855 1,413 442 31 %
Total $ 26,781 $ 27,178 $ (397 ) (1 %) $ 29,615 $ 26,781 $ 2,834 11 %
Nine Months Ended September 30,
2019 2018 $ Inc/(Dec) % Inc/(Dec)
(in thousands, except percentages)
Orthobiologics $ 74,975 $ 69,778 $ 5,197 7 %
Surgical 4,071 3,700 371 10 %
Dermal 990 163 827 507 %
Other 4,709 4,940 (231 ) (5 %)
Total $ 84,745 $ 78,581 $ 6,164 8 %
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Nine Months Ended September 30,
2018 2017 $ Inc/(Dec) % Inc/(Dec)
(in thousands, except percentages)
Orthobiologics $ 69,778 $ 68,686 $ 1,092 2 %
Surgical 3,700 4,395 (695 ) (16 %)
Dermal 163 1,235 (1,072 ) (87 %)
Other 4,940 4,583 357 8 %
Total $ 78,581 $ 78,899 $ (318 ) (0 %)
Orthobiologics

Our orthobiologics franchise consists of ~~our~~ orthopedic pain management and regenerative therapies. Overall, sales ~~were flat~~increased 11% and 7% for the three- and nine-month periods ended September 30, 2019, respectively, as compared to the same periods in 2018. For the three-month period ended September 30, ~~2018, as compared to~~2019, the ~~same period~~increase was primarily driven by increased sales of MONOVISC domestically, supplemented by an increase in ~~2017, as a result~~sales of ~~increased unit demand offset~~our international viscosupplement products, led by ~~a decline~~CINGAL. The increase in ~~pricing in the U.S. For~~revenue for the nine-month period ended September 30, ~~2018, sales increased by $1.1 million as compared to the same period in 2017. The overall increase in the nine-month period ended September 30, 2018~~2019 was primarily ~~due to strong growth~~driven by increased revenue from MONOVISC domestically and internationally, as well as increased revenue from CINGAL in ~~domestic MONOVISC revenue and~~ international ~~CINGAL revenue offset in part by declines in worldwide ORTHOVISC revenue. The growth of U.S. MONOVISC revenue remains strong.~~markets. We expect orthobiologics product revenue in ~~2018~~2019 to continue to increase as compared to ~~2017,~~2018, primarily due to the growth ~~of worldwide MONOVISC and~~in international CINGAL and global MONOVISC revenue ~~offset by declines in ORTHOVISC revenue, U.S. viscosupplement product pricing declines,~~ and the ~~effects~~U.S. commercial launch of TACTOSET via the ~~previously described voluntary recall of certain production lots of our HYAFF-based products.~~
previously-described hybrid commercial approach.

Surgical

Our surgical franchise consists of products used to prevent surgical adhesions and to treat ear, nose, and throat (“ENT”) disorders. ~~Sales of our surgical products declined $0.6 million and $0.7 million, respectively, for~~For the ~~three- and nine-month periods~~three-month period ended September 30, ~~2018 to $1.2~~2019, surgical product sales decreased by $0.6 million ~~and $3.7 million, respectively,~~ as compared to the same ~~periods~~period in ~~2017.~~2018 resulting primarily from order timing. For the nine-month period ended September 30, 2019, sales increased $0.4 million as compared to the same period in 2018. The ~~decrease~~increase in surgical product revenue for the ~~three-month~~nine-month period was ~~primarily~~ due to ~~a decrease in~~increased sales to our worldwide ENT commercial partner and ~~a decrease in~~higher sales of ~~our~~ surgical anti-adhesion ~~products.~~products to our international distributors. We expect surgical product revenue to ~~decrease modestly~~remain flat in ~~2018~~2019 as compared to ~~2017 primarily due to decreased worldwide sales of our ENT and surgical anti-adhesion products.~~2018.

Dermal

Our dermal franchise consists of advanced wound care products, which arebased on our HYAFF technology, and aesthetic dermal fillers. Our advanced wound care products treat complex skin wounds ranging from burns to diabetic ulcers, with HYALOMATRIX and HYALOFILL as the lead products. Sales of our dermal products increased $0.3 million and $0.8 million for the three- and nine-month periods ended September 30, 2019, to $0.4 million and $1.0 million, respectively, as compared to the same periods in 2018. For the three- and nine-month periods ended September 30, ~~2018, dermal product sales decreased $0.3 million and $1.1 million, respectively, as compared to~~2019, the ~~same periods in 2017~~increases were due to recovery from the previously-described voluntary recall of certain production lots of our HYAFF-based products ~~previously described. As~~in 2018. We expect dermal sales to increase in 2019 as a result ~~we expect dermal revenue to decrease~~of resuming HYALOMATRIX shipments in late 2018 ~~as compared to 2017.~~after the product was impacted by the voluntary recall in 2018.
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Other

Other product revenue includes revenues from our ophthalmic and veterinary franchises. Other product revenue increased for the three-month period ended September 30, ~~2018~~2019 by ~~$0.3~~$0.4 million or 31%, and ~~increased~~decreased by $0.2 million or 5%, for the nine-month period ended September 30, ~~2018 by $0.4 million or 8%, both~~2019, each as compared to the ~~same periods~~corresponding period in ~~2017.~~2018. We expect other product revenue to ~~increase~~remain flat in ~~2018~~2019 as compared to ~~2017, primarily driven by increases in ophthalmic revenue.~~
~~Licensing, Milestone and Contract Revenue~~
Licensing, milestone and contract revenue for the three- and nine-month periods ended September 30, 2018 was $6 thousand and $18 thousand, as compared to $6 thousand and $5.1 million for the same periods in 2017. Revenue for the nine-month period ended September 30, 2017 included a $5.0 million milestone payment associated with our U.S. license agreement with Mitek for MONOVISC that was received and fully recognized as a result of U.S. MONOVISC 12-month end-user sales exceeding $100.0 million.
2018.

Product Gross Profit and Margin

Product gross profit for the three- and nine-month periods ended September 30, 2019 increased $5.2 million and $10.3 million to $23.7 and $64.7 million, respectively, representing 79.9% and 76.3% of product revenue. Product gross profit for the three- and nine-month periods ended September 30, 2018 ~~decreased $2.4 million and $5.9 million to~~was $18.5 million and $54.3 million, respectively, ~~representing 69%~~or 69.1% of product revenue for each ~~period. Product~~of the periods. The increase in product gross ~~profit~~margin for the three- and nine-month periods ended September 30, ~~2017 was $20.9 million and $60.3 million, respectively, or 77% and 76%~~of ~~product revenue for the periods. The decrease in product gross margin for the three-month period ended September 30, 2018,~~2019, as compared to the same ~~period~~periods in ~~2017,~~2018, was in part due to ~~higher production costs,~~more favorable changes in revenue mix, including an increase in domestic royalty revenue from the ~~impact of pricing declines for our ORTHOVISC and MONOVISC products in~~viscosupplement business. In addition, the ~~U.S., and certain period costs related to inventory reserve charges. The decrease in~~ product gross margin for the nine-month period ended September 30, 2018 ~~as compared to the same period in 2017,~~ was ~~due to an increase in inventory reserves related to certain raw materials, inventory write-offs associated with the previously describedvoluntary recall of certain production lots of our HYAFF-based products~~, higher production costs, revenue mix and pricing dynamics, and voluntary recall related charges. We began remediation and mitigation plans during the first quarter of 2018 and currently expect to resolve the identified issuesalso adversely impacted by the ~~end of 2018. This current~~previously-describedvoluntary product ~~gross margin may not be indicative of the rest of the year, and we expect to see continued improvement in product gross margin as we progress through 2018.~~recall.
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Research and Development

Re~~search~~
Research and development expenses for the three- and nine-month periods ended September 30, ~~2018~~2019 were $4.2 million and ~~$14.1~~$12.6 million, representing ~~16%~~14% and ~~18%~~15% of total revenue for the respective periods, a decrease of ~~$1.6~~$0.1 million and ~~$0.4~~$1.5 million, respectively, as compared to the same periods in ~~2017.~~2018. The ~~decrease~~decreases in research and development ~~expenses was~~expense were primarily due to lower clinical trial expenses related to CINGAL for the ~~completion of our CINGAL 16-02 Study~~three- and nine-month periods ended September 30, 2019, as compared to the same periods in ~~the second quarter of 2018. The decrease was~~2018, partially offset by~~increased~~ higher pre-clinical product development activities associated with ~~certain~~the development of product candidates in our research and development pipeline, including our ~~new~~ rotator cuff ~~product candidate.~~therapy. Research and development ~~spending is expected to~~expenses may potentially increase in ~~2018 and thereafter,~~2019 as compared to ~~2017,~~2018 as we further develop new products and ~~line extensions~~clinical trial activities, including preparation for the CINGAL pilot study, perform required post-market clinical follow-ups for our MONOVISC and ~~initiate new clinical trials based on our existing technology assets, as well as increase research and development activities for other~~ORTHOVISC-T products in the ~~pipeline.~~European Union related to the European Union Medical Device Regulation.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses for the three- and nine-month periods ended September 30, ~~2018~~2019 were ~~$5.7~~$7.5 million and ~~$28.2~~$22.7 million, representing ~~21%~~25% and ~~36%~~27% of total revenue for the ~~respective periods,~~period, an increase of ~~$0.9~~$1.8 million and ~~$13.3~~decrease of $5.5 million, respectively, as compared to the same periods in ~~2017.~~2018. The increase in SG&A expenses for the three-month period ~~ending~~ended September 30, ~~2018~~2019 was primarily ~~related~~due to the establishment of our U.S. hybrid commercial model and the soft launch of TACTOSET, including increased ~~personnel~~personnel-related costs and external professional fees. ~~SG&A expenses increased~~The decrease for the nine-month period ~~ending September 30,~~was primarily due to the one-time, non-cash, stock-based compensation expense of approximately $8.0 million in the three-month period ended March 31, 2018 ~~as compared to prior period, primarily as a result of costs~~ related to the retirement of our former Chief Executive ~~Officer, certain accrued~~Officer. We expect SG&A expenses ~~related~~for 2019 to decrease in comparison to 2018 due to the ~~previously described voluntary recall~~above mentioned one-time charge. The decrease will be partially offset by investments in our global commercial capabilities and the implementation of ~~certain production lots of~~improved business and financial technology platforms required to grow our ~~HYAFF-based products and increased personnel costs, external professional fees, and marketing expenses.~~business.
Income Taxes

The ~~provisions~~provision for income taxes ~~were~~was $3.3 million and $7.8 million for the three- and nine-month periods ended September 30, 2019, based on effective tax rates of 26.6% and 25.3%, respectively. The provision for income taxes was $1.5 million and $1.9 million for thethree- and nine-month periods ended September 30, 2018, based on effective tax rates of 16.4% and 14.7%, respectively. ~~Provisions~~The net increase in the effective tax rate for ~~income taxes were $3.6~~the three- and nine- month periods ended September 30, 2019, as compared to the same periods in 2018, was primarily due to the windfall tax benefit we realized in June 2018 related to exercises of employee equity awards offset by the limitation on the deductibility of executive compensation for accelerated stock vesting upon the retirement of our former Chief Executive Officer on March 9, 2018. In addition, we recorded a $0.3 million and ~~$12.6~~$0.4 million tax shortfall for the three- and nine-month periods ended September 30, ~~2017,~~2019 related to exercises of employee equity awards.
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Non-GAAP Financial Measures
We present information below with respect to adjusted EBITDA, which we define as our net income excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, and stock-based compensation. This financial measure is not based on ~~an effective tax rate of 34.6%. The net decrease~~any standardized methodology prescribed by accounting principles generally accepted in the ~~effective tax rate~~United States (“GAAP”) and are not necessarily comparable to similarly titled measures presented by other companies.
We have presented adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe this financial measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of the expenses eliminated in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.
Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent. Some of these limitations are:
adjusted EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;
we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;
the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;
adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
adjusted EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and
�� • adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.
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The following is a reconciliation of net income to adjusted EBITDA for the three- and nine-month periods ended September 30, 2019 and 2018, respectively:
Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income $ 9,200 $ 7,599 $ 23,142 $ 11,004
Interest and other income, net (482 ) (522 ) (1,513 ) (907 )
Provision for income taxes 3,331 1,496 7,817 1,890
Depreciation and amortization 1,516 1,513 4,459 4,433
Stock-based compensation 1,311 1,177 4,140 10,064
Adjusted EBITDA $ 14,876 $ 11,263 $ 38,045 $ 26,484
Adjusted EBITDA in the three- and nine-month periods ended September 30, 2019, increased $3.6 million and $11.6 million, respectively, as compared towith the ~~same~~comparable periods in ~~2017,~~2018. The increase in adjusted EBITDA for the periods was primarily due to ~~the reduction of Federal Corporate Income Tax rate~~an increase in total revenue, product gross profit and operating income as a result of ~~the Tax Cuts and Jobs Act of 2017 (“Tax Act”) tax reform legislation. This legislation makes significant changes to the U.S. tax law, including~~ a ~~reduction in the corporate tax rate from 35% to 21% starting in 2018.~~ more favorable revenue mix.In addition, the ~~Company realized a windfall tax benefit~~product gross margin for the nine-month period ended September 30, 2018 ~~related to exercises of employee equity awards resulting in a discrete period income tax benefit of $1.6 million and a reduction in~~was also adversely impacted by the ~~effective tax rate of 12.1%. The Company realized a $0.1 million windfall tax benefit for the three-month period ended September 30, 2018.~~previously-describedvoluntary product recall.

Liquidity and Capital Resources

We require cash to fund our operating expenses and to make capital expenditures. We expect that our requirements for cash to fund these uses will increase as our operations expand. Historically we have generated positive cash flow from operations, which, together with our available cash, investments, and debt, have met our cash requirements. Cash, cash equivalents, and investments aggregated ~~$149.0~~$173.2 million and ~~$157.3~~$159.0 million, and working capital totaled ~~$186.3~~$212.6 million and ~~$193.3~~$191.7 million as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. In addition, as of September 30, ~~2018,~~2019, we have $50.0 million of available credit under our senior revolving credit facility with Bank of America, N.A. We believe that we have adequate financial resources to support our business for at least the twelve months from the issuance date of our financial statements. As of September 30, ~~2018,~~2019, we were in compliance with the terms of our credit agreement with Bank of America, N.A.
Cash provided by operating activities was ~~$24.9~~$24.0 million for the nine-month period ended September 30, ~~2018,~~2019, as compared to cash provided by operating activities of~~$33.8~~ $24.9 millionfor ~~the sameperiod in 2017. The decrease in cash provided by operations for the nine-month period ended September 30, 2018, as compared to~~ the same period in ~~2017,~~2018. The decrease was primarily related to ~~our higher operating expenses in manufacturing operations, sales and marketing,~~a decrease in collections of our accounts ~~payable,~~receivable due to timing of receipts and ~~an increase~~a decrease in ~~inventory on hand.~~accrued expenses.

Cash used in investing activities was ~~$47.7~~$1.3 million for the nine-month period ended September 30, ~~2018,~~2019, as compared to cash ~~used in~~provided by investing activities of ~~$11.8~~$47.7 million for the same period in ~~2017.~~2018. The ~~increase~~change was due to increased purchases of investments, partially offset by lower capital expenditures as compared to ~~2017.~~the same period in 2018.

Cash used inby financing activities was ~~$28.8~~$8.4 million for the nine-month period ended September 30, ~~2018,~~2019, as compared to cash used inby financing activities of ~~$0.3~~$28.9 million for the same period in ~~2017.~~2018. In each period, we executed a $30.0 million accelerated share repurchase agreement. The decrease in cash used in financing activities for the nine-month period ended September 30, ~~2018~~2019, was primarily attributable to ~~the utilization of $30.0~~a $18.9 million cash to repurchase outstanding common stock under the previously-discussed Fixed Dollar Accelerated Share Repurchase program and $1.7 million of vested RSAs that were withheld for individual taxes and retired. This was partially offset by $2.9 million ofincrease in proceeds ~~received~~ from the exercise of ~~stock-based compensation awards.~~employee equity awards as compared to the corresponding period in the prior year.

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Critical Accounting Policies and Estimates

There were no other significant changes in our critical accounting policies or estimates during the ~~nine~~three months ended September 30, ~~2018~~2019 to augment the critical accounting ~~policies~~estimates disclosed ~~in Management’s~~under the heading “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations included~~Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018, other than those described in the Notes to the condensed consolidated financial statements included in this ~~Quarterly Report on Form 10-Q,~~report, including the adoption of the ~~FASB’s~~Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, ~~Revenue from Contracts with Customers~~Leases, (ASC ~~606)~~842) effective January 1, ~~2018.~~2019. As a result of our adoption of the new ~~revenue recognition~~lease standard, we re-assessed the estimates, assumptions, and judgments that are most critical in our recognition of ~~revenue and have revised our revenue recognition critical accounting policy.~~leases. For information regarding the impact of recently adopted accounting standards, refer to ~~Note 3~~Notes 2 and 12 to the condensed financial statements included in this ~~Quarterly Report on Form 10-Q.~~report.
There were no other significant changes in our critical accounting estimates during the nine months ended September 30, 2018 to augment the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 other than those described in the Notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, including the estimated costs for the previously described voluntary recall of certain production lots of our HYAFF-based products.
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Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and is updated in the Notes to the condensed consolidated financial statements included in this ~~Quarterly Report on Form 10-Q.~~report.

Contractual Obligations and Other Commercial Commitments

Our contractual obligations and other commercial commitments are summarized in the section captioned “Part II, Item 7,7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Other Commercial Commitments” in our Annual Report on Form 10-K for the year ended December 31, ~~2017. Except for $2.0 million of retirement and post-retirement consulting benefits we accrued on March 9, 2018 related to the retirement of our former Chief Executive Officer, we~~2018. We had no material changes outside the ordinary course to our contractual obligations reported in our ~~2017~~2018 Annual Report on Form 10-K during the nine months ended September 30, ~~2018.~~2019. For additional discussion, see Note 1213 to the condensed consolidated financial statements included in this ~~Quarterly Report on Form 10-Q.~~report.

To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.

Off-balance Sheet Arrangements

We do not use special purpose entities or other off-balance sheet financing techniques ~~except for operating leases,~~ that we believe have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item ~~7A,~~7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. There have been no material changes in the first nine months of ~~2018~~2019 to our market risks or to our management of such risks.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports ~~it files~~we file or ~~submits~~submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. On an on-going basis, we review and document our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

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(b) Changes in internal controls over financial reporting.

There were no changes in our internal control over financial reporting during the ~~nine-month~~three-month period ended September 30, ~~2018~~2019 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting. ~~In January 2018, we placed in service our new enterprise resource planning software. In this regard, we reviewed and modified our internal controls, as necessary.~~

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, we do not expect the resolution of these occasional legal proceedings to have a material adverse effect on our financial position, results of operations, or cash flow. There have been no material changes to the information provided in the section captioned “Part I, Item 3,3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes to the risk factors described in the section captioned “Part I, Item ~~1A,~~1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section captioned “Part I, Item ~~1A,~~1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q are not the only risks ~~facing our Company.~~we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.

Risks Related to Our Business and Industry
~~Failure~~We may not succeed in implementing and executing our hybrid commercial model for TACTOSET and certain other products in the United States, and our failure to ~~obtain,~~do so could negatively impact our business and financial results.
For near-term opportunities in the U.S. market, especially those with respect to orthopedic surgical products utilized in an operating room environment, we intend to utilize our hybrid commercial model through which we partner our own small internal sales team with a network of local and regional distribution agents. This approach is a departure from our historical distribution model in the United States, and we cannot be certain that we will be successful in implementing and executing on this hybrid commercial approach or that, even if we are able to implement it, the approach will be successful. The commercialization of TACTOSET and any ~~delay in obtaining, FDA~~future products launched under this model is subject to many risks, including that we have not previously commercialized a product on our own and cannot guarantee that we will be able to do so successfully or profitably. We may not be able to attract or retain the sophisticated personnel required for such approach, to identify or negotiate favorable or acceptable terms with distribution agents, to achieve in-market pricing at the levels we have targeted, to timely execute on our strategies for market penetration generally, or to generate meaningful sales of TACTOSET or other ~~U.S.~~future products as a result of other market dynamics. Among other factors, our competitors generally offer a broader range of products than we do, which could make their aggregate offerings more attractive to end-users, distributor agents, group purchasing organizations, hospitals, and ~~foreign governmental approvals for our products may~~surgeons. Our failure to successfully implement and execute on this commercial approach could have a material adverse effect on our business, financial condition, and results of operations.
Several of our current products, and any future products we may develop, will require clinical trials to determine their safety and efficacy for United States and international marketing approval by regulatory bodies, including the FDA. Product development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance that the FDA will accept submissions related to our new products or the expansion of the indications of our current products, and, even if submissions are accepted, there can be no guarantee that the FDA will grant approval for our new products, including CINGAL, HYALOFAST, or other line extensions of our current products, or for the expansion of indications of our current products on a timely basis, if at all.
In the second quarter of 2018, we received and analyzed the results of our second Phase III clinical trial for CINGAL, our lead product candidate, and found that, while substantial pain reduction associated with CINGAL was evident at each measurement point, the data did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL and the approved steroid component of CINGAL at the six-month time point. These results could have a substantial negative impact on the timeline for, and the cost associated with, CINGAL regulatory approval, if any, which could have a material adverse effect on our competitive position in the market in which we do business, and our overall business, financial condition, and results of operations.
In addition to regulations enforced by the FDA, we are subject to other existing and future federal, state, local, and foreign regulations applicable to product approval, which may vary significantly across jurisdictions. Additional approval of existing products may be required when changes to such products may affect the safety and effectiveness, including for new indications for use, labeling changes, process or manufacturing changes, the use of a different facility to manufacture, process or package the device, and changes in performance or design specifications. Failure to obtain regulatory approvals of our products, including any changes to existing products, could have an adverse material impact on our business, financial condition, and results of operations.
Even if ultimately granted, FDA and international regulatory approvals may be subject to significant, unanticipated delays throughout the regulatory approval process. Internally, we make assumptions regarding product approval timelines, both in the United States and internationally, in our business planning, and any delay in approval could materially affect our competitive position in the relevant product market and our projections related to future business results.
We cannot be certain that product approvals, both in the United States and internationally, will not include significant limitations on the product indications, and other claims sought for use, under which the products may be marketed. The relevant approval or clearance may also include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements. Any of these factors could significantly impact our competitive position in relation to such products and could have a negative impact on the sales of such products.

21 26

We are facing ~~an unforeseen~~a delay in the pathway to commercialize our CINGAL product in the United States and we may face other unforeseen difficulties and delays in ~~implementing new commercial models~~achieving regulatory approval for CINGAL, ~~and other products,~~ which could affect our business and financial results.
In the first half of 2018, we began the initial, pre-launch phases of implementing a direct sales model to commercialize and promote CINGAL in the United States. In the second quarter of 2018, we received and analyzed the results of our second Phase III clinical trial for CINGAL and found that, while substantial pain reduction associated with CINGAL was evident at each measurement point, the data did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL and the approved steroid component of CINGAL at the six-month time point. Because these results could have a substantial negative impact on the timeline for and the cost associated with a potential CINGAL regulatory approval, if any, our overall business condition, financial results, and competitive position could be affected.
We initially intended to use a direct sales model, at least in part, to potentially commercialize CINGAL and other of our products in the United States in the future. Given the delay of a potential CINGAL regulatory approval, we reevaluated our commercial strategy for our products in the U.S. market. In general, we believe that the hybrid of small direct and partnership distribution models will maximize the revenue potential from our current and near-term future product portfolio. We have ceased additional U.S. direct sales pre-launch activities for CINGAL as we evaluate its regulatory pathway in the United States. For longer-term future products in the U.S. market, we intend to evaluate the appropriate commercial model for each on a case-by-case basis, based on market dynamics and other factors. These models could include direct sales, distribution partnerships, or a hybrid of those forms. We cannot assure you that there will not be unforeseen roadblocks or delays in the implementation of any commercial model, and we cannot be certain that any given commercial model for any specific product will maximize the revenues to be generated for us by such product. Failure to effectively implement any commercial model for CINGAL or other future products could materially impact our competitive position, business, and financial results.
~~Substantial competition could materially affect our financial performance.~~
We compete with many companies, including large pharmaceutical companies, specialized medical products companies, and healthcare companies. Many of these companies have substantially greater financial resources, larger research and development staffs, more extensive marketing and manufacturing organizations, and more experience in the regulatory process than us. We also compete with academic institutions, government agencies, and other research organizations that may be involved in research, development, and commercialization of products similar to our own. Because a number of companies are developing or have developed HA products for similar applications and have received FDA approval, the successful commercialization of a particular product will depend in part upon our ability to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our competitors, or, if regulatory approval is not obtained prior to our competitors, to identify markets for our products that may be sufficient to permit meaningful sales of our products. For example, we are aware of several companies that are developing and/or marketing products utilizing HA for a variety of human applications. In some cases, competitors have already obtained product approvals, submitted applications for approval, or have commenced human clinical studies, either in the United States or in certain foreign countries. There exist major competing products for the use of HA in ophthalmic surgery. In addition, certain HA products made by our competitors for the treatment of osteoarthritis in the knee received FDA approval before ours and have been marketed in the United States since 1997, as well as select markets in Canada, Europe, and other countries. There can be no assurance that we will be able to compete against current or future competitors or that competition will not have a material adverse effect on our business, financial condition, and results of operations.

In the second quarter of 2018, we received and analyzed the results of our second Phase III clinical trial for CINGAL and found that, while substantial pain reduction associated with CINGAL was evident at each measurement point, the data did not meet the primary study endpoint of demonstrating a statistically significant difference in pain reduction between CINGAL and the approved steroid component of CINGAL at the six-month time point. ~~These~~The FDA has indicated that an additional Phase III clinical trial will be necessary to support U.S. marketing approval for CINGAL. We decided during the second quarter of 2019 to conduct a pilot study to enable us to evaluate our full-scale Phase III clinical trial design, including patient and site selection criteria, and increase the probability of success for the Phase III trial. We expect to begin enrolling patients in the pilot study in the first half of 2020, but we may experience significant delays in patient enrollment or the pilot study may otherwise not be successful. If the pilot study is successful, we expect to commence an additional Phase III trial, but we cannot guarantee the success of any additional Phase III trial. Because the results of the pilot study or any additional Phase III trial, or other unforeseen future developments, could have a substantial negative impact on the timeline for ~~CINGAL’s commercial launch in~~and the ~~United States, if~~cost associated with a potential CINGAL regulatory approval, ~~is ultimately achieved, which could negatively impact~~ our overall business condition, financial results, and competitive position ~~and have a material adverse effect on our business, financial condition, and results of operations.~~ could be affected.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Under our equity compensation plans, and subject to the specific approval of the Compensation Committee of our Board of Directors, grantees have the option of electing to satisfy tax withholding obligations at the time of vesting or exercise by allowing us to withhold shares of stock otherwise issuable to the grantee. During the three-month period ended September 30, ~~2018, there were no~~2019, we withheld 2,147 shares ~~withheld~~ to satisfy grantee tax withholding obligations on restricted stock award vesting events.
22

Following is a summary of stock repurchases for the three-month period ended September 30, ~~2018~~2019 (in thousands, except share data):

Period Total Number
of Shares
Repurchased ⁽¹⁾ Average
Price Paid
per Share ⁽¹⁾ Total Number of Shares
Repurchased as Part of
Publicly Announced
Program ⁽¹⁾ Approximate Dollar Value
of Shares that May Yet Be
Repurchased Under the
Program ⁽¹⁾
July 1 to 31, 2018 372,140 - 372,140 $ -
August 1 to 31, 2018 - - - $ -
September 1 to 30, 2018 - - - $ -
Total 372,140 372,140
Period Total Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet be Purchased
Under the Plans or
Programs(1)
July 1 to 31, 2019 2,147 $ 55.85 - $ 32,000
August 1 to 31, 2019 - - - $ 32,000
September 1 to 30, 2019 - - - $ 32,000
Total 2,147 -

(1) On May ~~24, 2018,~~2, 2019, we announced that our Board of Directors approved a $50.0 million share repurchase program with $30.0 million to be utilized for an accelerated share repurchase program and $20.0 million reserved for open market repurchases. On May 7, 2019, we entered into a previously-announced accelerated ~~stock~~share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $30.0 million of ~~our~~ common stock. During the second quarter of ~~2018, 434,678~~2019, 451,694 shares were delivered to us, ~~under the ASR Agreement,~~ constituting the initial delivery of shares and representing 60% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. On July 16, 2018, pursuant to the terms of the ASR Agreement, Morgan Stanley accelerated the final settlement date from December 2018, and the final number of shares and the average purchase price was determined. Based on the volume-weighted average price from the effective date of the ASR Agreement through July 16, 2018, less the applicable contractual discount, Morgan Stanley delivered 372,140 additional shares to us on July 19, 2018. In total, 806,818 shares were repurchased under the ASR Agreement at an average repurchase price of approximately $37.18. All shares were repurchased in accordance with the publicly announced program. Final settlement occurred on July 19, 2018, andThrough September 30, 2019, we ~~will not make further purchases under the program.~~have made no open market repurchases.

23 27

ITEM 6. EXHIBITS

Exhibit No. Description

(31) Rule 13a-14(a)/15d-14(a) Certifications

*31.1 Certification of Joseph G. Darling, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2 Certification of Sylvia Cheung, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32) Section 1350 Certifications

**32.1 Certification of Joseph G. Darling, and Sylvia Cheung, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(101) XBRL

*101 The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018,~~2019 as filed with the SEC on October ~~26, 2018,~~28, 2019, formatted in XBRL (eXtensible Business Reporting Language), as follows:

i. Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 (unaudited)
ii. Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 (unaudited)
iii. Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and September 30, 2018 (unaudited)
iv. Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 (unaudited)
~~iv.~~v. Notes to Condensed Consolidated Financial Statements (unaudited)

* Filed ~~herewith~~herewith.
** Furnished herewith.

24 28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ANIKA THERAPEUTICS, INC.

Date: October ~~26, 2018~~28, 2019 By: /s/ SYLVIA CHEUNG
Sylvia Cheung
Chief Financial Officer
(Authorized Officer and Principal Financial Officer)

2529

	For the nine months ended September 30, 2019
												Accumulated
	Common Stock											Other			Total
	Number of			$0.01 Par			Additional Paid			Retained		Comprehensive			Stockholders'
	Shares			Value			in Capital			Earnings		Loss			Equity
Balance, January 1, 2019		14,210		$	142		$	50,763		$	218,233	$	(5,526	)	$	263,612
Issuance of common stock for equity awards		7			-			5			-		-			5
Retirement of common stock for minimum tax withholdings		(3	)		-			(124	)		-		-			(124	)
Stock-based compensation expense		-			-			1,386			-		-			1,386
Net income		-			-			-			4,507		-			4,507
Other comprehensive loss		-			-			-			-		(315	)		(315	)
Balance, March 31, 2019		14,214		$	142		$	52,030		$	222,740	$	(5,841	)	$	269,071
Issuance of common stock for equity awards		30			1			851			-		-			852
Forfeiture of restricted stock		(7	)		-			-			-		-			-
Stock-based compensation expense		-			-			1,443			-		-			1,443
Repurchase of common stock		(452	)		(5	)		(29,995	)		-		-			(30,000	)
Net income		-			-			-			9,435		-			9,435
Other comprehensive income		-			-			-			-		145			145
Balance, June 30, 2019		13,785		$	138		$	24,329		$	232,175	$	(5,696	)	$	250,946
Issuance of common stock for equity awards		488			5			20,962			-		-			20,967
Forfeiture of restricted stock		(2	)		-			-			-		-			-
Stock-based compensation expense		-			-			1,311			-		-			1,311
Retirement of common stock for minimum tax withholdings		(2	)		-			(120	)		-		-			(120	)
Net income		-			-			-			9,200		-			9,200
Other comprehensive loss		-			-			-			-		(622	)		(622	)
Balance, September 30, 2019		14,269		$	143		$	46,482		$	241,375	$	(6,318	)	$	281,682

	September 30, 2018
Balance at January 1, 2018	$	8,218
Effect of foreign currency adjustments		(259	)
Balance at September 30, 2018	$	7,959

	September 30,
	2019
Balance at January 1, 2019	$	7,851
Effect of foreign currency adjustments		(362	)
Balance at September 30, 2019	$	7,489

	September 30, 2018		December 31, 2017
Compensation and related expenses	$	3,875	$	2,893
Clinical trial costs		586		2,318
Accrued liabilities related to product recall		344		-
Research grants		406		419
Professional fees		1,233		448
Deferred revenue		52		-
Other		347		248
Total	$	6,843	$	6,326

	For the three months ended September 30, 2019		For the nine months ended September 30, 2019
Lease cost
Operating lease cost	$	525	$	1,568
Short-term lease cost		-		6
Variable lease cost		43		155
Total lease cost	$	568	$	1,729

Other information
Operating cash flows from operating leases	$	488	$	1,482

	Operating Lease Obligation As Of
Years ended December 31,	September 30, 2019
2019 (remaining 3 months)	$	497
2020		2,025
2021		2,024
2022		1,981
2023		1,965
Thereafter		23,530
Present value adjustment		(9,310	)
Present value of lease payments		22,712
Less current portion included in Accrued expenses and other current liabilities		(1,109	)
Operating lease liabilities	$	21,603

Years ended December 31,
2019	$	1,879
2020		1,917
2021		1,924
2022		1,672
2023		414
2024 and thereafter		897
Total	$	8,703

Period	Total Number of Shares Repurchased ⁽¹⁾		Average Price Paid per Share ⁽¹⁾		Total Number of Shares Repurchased as Part of Publicly Announced Program ⁽¹⁾		Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Program ⁽¹⁾
July 1 to 31, 2018		372,140		-		372,140	$	-
August 1 to 31, 2018		-		-		-	$	-
September 1 to 30, 2018		-		-		-	$	-
Total		372,140				372,140

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1)
July 1 to 31, 2019		2,147	$	55.85		-	$	32,000
August 1 to 31, 2019		-		-		-	$	32,000
September 1 to 30, 2019		-		-		-	$	32,000
Total		2,147				-

Exhibit No.	Description

(31)	Rule 13a-14(a)/15d-14(a) Certifications

*31.1	Certification of Joseph G. Darling, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2	Certification of Sylvia Cheung, pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)	Section 1350 Certifications

**32.1	Certification of Joseph G. Darling, and Sylvia Cheung, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(101)	XBRL

*101	The following materials from Anika Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2018,~~2019 as filed with the SEC on October ~~26, 2018,~~28, 2019, formatted in XBRL (eXtensible Business Reporting Language), as follows:

	i.	Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018 (unaudited)
	ii.	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 (unaudited)
	iii.	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and September 30, 2018 (unaudited)
	iv.	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and September 30, ~~2017~~2018 (unaudited)
	~~iv.~~v.	Notes to Condensed Consolidated Financial Statements (unaudited)

		ANIKA THERAPEUTICS, INC.

Date: October ~~26, 2018~~28, 2019	By:	/s/ SYLVIA CHEUNG
		Sylvia Cheung
		Chief Financial Officer
		(Authorized Officer and Principal Financial Officer)