All righty. Well, welcome to the first Fireside Chat of the day. With us we have Anika Therapeutics presenting, Cheryl Blanchard, the CEO, and Mike Levitz, the CFO. Thank you both so much for being here. We appreciate it.
Yeah, great. Thank you. We're happy to be here.
This is a Fireside Chat format, so to the extent there's questions from the audience, feel free to raise your hand, and we're happy to take any questions as well. But I think the best way to get started, and also, I'll mention there's slides on the website, to the extent anybody wants to follow along there. But the best way to get started, I think, would be to just turn it over to y'all to maybe give a brief overview of the business. Walk us through some of the key points and your strategic priorities.
Okay, great. Thanks a lot. Thanks, everyone, for being here. Thank you, everybody who's online. We're happy to be here today to talk about Anika Therapeutics. We're a 30-year-old company that has, for most of our life, been a contract development manufacturing company, and that company was really developed and a lot of expertise developed around our proprietary hyaluronic acid platform. In fact, probably the biggest product that many people have heard of that has come out of the legacy CDMO piece of the business are Orthovisc and Monovisc, the OA pain management products that have the number one market share position in the United States today.
So we took that 30-year-old company that had this really great hyaluronic acid technology, and in 2020 embarked on a transformation growth story that had us leveraging that HA technology in the joint preservation space, so early intervention orthopedics. And the HA piece of that was really leveraged around the regenerative solutions element of that JPR business. So in 2020, as we embarked on this transformation growth story, we acquired two companies, Parcus Medical and Arthrosurface. Parcus was a, a sports medicine soft tissue fixation company. Arthrosurface Joint Solutions was a company that had really innovative technology in early intervention, bone-preserving, motion-preserving implants, primarily focused on the extremity space. So we really put together, in 2020, a company that had the, a full continuum of care in joint preservation, starting out with OA pain management, regenerative solutions, sports medicine, and Arthrosurface joint solutions.
So we've been busy for the last three years, really building that JPR, joint preservation-focused business, with an emphasis on leveraging that regenerative platform that Anika had developed for so many years, and been very focused on developing really breakthrough products that allowed us to build out a strategy that in the initial stages has been focused on the shoulder. And we most recently have launched a number of products, I'm sure we'll talk about them today, and we're getting ready to launch a couple more in early 2024. We're very excited about it. So we've really made a lot of significant progress in the last three years, bringing these breakthrough products forward, building out this really shoulder-focused strategy and driving this joint preservation growth strategy. And we've done all of that in a way that has allowed us to self-fund it.
We've got a strong balance sheet and no debt, so we're really just starting to see the fruits of all that labor for the last three years.
Okay, I think that's a great, great overview. Maybe to dig in on some of those-
Yeah
... specific launches that you touched on. The three more recent ones, the X-Twist PEEK, which you launched at the beginning of this year.
Yep.
the RevoMotion, which you fully commercialized here in September, and then, you're about to launch Integrity, the HA Patch, and the X-Twist Biocomposite in early 2024. Maybe speak to each of those, each of those launches.
Okay.
Um-
I think I just got a message. I need to be closer.
Maybe speak to each of those devices and products and, and, how those all sort of fit together-
Yeah
in your portfolio.
Yeah. Thank you very much. So, as I mentioned, we've been really busy on new product development, and the first significant product that we launched was X-Twist. So that's in the sports medicine vertical. X-Twist really plays into the lateral row suture anchor market, so again, in the shoulder. And the first product we launched was the PEEK version, so it's a non-resorbable polymer version. That market really has two components of the PEEK version and then a biocomposite version, which we will be launching in early 2024. So if you think about rotator cuff pathology, the acute tears that are gonna be good healers typically just have a procedure with a suture anchor.
So the surgeon goes in, repairs the rotator cuff, fixates it down to bone using a suture anchor, and then the patient does well, is a good healer. But if you kind of move down that continuum of care, you can also have patients that have had a more chronic tear, and they probably don't have very good bone. They have poor quality bone, or they have a cyst, and there's not good bone to get the suture anchor into. So there's another product that we actually launched back in 2019 called Tactoset. That's an injectable settable bone void filler that we have a special indication for, to be able to use it alongside a suture anchor to really bring that bone to a level that it can hang on to the suture anchor. And so we can use Tactoset and X-Twist together-...
And then the next level of rotator cuff pathology is you can still repair the rotator cuff, but it needs some help. It needs some regenerative help, and that's really where Integrity comes into play. And I know we'll talk about that in a bit, so I won't do a deep dive on that right now. But Integrity is what— Tactoset and Integrity really leverage that Hyaluronic Acid technology that I was talking about at the beginning. And Integrity is a patch, but also a system with fixation and instrumentation, and that is sort of the next level where the patient needs a little bit of help with biology.
And then the very last thing is the RevoMotion, which is an implant, a reverse shoulder implant, and that's when the rotator cuff really is incompetent and it is unable to be repaired, and so the surgeon chooses to give the patient a reverse shoulder as a solution. So we've now kind of rounded out a full continuum of care to treat all of the rotator cuff pathologies. We're really excited about it, and the products are either in the market or will be very soon, and this really gets us into an addressable market size that is much larger than anything Anika's been able to get into previously.
Yeah. You've mentioned regenerative a few times.
Yeah.
Maybe before we go much further, could you just talk about the regenerative space, how your HA background, which you touched on a little bit at the top, but how the HA background positions you to win in that regenerative space and differentiates your portfolio?
Yes, absolutely. And I'll focus that on, right now, on the soft tissue piece of that, because that's really what Integrity plays into. There are current regenerative patches on the market today, and they are all what I would call a first-generation collagen technology. And collagen's great. It's been used as a regenerative biomaterial for years, but there are limitations to that technology that surgeons had, you know, come to us and said, "here's really where there are unmet needs that are still out there." And the unmet needs were around we need it to be more regenerative, regenerative capacity, strength, handleability, and then just the instrumentation around it.
But on the regenerative side, that HA technology that Anika brings to the table, we've now got really great animal data in a head-to-head comparison to the market leader today that demonstrates that we've got about three times the regenerative capacity, and we've seen this in some of our other products. We'll probably talk about Hyalofast later, our cartilage repair product that we sell outside the U.S. We'll have 15-year data on that here early next year. And Tactoset, we just see the great regenerative capacity of our proprietary hyaluronic acid platform.
Yeah. Could you talk about the timing for commercializing that Integrity patch system?
Absolutely. So, and you want me to kind of speak to Integrity in general as I do that?
That would be great. That would be great.
So the system that we've developed, it has a patch that is a regenerative patch, and the patch gets used to augment a tendon repair. And we've been focused initially on rotator cuff repair, although we have an indication for augmenting the repair of any tendon in the body, and so there will be other applications for this going forward that we're very excited about. So the patch is a very important part of it, and the unmet need that we're really addressing there is around regenerative capacity. It's much stronger when hydrated, which is really the only time the strength matters, because as soon as you put it into the body and into an arthroscopic procedure, it's going to be wet.
The collagen tends to not hold up very well as soon as it gets wet, so we have great strength in the patch. We have really great suture retention, like much stronger than any of the competitive products that are out there. And then alongside the patch, we have developed for the Rotator Cuff, a very simplified lateral first surgical technique with very easy-to-use fixation, both the fixation of the cuff to the tendon and tendon to the bone, and then also instrumentation that facilitates a really nice surgical technique and implantation methodology. So it's really the full kit that we're bringing to the table. The patch is sold separately, so it can be used in other tendon indications.
And then there will definitely be use of and pull-through of X-Twist alongside that, because a lot of times the surgeon will do a sort of a lateral row - a lateral first technique to get the the tendon brought down to the bone, and they'll - that's the the suture anchor that they'll use to do that. So there's there's nice synergy there between our products, too. And this really helps us get into this. It's today in the United States, about $150 million market, fast growing, and we feel like bringing this technology into the market is we're gonna be able to take away existing market share and then contribute a lot to that growth going forward.
Okay. Okay. Maybe switching to the X-Twist-
Yep
... that you started discussing there. So you've got PEEK fully commercialized beginning of the first quarter of this year. The biocomposite is expected to fully commercialize here in the fourth quarter.
Yes.
Could you talk about the market opportunity for X-Twist, those two different devices separately and then together? How physicians view biocomposite versus PEEK, and ultimately, how that sort of augments your current portfolio?
Yeah, absolutely. So we launched the PEEK version of X-Twist, so that's the non-resorbable version, at the beginning of this year, and that addressable market's about $600+ million . The, the PEEK versus biocomposite aspect of that market is, it's about 50/50, and it's really a, a philosophy for the surgeons. Some surgeons just love PEEK. It is stronger, and they, they feel better that they get a, a more competent biomechanical construct when they implant it. But other surgeons really like the biocomposite. It resorbs, and it, it remodels over time, and they feel like that gives the patient a, a better long-term result. So we're just happy now to be bringing the biocomposite version of X-Twist to the market. It's a great system.
Our primary competitor there is Arthrex, and there are a lot of customers out there that are really excited to be working with a different company with this solution, and it's a great solution. We're getting continue to get great clinical feedback on it. So we're just excited to get biocomposite out there at the beginning of next year, so that we can really go after that full $600+ million market.
Okay, and you mentioned Arthrex as the main competitor. How would you frame up your right to win in that market?
Yeah, it's a great question. So Arthrex is a big company. They're a fierce competitor, and they own about 50% of the sports med market in the United States. But they are kind of, in their ownership of that market, not always the easiest company to work with, and so there are surgeons that are really interested in working with a company that really brings great innovation to the table and other solutions that Arthrex and others don't have. There are other competitors aside from them, but we feel like we really have a right to win with a great product and bringing some of these other solutions to the table that the bigger companies don't have.
Okay. Shifting to the other device that we talked about at the top-
Yep.
The reverse shoulder system, could you frame up... I know it's a much bigger market opportunity than what Anika has been in previously. Could you just frame up that market opportunity, what physicians care about, and maybe the initial target position?
Absolutely. So the shoulder arthroplasty market is a large over-$1 billion market, but about 80% of that market is the reverse market. The other part of it is the anatomic market. We have a great anatomic system, OVOMotion, and it's a product that has great clinical history, is an anatomic design, but the reverse portion of the market is much bigger. It's 80%+ of that market and the faster-growing piece of it. So this is a really important element to have kind of the full total shoulder solution available to the market and be able to go after the much larger portion of that $1+ billion market.
We really came at the reverse shoulder market. It's a crowded space, and we wanted to make sure we were bringing something differentiated, and we stayed true to the Arthrosurface design philosophies of being bone preserving, motion preserving, anatomic in nature, and making sure that we also were focused on bringing a solution to the ASC. Because the ASC-
Mm-hmm.
... is something we've been focused on in the sports med and regenerative piece of the business. Interestingly enough, just recently, CMS put out new guidance that they'll be reimbursing total shoulders in the ASC starting in January, which is, it's a big deal because previous to that, the ASC procedures that were done were only private pay. So that really opens up the ability to leverage something that we designed to really work in the ASC. So great system, great implants, but we focused on putting a system together that only had two trays of instruments, which works much better in the ASC. A lot of the other bigger systems have three, four, five, six trays, and the ASC central processing just can't handle that.
So we are really well-positioned now with our two-instrument tray set, now that this new, this new reimbursement is in place in January.
Okay, and-
One last thing.
Yeah.
You asked kind of our go-to-market.
Yeah.
I mentioned OVOMotion. Those people, those surgeons really like the Arthrosurface design philosophy, and so our initial targets are current OVOMotion users, and those are the folks that we've been in lots of conversations with. We've had a lot of training on safe and effective use of the product. We just had a significant shoulder meeting last weekend and trained a number of surgeons, so that's really the initial target set because they already know these design philosophies-
Mm-hmm
... and are excited to move to have that reverse in the OR with them now.
Okay, and could you maybe frame up what that near-term opportunity looks like on a dollar value or a percent of the overarching market? And then, what's been the initial feedback from those surgeons as you-
Yeah
... started to roll this out?
Yeah, it's a great question. The initial feedback has been great. The X-rays are beautiful, which is obviously a big deal, making sure that the implants get placed well. We have patients that are out almost a year now and are asking for the same thing on the other side, which is always a great data point. So all of that is going very well. The surgeon feedback has been incredibly positive, and, you know, we just look forward to really now in the full market release, now that we have full sets, we're done with that limited release feedback, getting that out into the market. In terms of what it's gonna mean for Anika next year, you know, we've talked about double-digit growth for joint preservation, and RevoMotion is a really important part of that.
Okay, okay.... and maybe on the competitive dynamics, 80% of the market is the reverse shoulder. Who are the current market participants, and how does the RevoMotion stack up? You've mentioned some of the benefits in the ASC, maybe more broadly-
Yeah.
What's again sort of the right to win there?
Thank you. So it's, it is a very crowded space. I would say that, you know, every major orthopedic company has a reverse system, and there are also a number of smaller players out there. But we feel like we have a right to win because we've got a system that has some really, significant design features that address a number of unmet needs. We have the smallest threaded glenoid base plate, which may not sound like much, but when you really sit down with surgeons and you understand the different pathologies that they have to treat, that gives them a lot of optionality about where to place it in the glenoid, and in fact, be able to really preserve a lot of bony real estate by not having to go to a big reverse system.
I talked about the two-tray instrument design is a big deal. The anatomic approach and the inlay humeral concept are all things that the surgeons are very excited about. The other element of having a reverse is when a surgeon goes in, if they're gonna do an anatomic, they always wanna have a reverse in the OR in case they get in there and find that the rotator cuff just isn't competent enough to handle an anatomic. And so that was a... that was always a thing for Anika and Legacy Arthrosurface, not having that reverse in the OR. Surgeons don't like to call in a competitive rep to stand in the back of the room just in case, and so now we can show up with the full set of solutions.
Okay. Okay, so a lot of great devices and launches coming up.
Yes.
Could you speak to maybe your commercial strategy, distributor versus direct? We can get into some of the changes you've talked about recently, but maybe just to start, sort of frame up that strategy.
Absolutely. So Anika has taken the approach here in the last three years since becoming a joint preservation company, that, you know, as a small med tech company, not making the significant investment in carrying a large fixed cost of having a fully direct sales force, we can really leverage strong distributors, 1099 distributors, through management of our own direct folks. We've done that for the last three years. It's gone well. We have most of our distributors very focused on the business and growing us very strong double digits. What we've talked about recently is starting to augment that hybrid sales force that is growing us, you know, strong double digits with certain geographies and certain distributors that are less focused on us, where we just don't think we're going after the full opportunity that's out there right now.
So again, this is. It's focused. We have really good data on where these folks will go. They will be focused on sports med and regenerative because all of our distributors are very good at selling the Arthrosurface joint solutions, so these folks will only be focused on sports med and regenerative. So again, it's really leveraging the strength of the hybrid sales force that we've built out that has been growing strong double digits and making sure that we're really going after all of the geographies where we may not getting the attention that we're currently getting today.
Okay, that's helpful. And Mike, I promise I haven't forgotten about you. Maybe you could speak to, a little bit, the lift from investing in that more direct sales force. How big of a lift is that? What's that investment look like over the next few quarters in 2024?
Great. Thank you, George. The good news is, from an operating expense standpoint, we are now in a position to be able to drive operating leverage. We've made a number of investments over the last few years, building out the product portfolio that Cheryl described, and putting in place the commercial infrastructure to be able to support the growth of the business. Now that we are launching these products and, and those costs are coming behind us, as well as, finishing up the spend we've done on MDR for our, European, business, we're now in a position to drive operating leverage, and that, that enables us to make specific investments like these targeted investments in a direct sales force.
And so, as Cheryl said, you know, our focus is on the hybrid sales force, and we're very pleased where we have distributors that are focusing on us. But in these targeted investments, we're able to self-fund that and cover that and still be able to keep our spending steady at this point, so that we can drive operating leverage here in 2024 and beyond as we increase the growth trajectory of the company.
Okay. And I'll maybe pause there and see if there's any questions from the audience at this point. Okay, well, we'll keep rolling. I think the direct sales force is an important topic, and maybe you could speak to how that can change and augment that growth profile with... And it's not a replacement of that distributors, but sort of switching out the distributors who are less focused on sports med with a direct sales rep that maybe is similar to the other distributors who are having success there. What could that do to the growth profile?
... Well, so I just wanna make sure that it's really clear what we're doing. We have the distributors that we work through really cover the geography of the United States. And what we see is, in some geographies, those distributors that are strong in Arthrosurface may not be as focused on the sports and regen piece, so we're really augmenting them-
Mm.
with a direct person that's gonna focus on sports and regen. And so where we're not getting that focus today, again, just to augment the full set of distributors that are growing us strong double digits, and those other distributors that are doing well with Arthrosurface, it's just gonna give us some additional opportunities to go after those markets and those areas where they're not as focused on the sports and regen piece. And it is all gonna roll up and contribute to this double-digit growth that we're talking about into next year.
Okay, okay. Well, let me just switch gears a little bit. OA Pain Management has had a really strong year. Could you speak to some of the puts and takes? What's driving that outperformance, so far this year? You mentioned Monovisc and Orthovisc at the top. Maybe speak to the growth in those as well as Cingal internationally.
Great. Thank you. So our osteoarthritis pain management business really consists of three products, Orthovisc, Monovisc, and Cingal. Orthovisc and Monovisc are hyaluronic acid, Orthovisc, multi-injection Monovisc, single injection, intra-articular injectable products to treat osteoarthritis pain, and we sell those two products globally. In the United States, they are sold through J&J Mitek. So let me focus on that piece of the business first, and then we can talk about OUS. So OA Pain Management for us has been very strong this year. We, I would say, came back after COVID, you know, kind of post-COVID dynamics, but also had a new dynamic happen in the United States, where we really had been in partnership with J&J, not on a level playing field with other competitors.
There was a new set of legislation that came into play that really leveled that playing field, and it was around CMS kind of putting new rules in place around the WAC to ASP pricing and reporting, requiring everyone to report their ASPs. What that did for us was put us on a level playing field, us, J&J, and so they could go back to selling really on the strength of the products that we have. J&J has always held a combined number-one market share position in the United States, but had been losing market share over the last few years because of this selling dynamic that existed. Now that we're on a level playing field, what we've seen this year is that J&J is starting to take back some of that market share.
So there's been some nice growth there from them that's higher than market growth, and we expect that to continue into the future with Orthovisc and Monovisc, largely led by Monovisc. The single injection treatments, I think, make sense. You know, you get one injection for six months instead of three or five. It's just, it's simpler for the patient. So that growth in the United States will, we think, continue. Outside the United States, Anika sells all three of our products, so Orthovisc, Monovisc, and Cingal, and Cingal is our next-generation osteoarthritis pain product that has incredible clinical data. It is a combination of hyaluronic acid and a steroid, triamcinolone hexacetonide. So we sell all three of those products, OUS, and we have continued to grow all three products outside the U.S., very much led by Monovisc and really led by Cingal.
We have seen sustained strong double-digit growth of Cingal for some time now, and we expect to continue to see that kind of growth with Cingal into the future. The other thing I'll mention is in the markets outside the United States, where we sell all three products, and there are many markets where we do that, over 35, we see continued growth of Monovisc and Cingal in the same market, so they do not cannibalize each other. There is a use case for each of them, and what we see Cingal doing is really being used where a steroid, an immediate-release steroid would be used today.
Okay.
In general, you know, we continue to see strength in the osteoarthritis pain business in the United States, taking market share, growing above market, led by Monovisc outside the United States, seeing nice growth led by Monovisc and Cingal.
Okay, and I wanna get to Cingal-
Yeah
... a little bit more, but, maybe just one quick one on the U.S. Could you speak to that partnership with J&J? I believe you recently re-signed that agreement, but how do they think about the market?
Yeah, this is an important market for them. It's one that they're very focused on, and we know that they're investing in it, and they continue to grow it. It's an important market for them. We have a very healthy partnership, and, you know, we look forward to many years of continuing to go after that end market and frankly, with the best products and the best clinical data, really doing right by patients who have osteoarthritis pain.
Yeah, okay. Well, shifting gears to Cingal, this is an exciting product that, as you mentioned, is just internationally right now. Maybe we could start with where you are in penetrating that international market, what that steroid market looks like, and then we can talk a little bit about potentially bringing it to the U.S.
Sure. So we sell Cingal outside the United States in over 35 countries, and we sell it through basically country-level distributors, and many of those distributors sell all three of our products. So they have built out sales forces in a given country that really cater to the set of doctors that treat osteoarthritis pain, and that can run across GPs, general orthopods, rheumatologists, and orthopedic surgeons, and pain clinics. So you know, country by country, the targets can be a little bit different.
Okay.
What we see, though, is with the strength of our clinical data continuing to leverage those hyaluronic acid products outside the U.S., there are countries that are more price-sensitive than others, so sometimes Orthovisc is more attractive than Monovisc, but Monovisc and Cingal are really leading the charge. And the immediate-release steroid market is, it's actually one that's a little difficult to get your arms around because it's often, and even in the United States, it's all off-label use, so there's not a way to actually track it.
Okay.
It's probably even outside the U.S., a low-dollar market, but a very high procedure market. What we hear from surgeons and the doctors that are using this, and we've got really great basic science data that demonstrate this, is that instead of an immediate-release steroid that can be damaging to cartilage and bone, and you don't wanna do too many steroid injections before you end up with a different issue on your hands, they like Cingal because with the HA in there, it's actually counter-protective in combination with that steroid, so they can do multiple injections. We have really good repeat-use data showing that that is a safe thing to do.
Okay.
So we're seeing more and more uptick, and that's really what's resulted in this strong, continued, sustained double-digit growth of Cingal, and there's a lot of runway to go to really convert away that full steroid market outside the U.S.
Okay. And the U.S. is obviously a significant opportunity. Could you speak to the timeline for bringing Cingal to the U.S., what that could look like, your conversations with the FDA, and then you've also talked about potentially a partnership. Would that be a similar partnership to what you have with J&J, or, or what are some of the options there?
So in the United States, we've been very focused on bringing Cingal into the U.S. There's a significant unmet need for a next-generation osteoarthritis pain product. And as Anika has developed this product, the FDA has kind of changed how they regulated it as we've gone. So we have had on the strength of our third phase III clinical trial data that we brought forward that we've now met all of the endpoints that FDA set out for us to meet with this product. We had a Type C meeting with them earlier this year, and we've had some discussions with them about some non-clinical, additional non-clinical work that we need to do. They have a proposal that they solicited from us, that we submitted to them, and we're waiting to hear back from them on that.
Until I hear back from them, I can't really provide a specific timeline, but the work to be done from here forward is really non-clinical work. So it's been a long development story for Cingal, but a very worthwhile one. And, you know, this is a market in the United States today where there's a significant unmet need and a lot of value to be driven, both for patients and our shareholders with this product.
Okay.
From a partnering perspective, you know, there's a lot of interest in this product. What that looks like, I, I wouldn't wanna say. We're still in those discussions, but we also are in discussions in partnering that product in select Asian markets and, and have had a lot of interest there also. So this is a product that, when Mike and I came in to the seat three years ago, was a distant dream, but with this, this latest clinical data that we've, we've got now, we have line of sight to that product in the United States in, in our planning period, which is really exciting.
Okay. One other product that we haven't talked a lot about yet is Hyalofast.
Yes.
This is a pretty exciting product.
It is.
You announced earlier this year in May, at the end of May, that you fully enrolled that clinical trial. Could you speak to the key efficacy endpoints that you're looking for with that, the timeline for the U.S. launch, and also give some color on what that modular PMA filing looks like and how that process compares to the more traditional PMA filing?
Yeah, absolutely. Hyalofast is a game-changing product. Again, we sell that product in over 30 countries outside the U.S. today, and we will have 15-year clinical data on that at the beginning of next year. So rather unusual to have that much clinical data on a product when you bring it into the United States. But it is, it's difficult to bring cartilage repair products to the U.S. because of the way the FDA requires you to randomize to Microfracture, which surgeons no longer view as standard of care, and it's very difficult to get them to sign up to do that on a patient when they don't feel like it's standard of care. So it took Anika a long time to get that clinical trial enrolled, but it is now fully enrolled, and we'll have our last patient out in 2025.
So the clinical trial is randomized to microfracture. It has a 2-year primary endpoint, although we will have a significant number of patients with 3-year data even at that point in time-
Okay
... just because of the length of time it took to enroll.
Mm-hmm.
That the endpoint will be a composite endpoint of pain and function, so a fairly standard endpoint for a clinical trial like that. But Hyalofast is a really game-changing product in the cartilage repair space in the United States, especially because the current product today, MACI, is a product that requires two surgeries. So in the first surgery, a biopsy is taken from healthy cartilage, sent back to the company. They take the cells out, grow it on a collagen scaffold, and then in a second surgery, implant it.
Yeah.
So it's two full surgeries. It's a supremely expensive product, $50,000-$60,000 just for the product, and requires a lot of planning and not off the shelf. So what we are bringing to the table is a product for the exact same indication that will be off the shelf, sitting in a little bag. It is the HYAF technology, so that esterified hyaluronic acid that I've been talking about today, a nonwoven form of it, highly porous, fully resorbable scaffold that you take off the shelf, you cut it to size, debride your lesion, implant it. No, no, fixation is required, no glue is required. It self-adheres, and you're done. It's a very easy surgical technique, and I think today, you know, we and others talk about a market of $1+ billion .
It's about a $150 million market in the U.S. today, and I think that's very much limited by all of the things I just described with the MACI product.
Yeah.
I think with an off-the-shelf product, you know, surgeons get into a, to a scope, and they say, "Eh, it's not big enough. It may or may not be symptomatic. I'm not gonna touch it because I don't wanna have to bring the patient back for a second surgery.
Yeah.
So with this product, they'll be able to grab it off the shelf and fix it, and along with the ACL or the meniscal, the meniscectomy and meniscal repair, whatever else they're doing in there, they can just take care of it while they're in there. So-
Okay.
We're excited to bring this to the market. We think this goes after easily a $1+ billion market that's not being realized today because of the complexities with the existing product on the market.
Yeah.
That is a—it's been designated a breakthrough product by the FDA. We have approval to be submitting this as a modular PMA, which we think will speed things up. We'll begin submitting in 2024. We'll have our first module ready to go in for submission in 2024, and the last module that we submit is that clinical module when we get to that last patient out in early 2025. So-
Okay.
You know, we're looking at a launch in 2026, but are feeling like the FDA is gonna be able to get that clinical module done quickly and are excited to really be able to bring this great innovation to patients in the United States.
Okay, and is the right way to think about that modular submission process, that after the first module is submitted, that piece of it is approved before you submit the next module, or what does that process look like?
There are multiple modules that will get submitted. The last one will be the clinical module.
Mm-hmm.
Typically what happens is, you submit a module, and you get any questions resolved.
Okay.
They don't formally approve a module, but they resolve all questions that they have.
Okay.
So they're done with the review of that module. So by the time you get to the last module, everything has been resolved along the way, and really, the only thing that they're gonna have potential questions around is that very last module. So it effectively accelerates your review process because they're not having to swallow the whole meal at the same time. They can take it in bits as they go.
Yeah, okay, okay. Mike, you talked a little bit about the direct sales rep investment. Could you speak to the leverage you're expecting to see through the model this year? You mentioned the MDR expenses that are kind of rolling off and rolling on the direct sales reps, but how should we really think about reaching profitability this year or 2024, 2025, or the timeline there?
Well, we are very excited to be succeeding in finishing up these investments. Being able to have now cleared products like Integrity and the Biocomposite is great because if you look at our roadmap, there's been a lot of exciting products on there. Now, most of those things are on the market or coming to the market here shortly. And then Hyalofast, as Cheryl said, is fully enrolled, and so that has very clear direction with it. And we concluded the clinical trials, the phase III pivotal for Cingal last year. So we are now wrapping up a lot of those different investments. Anika has a long history of profitability, and we made a very intentional decision to self-fund these new products.
People have spent a lot of money to buy and acquire products like an Integrity product, $100 million , and we have not done that, and we've been able to self-fund it for quite a bit less. But now that product is coming to market. So, also, as I said, we have a considerable amount of our business outside the United States, and Europe is not insignificant, and so the spending on MDR, so that we can continue to sell the OA pain management products that we sell, like Cingal and Monovisc, as well as the rest of our product portfolio that makes sense to sell in Europe; now we have made tremendous progress. Our team has done a great job with that.
So with that spending now largely behind us, and now we're still spending on these things, but now we can, we can, be in a position to stabilize our spending, and so as we deliver on that growth with these new products, that provides us an opportunity to really drive the bottom line. So, you know, as far as specific guidance, you know, normally we give our guidance for 2024-
Yeah.
- would be in, you know, when we give our year-end 2023, but we leaned a little bit forward here-
Mm-hmm
... to provide a view into 2024, and that was really to articulate this point, that you know, we have a direct pathway to profitability. We expect to be approaching break-even, adjusted net income this year, in 2024. I say this year, I'm already into 2024. But in 2024-
Mm-hmm
... driven by the growth that Cheryl described... as well as the stabilized cost. And that's even including the very targeted investments in the sales force, as well as continuing what is really an exciting product portfolio and roadmap that we have in front of us. So we're. You know, this year, it's not like we're losing a lot of money because we've made decisions, for example, to use that hybrid sales force, where we don't have a high fixed cost of a large sales force. The timing of these investments is intentional because now we have a product portfolio that enables us to drive efficiency of a sales force.
Now that you've got Integrity coming in the bag, along with X-Twist, and you can be focused in an area like the shoulder, as an example, it enables you to drive productivity there. So all of those things support our driving operating leverage in 2024, and really accelerating beyond.
Okay. So you've got over $70 million in cash on the balance sheet, no debt, operating cash flow coming in the door, in the near term in 2024. How should we think about your capital allocation strategy going forward?
Anika has traditionally had a balanced, I would say, capital allocation strategy or approach. For example, Anika did those acquisitions in 2020 to add the sports and Arthrosurface. Anika, as I said, has self-funded these investments to spend a lot less than would have been spent in acquiring these new technologies like Integrity. And we also have had a buyback, and we just bought back $5 million earlier this year. So I would say Anika has had and will continue to have a balanced capital allocation strategy. You know, we are excited for the opportunities in front of us and want to make sure. You know, this company's been around for 30 years and has a real strength and stability in its OA pain management franchise, and we are making targeted investments in that.
We talked, you know, going into 2023, that we would be spending above depreciation, this year for CapEx.
Yeah.
And the majority of that is spent on the OA pain management business and supporting that growth, but also, investing in the instruments necessary to launch products like RevoMotion. So you know, that is, that is part of that, organic investment, and use of cash. We expect that will continue, into 2024.
Okay. Okay, well, I think we're almost out of time here, so maybe, Cheryl, I'll just turn it back over to you for some final closing comments. What you really want investors to take away most from the conversation today?
Absolutely. Thanks for the opportunity again, George. We really appreciate it.
My pleasure.
Just in closing, I mean, I think what you've heard today is we've really put together an exciting company here based on a long history of proprietary and innovative development of products based on hyaluronic acid, but then leveraged that to build out a joint preservation business that's focused on that early intervention care of orthopedics across OA pain management, regenerative solutions, sports medicine, and Arthrosurface joint solutions. We've really driven this transformation growth strategy in a way that we've self-funded it. We have a strong balance sheet, no debt.
We're growing all parts of the business, and with our recent significant new product development launches that are really breakthrough products and those coming in early next year, we're really excited to be able to serve patients well, get them back to active living, and drive a lot of value for our shareholders as we drive that double-digit growth in the JPR business. So thanks for your attention and interest, everybody.
Okay, great. Thank you all for being here.