Good day, ladies and gentlemen and welcome to the Anika Therapeutics’ Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time (Operator Instructions). As a reminder, this conference is being recorded. I will now turn the call over to your host, Sylvia Cheung; Chief Financial Officer. Please go ahead.

Thank you, Stephanie. Good morning everyone and thank you for joining us. If you have not received a copy of the Anika news release, which was issued yesterday after the market closed or you would like to be added to our distribution list, please contact Sharon Merrill Associates at 617-542-5300. The news release is also posted in the Investor Relations section of our Web site at anikatherapeutics.com. In addition, a slide presentation is posted on the Anika Web site. It illustrates many of the key points we’ll be covering during today’s call. The slides can be found in the Investor Relations section, under Events, Webcasts and Presentations tab. We invite you to take a moment to open the file and follow the presentation along with us. Please turn to Slide 2. Before we begin, please remember that, the statements made in this call, which are not statements of historical facts, are forward-looking statements as defined in the Securities and Exchange Act of 1934. These statements are based on current beliefs and expectations of management and are subject to significant risks and uncertainties. The Company’s actual results could differ materially from any anticipated future results, performance or achievements. Please see our SEC filings for more information about factors that could affect our results. Please turn to Slide 3 and I'll begin our financial and franchise review. Anika delivered strong financial results for the year, marked by a record $105.6 million in total revenue and $38.3 million in net income. Total revenue for 2014 increased $30.5 million or 41% from the prior year, exceeding $100 million for the first time in Anika’s history, driven by strong milestone revenue related to the U.S. approval and launch of Monovisc. 2014 was also a record year for product revenue, which grew by $3.7 million or…

Thank you, Sylvia and good morning everyone. The progress we made in 2014 sets the stage for solid financial results in 2015 and accelerated profitable growth in future years. I’ll summarize this progress very briefly. First, we made important strides in 2014 toward our growth goal in viscosupplementation, which is to reach a 15% share of the global market by the end of 2018. We have a three part strategy to achieve this goal. Executing on the first part of this strategy, in 2014 we launched Monovisc in the United States and after eight months gained close to a 2% share of the U.S. overall market without having a unique J-Code for the product from CMS. We have previously highlighted the limitations a lack of permitted reimbursement code imposed. So this performance is impressive. Since the product launch in April of 2014 DePuy Mitek saw a positive clinical customer response to Monovisc in terms of product design, safety and ease of use. Mitek’s sales team targeted competitive conversions and saw minimal cannibalization of Orthovisc as a result. Exiting 2014, overall U.S. market share for Orthovisc and Monovisc grew to 21% from 17% in 2013. Globally Monovisc product revenue for 2014 was up 258% from 2013, reflecting not only our success in the U.S. but continued growth in most of our international markets. Marking one of 2014’s key milestones, we successfully obtained our unique CMS J-Code assignment for Monovisc during the fourth quarter which is effective January 1, 2015. We believe that starting the New Year with both market momentum and the unique J-Code positions Monovisc for significant increase in usage. Our growth target for Monovisc in the U.S. is to more than double our market share reaching a minimum of 5% share by year end 2015. To reflect, it’s important…

(Operator Instructions) Our first question comes from Mark Landy with Summer Street. Your line is open.

Sylvia, maybe question for you. I'm trying to reconcile the market share that you gave us. I'm assuming that was the market share exiting the fourth quarter. And perhaps the ordering patents from Mitek. Should we expect any catch up orders, given the inventory reduction that we saw this quarter or do you think that was one time and that now it’s going to be stable through the year?

The fourth quarter certainly was impacted by an inventory reset by Mitek. The ordering pattern for ’15, we have a pretty decent view as to what that is and it’s consistent with our expectation. And the underlying growth of the products as we stated in our prepared remarks, we expect significant increases in the Monovisc area and Orthovisc maintaining and growing as well.

I am trying to process that. I don’t think I've got an answer. I’ll move on to my next question. Chuck, for Cingal you've long spoken about wanting to build your own sales force and really go direct to market. Should we think of Cingal as maybe being the product that you’d want to do this with or will there a partner with Cingal?

We’re still trying to understand that question. So we have not reached a decision and so I can’t really give you any real guidance. Certainly if we were to go direct with Cingal, it would be in markets that we try to understand. One thing I will point out to you that you probably already I know is that in order to reach our global market goals of 50% obviously we need to penetrate some other markets, one of which is Japan. Certainly should there be interest in Cingal there which we are actively pursuing, that would be a partnership opportunity. As far as Europe or the United States, we really haven't made those decisions yet.

Our next question comes from Joe Munda with Sidoti & Company. Your line is open.

Chuck, real quick, I was wondering or Sylvia, I was wondering if you can breakdown the split between Orthovisc and Monovisc and Chuck, is the U.S. market growth for hyaluronic acid based products still in the single digit in your view?

Who do you want to answer first Joe? Sylvia or me?

It's up to you.

All right so, I think that according to the best information that we have, the viscosupplementation market growth is still in the high single digit range. Sylvia can breakout Monovisc versus Orthovisc. What I will tell you is that both of them are, as I mentioned in my prepared remarks, premium products. They work extremely well. They have an impeccable safety profile. And as you can see if you look back in history, Orthovisc just kept growing in share due to product quality and Mitek's efforts and I think that there is good reason to expect given the quality of Monovisc product that, that will go in the same direction. It's interesting in a conference call that Johnson & Johnson had, Johnson & Johnson Corporate, an earnings call that the viscosupplementation products got I mentioned. So that clearly indicates the focus that J&J has on these products in the orthopedic arena. So I'm pretty enthusiastic. There is a market leader that shall remain nameless in this conversation but Orthovisc continued to take share away from their multi-injection product and then the strategy got switched to a single injection product and I think we hope that Monovisc will repeat setting [ph] that. So we're pretty excited about that and the real challenge now, we have a reimbursement quote. The real challenge is to get in and to all the private payers to get on these formularies and to set up the system so that we are one of the two or three maybe preferred products that get used and reimbursed by all of these payers, and I think we have a distinct advantage there now because Mitek has a mutli and a Cingal. So it gives the payer some flexibility. So that was probably more information than you really wanted but I just wanted to emphasize that point which I alluded to in my prepared remarks. So we're pretty excited. Also I think that Joe 1 [ph] is a decent single-injection product but if you look at what we've done even without a code with Monovisc, in eight months it exceeded the growth of Joe 1 [ph] pretty significantly in the first year. So we're doing pretty good job and we look for some pretty good things out of Monovisc this year. Now Sylvia, you can talk about the other half.

Sure, the worldwide Orthovisc and Monovisc revenues, it is about 5:1 ratio. So five for Orthovisc and two to Monovisc. And for the Monovisc piece, we did see a pretty significant increase as Chuck mentioned earlier in his remarks about 258%, and that's primarily driven by the introduction of Monovisc here in the United States. Internationally, we see the end user sales of Orthovisc, domestically growing internationally under some pressure for the reasons that we had discussed on our previous earnings calls, primarily related to competition and so forth, but as we have consistently been saying, the advantage of having Monovisc as well as Cingal coming up will put us in a competitive advantage position to capture more visco share on a worldwide basis.

Our next question comes from [indiscernible]. Your line is open.

I just wanted to ask you couple of questions about like the -- first of all, the seasonality issue in Q1, usually it's pretty pronounced but I just thought, maybe you could comment on the dynamic there between having Monovisc having the unique code. So I just look a little shorter term here I guess, but what do you expect in Q1 since you have the Monovisc unique code now?

Sure. For Q1 on a seasonality or seasonality by quarter for 2015 we expect it to be similar to our historic patterns as I commented earlier on the call. Just to reiterate, from a revenue standpoint we have two components. A portion of it we get to recognize as we shift products to Mitek and the other portion is I’d say sell. So if you recall in 2014 we had talked about the slower than expected growth in the first half of the year resulting in more inventory on hand on Mitek’s part. So from an inventory standpoint, we do not expect growth on product sales to them. But from an end user sales standpoint we expect significant royalty revenue, which is part of product revenue on our P&L from Mitek as a result of one higher than market growth rate for Orthovisc and two, uptick in the Monovisc revenue as a result of having the unique CMS J-Code.

Let me get down a little bit and say that the demand for Orthovisc, the sell through will grow very, very nicely. There is still a little -- potentially little bit of inventory that Mitek holds. So our sales to them may not be as much in the first quarter as we would like. But as the demand increases their inventories dwindle, we will get back on the horse for sure in the subsequent quarters in the year. So I can’t quantify that but I know that demand is there and then the sell through is going pretty well. So if there is an inventory issue, it’s going to be resolved fairly quickly.

And just a clarification. I think Sylvia mentioned double digit revenue growth for the full year as kind of a goal or expectation. Was that for the all -- for the total product revenue or was that just for Orthobiologics?

That was for total revenue but excluding the 2014 milestone impact which we talk about as being something -- the magnitude of it just not going to be recurred based on the achievements in ’14 and the revenue make up for 2015.

So it's total revenue. It's what we really refer to as product revenue in the past.

And may I ask one more?

Sure.

The other product categories that you have, I know that ophthalmic -- I don’t know if you’ve ever really quantified just how much you are losing from Bausch & Lomb. I know it’s not a significant part. But it’d be nice kind of in the rears now to kind of I guess dispose that for us, but also I just wanted to know what your thoughts were. For example I know surgical kind of your next leading group there, but kind of what your expectations for some of these other product categories, just very briefly? And I’ll get back in line. Thank you.

For ophthalmic I think…

No, way back though and given the peak number, just like 10 million.

Yes. When ophthalmic was a major component of our business, we were receiving about $10 million or so annually from B&L, and as I said earlier over the last few years, ophthalmic revenue was has been diminishing in size and the contract with B&L ended at the end of last year. So we have previously commented that the impact on the ophthalmic line going forward or in 2015 would be in the low single digit range, maybe a couple of million dollars. We do expect that the existing distributor, our ophthalmic distributors will maintain a level in the $1 million to $2 million range for this franchise and I’d like to reiterate that this is not a core focus area of our business which being lower margin as well. In terms of other franchises, we are expecting increases in the dermal area as a result of expansion into the U.S. As you’ll recall we signed a distribution agreement in July of 2014 for Hyalomatrix, our lead wound care product in the dermal area and we are seeing that the product launch took place earlier -- late last year, earlier this year and we’re moving along with our distributor along the path of reimbursement strategy. And we believe that the dermal revenue will grow in the double digit range. However this is a from a dollar standpoint. It’s a smaller base comparing to the Orthobiologics revenue. From a surgical standpoint, we do see steady progress in the surgical area. This year we managed to actually introduce product in couple of smaller international territories as well as added a new indication to the product in Korea as a result of clinical investment from our partner in that territory.

Our next question comes from Tim McCandless with Asymmetry Global Healthcare. Your line is open.

I just wanted to follow up on Cingal and the U.S. PMA filing, and can you just clarify, did you file a RFP or request for designation where the agency confirmed a filing in a device versus the drug division of the FDA? And then just as a separate follow up, regarding the J-Code for Monovisc, the IMS prescription trends haven't shown -- and while early in the year, haven't shown an acceleration yet for Monovisc. Can you just help us think through the timing of the Monovisc pickup for 2015? Thank you.

Why don’t you address the Monovisc question and I'll address the filing question.

Great. The IMS data, as far as we can tell and just understanding the sources does not include the entire market. So it only pulls in certain statements of the market, which I believe is the reason why you're not seeing the uptick. And as you know, the reimbursement code became effective in January. So there will be some timing in terms of reporting the data and also seeing a much more meaningful – significant increases in the end user sales. But we do believe that by the end of the year, we would be in a position to report the achievement of the 5% market share -- overall market share based on the information that we have through our partner at Mitek.

Yes, we see that Mitek sales numbers and we see the checks that they sent to us as a result. So if that's not being reflected in IMS data, then IMS not capturing all the data but it's certainly being reflected in our bank accounts. Vis-à-vis the question about Cingal, I believe that we request RFP but we decided not to make it and we just submitted the PMA. We've looked at all the regulations. I would point out that the main mode of action is the viscosupplement which is a medical device. So we think that our strategy for moving forward with a PMA is very justified based on all of the regulations, all of the guidance that we interpret from the FDA. So we made that submission in February. It will be accepted for filing most likely here pretty quickly and then, we believe probably the next thing is going to be a 100 day meeting.

Our next question is a follow up from Mark Landy with Summer Street. Your line is open.

Thanks my question has been asked.

Thank you, our next question is a follow up from Joe Munda with Sidoti & Company, your line is open.

So Chuck, in response to I guess an earlier question, you were talking about the first quarter Orthobiologics not being as great as you thought, and then you referenced the milestone payments kind of taking up the rear here. How are we supposed to I guess look at that going forward? Is the milestone payments being baked into your product revenue expectations or are you guys breaking that out traditionally? I'm just trying to get a sense of what we can expect going forward?

Joe, let me answer this question. The milestone revenue, I'm not sure if you're referring to royalty revenue and product revenue. What we have said was, when we -- under the agreement with our partner, there are two earning events related to products. One, when we ship, which we take as product revenue and one when they sell to their end users and we receive royalty revenue. And both are reported in our product revenue line, which is separate from the milestone and contract revenue, which reflects these large lump sum payments based on achieving certain milestones such as approval of J-Code and so forth. So what we were talking about earlier was related to the two components that are related to product sales. One is when we ship and the other is when they sell to their end users. And we're talking about the product piece will have some impact based on the current inventory level at Mitek, but the underlying royalty is strong, robust, given the fact that we are seeing uptake as well as growth from previous years and superior to the market growth rate. So that component of the product revenue has strong growth, comparing to the pure product sales to Mitek. Hopefully that clarifies and answers your question.

I got a few more here. As far as -- as far as the capital spending that you guys talk about, can you give us some sense of what could be expected, maybe range as far as CapEx is concerned for 2015?

CapEx for 2015 will probably be close to the $10 million mark, partly because of the transfer of the remaining of the S.r.l. manufacturing to our Bedford location as well as some inventory and that’s not part of capital but we will be using some of that for working capital build to prepare for the transfer. The majority of the $10 million will be related to the build out and build out of the facility as well as some equipment that’s related to the transfer.

And then I guess the other question I had was you added a new director, Dr. Larsen. Can you I guess give us some clarity on what his role I guess and why he was selected to be a Board member?

Glenn is -- he is a very strong science guy. He has been successful in business BD [ph] types of things too. He started a few companies. But what we were attracted to was some of his technical expertise. Some time back he was with Wyeth/Genetics Institute and had some experience with HA and growth factors and other things. He is very skilled in regenerative medicine. He also has a very strong background in drug delivery. So we’re looking forward to him being helping guide us a little bit in the Company but also to be the science voice or at least one of the science voices in consultation with our Board of Directors. So we’re pretty pleased to have him. He is a very sharp guy and he understands our space. So he is definitely an asset.

And then I guess my last follow up here, Chuck, as far as Cingal and the clinical trial, I guess when can we expect an answer from the FDA regarding possible approval and a launch as well as I guess Sylvia inverse to R&D, what kind of level are we looking at going forward? You’ve been around 2 million a quarter. Is that a level that we can expect to pick up going forward or is it going to stay around these levels?

I didn’t understand that question, but I understood the first part if you could.

From a R&D spending standpoint, we do expect the spending level to pick up for a couple of reasons. One is in addition to finishing up the Cingal retreatment study, we will also be starting the Hyalofast study which is a more expensive study, biologic studies with more expenses associated with that. In addition, based on the discussion that we had on regenerative medicine and earlier stage product development pipeline, we’re going to be looking at increases in our preclinical and earlier stage R&D investment as well. So we do expect increases in the R&D area.

I guess Chuck, maybe I wasn’t clear I mean…

No, I got that. I think I know what you meant. What you asked Sylvia was the one I was unclear on and she answered it. So on the Cingal approval strategy, I’ll talk about Europe, and we’ve been working on European application and talking to our notified body and working through that process for well over a year. And so the piece that we submitted in December was the last piece. So all of the others things went in. The discussions occurred all throughout 2014 and maybe even a little before. So when we talk about thinking that we could get an approval by year end 2015, because of all this background work we’ve been doing for year and a half. So we feel reasonably comfortable with that, because all of the pre-clinical --everything but the clinical data has already been resolved. It was pretty much resolved with the notified body in Europe. We need a drug consult, which is going to take place this year, take a look at the combination product idea, look at the steroids and lot of that will be the clinical work, but some of it will be pre-clinical as well. In the United States, we've been over the fact that we've submitted a PMA. So I don't necessarily need to reiterate that. I'll tell you two things. One, the people we're going to be dealing with are the people that we finally reached some very good negotiations and gained approval for Monovisc. So these guys are the same people. They are very familiar with Monovisc because they were involved in that whole process. That's one factor. The second is, how long will it take? The packages that we sent in, in a different format kind of got vetted by the European guys. The clinical data looked reasonably good. So we really don't know. PMA applications take well in excess of a year. Something will probably come up. We'll have to see. The other thing is, we successfully negotiated with Monovisc to eliminate the need for pre-approval inspection, which would have slowed down the commercialization of Monovisc. But we did a good thing there. We won't be able to do that with Cingal because it's a new product. So that gets added on to the timeline as well. And sometimes I have no issues with not passing that inspection but it takes scheduling and the whole thing and then them reaching their conclusions, probably add couple to three months to the process as well. So we don't anticipate really the Cingal approval in the U.S. to midyear, next year, probably at the earliest given all of these factors that need to play out. I hope that helps a little bit.

Okay, yes, I mean --.

I don't anticipate a lengthy discussion and argument and that kind of thing, but just to run through the process takes time.

Okay.

The inspection on the end before you can really get their final approval and move into the commercial phase and that has to be considered as well.

Okay, and you're convinced that since there are already two approved products, that it should have a smoother ride through the FDA, because it's not like a new drug. You're saying.

Yes, and I was -- in my prepared remarks I was trying -- everybody always compares us to a couple of other products that are taking the drug route that are in the early phases. They're not even in the Phase III. They're in Phase II or even before that. We shouldn’t be compared to them. It's not the same thing. And that was what I was trying to bring out in my prepared remarks, and I was trying to present a little bit of a rationale why we believe this is really a viscosupplement patient product with an ancillary drug component, but the main mode of action is viscosupplementation, and therefore it's a medical device and therefore it has to be considered via the PMA route, not the NDA route.

Thank you, I'm showing no further questions, I'll now turn the call back over to Charles Sherwood for closing remarks.

Well, thank you everyone who participated in the call. Thanks for great set of questions and as I said previously, we're pretty excited here and we look forward to our next earnings call where we hope to inform you of some good progress. Thank you.

Thank you, ladies and gentlemen. That does concludes today's conference. You may all disconnect and everyone have a great day.