Anika Therapeutics, Inc. (ANIK) Q3 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Anika Therapeutics Third Quarter 2016 Earnings Conference Call. At that time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Sylvia Cheung, Chief Financial Officer. Please proceed.

Thank you, Chelsea. Good morning, everyone and thank you for joining our third quarter earnings call. With me on the call today is Anika's President and Chief Executive Officer, Dr. Charles Sherwood. During today's call, Chuck and I will review our third quarter 2016 financial results and key business highlights, which were summarized in our earnings release issued yesterday and available in the Investor Relations section on our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website under the Investor Relations section under Events, Webcast and Presentations tab. We invite you to take a moment to open the file and follow the presentation along with us. Please now turn to slide number two. Before we begin, please remember that certain of the statements made during this conference call constitute forward-looking statements as defined in the Securities and Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain 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. I'll now pass the call over to our President and CEO, Dr. Charles Sherwood.

Thank you, Sylvia, and good morning, everyone. I’d like to start with an important progress update on CINGAL in the United States. Please turn to slide number three. After months of waiting for meeting with the FDA, we did participate in a productive meeting with the agency and approval framework was agreed to during this September meeting. The approval requirement will involve one additional Phase III clinical trial to supplement our existing strong CINGAL clinical data. We are well on our way to defining detailed requirements for the clinical work to support the investigational new drug or IND application and commencing other non-clinical activities to support our CINGAL NDA. We hope to gain FDA alignment on the trial requirements to begin enrolling by early 2017, which would put us on track for an approval in late 2018 or early 2019. Based on how well CINGAL performs in our original pivotal trial we are confident that the additional trial will demonstrate similarly strong outcomes. I’ll reiterate what we said in the past, namely that the availability of CINGAL in the United States is a question of when, not if. And we are encouraged to have our path towards approval clarified to a great degree now. Turning to our third quarter results. We delivered solid revenue and earnings growth year-over-year in the quarter, driven by MONOVISC, our flagship viscosupplementation product. Worldwide orthbiologics revenue increased 10% year-over-year in the quarter and 26% year-to-date. MONOVISC continued its strong momentum with 33% revenue growth year-over-year in the quarter. Internationally our orthobiologics revenue has increased 27% year-to-date, as a result of our global commercial expansion efforts. Before I turn the call over to Sylvia to review our third quarter financial results, I’ll provide an update on the execution of our growth strategy and some exciting elements and milestones related to that strategy. Please now turn to slide number four. To remind everyone, our long-term growth strategy is based on four pillars. global expansion, pipeline advancement, strengthening our infrastructure to support future growth and strategy M&A to complement organic growth. Please now turn to slide number five. First, we continue to make significant progress in our global expansion. CINGAL is off to an excellent start in Canada and Europe and the product is currently available in approximately 10 countries worldwide. In addition, we plan to submit CINGAL regulatory packages for both India and Australia by the end of the year. Launches in Canada and Germany have been the most successful to-date and we received an overwhelmingly positive response from physicians. Our overseas success with CINGAL further strengthens our confidence in its clinical value in the United States. Please now turn to slide number six. Second, we are advancing a deep and differentiated late stage pipeline to drive sustained growth. We have five strong developments programs underway based on our HA Technology platform and each program represents a significant marketing opportunity. Turning to slide number seven. In tandem with advancing CINGAL towards FDA approval, we remain equally focused on completing BLA filing requirements for HYALOFAST, our solid HA based scaffold to aid cartilage repair and regeneration. Enrollment in the HYALOFAST Phase III trial known as FastTRACK begin in December of 2015 and with the recently approved IDE supplement that expands the inclusion criteria for the study, we expect a pace of enrollment to increase and keep us on target to be among the market leaders in the United States. The potential global market size for HYALOFAST is greater than $500 million annually and growing with the aging and more active demographic. Our U.S. commercial partner continues to enroll patients in our MONOVISC trial in support of the expanded Hip OA indication, which represents an additional $600 million market opportunity. We remain committed to being the first to market with this expanded indication. Approximately 50% of the targeted 25 sites -- clinical sites are up and running progressing toward accelerating patient enrollment. On slide number eight, I’d like to provide an update on the third pillar of our growth strategy, which is strengthening our infrastructure. You recall, that we decided to bring our solid HA manufacturing operations in-house to our Bedford manufacturing headquarters. The goals were to regain full control of our supply chain, accelerate product development and positively impact our margins. We are proud to announce that we’ve completed the build out of the Bedford manufacturing facility and we plan to complete regulatory approvals for all aspects of the contract manufacturing transfer and be fully operational by the end of 2017. In the interim we expect to start product packaging operations for solid based HA in early 2017, with an immediate focus on improving the design to be more streamline, user friendly and digitally appealing. Overseas, we continue infrastructure to support future growth and strategic expansion -- overseas we continue infrastructure expansion to support our growth with the construction of our new European headquarters and training center in Padova, Italy. We expect to occupy that new facility in the first quarter of 2017. In summary, we've made significant progress executing on the elements of our long-term growth strategy in the third quarter. We are expanding globally, advancing a deep and differentiated pipeline and strengthening our infrastructure while continuing to deliver profitable growth. And with that, I'll now turn the call back over to Sylvia.

Thank you, Chuck. Anika delivered solid top and bottom-line growth in the third quarter. And we remain in an excellent financial position to drive continued growth into the future. Please turn to slide number nine. Total revenue increased 9% year-over-year to $25.8 million for the third quarter. Worldwide orthobiologics revenue increased 10% year-over-year in the quarter, while the worldwide MONOVISC revenue grew 33% year-over-year in the quarter and was the main revenue growth driver during the period. On a year-to-date basis, total revenue is up 20%, worldwide orthobiologics revenue is up 26% and international orthobiologics revenue is up 27%. In each case resulting from our global commercial expansion efforts. Domestically we believe ORTHOVISC maintained its position as the leading multiple injection product and MONOVISC continued to hold the number two position in the single injection segment. While ORTHOVISC and MONOVISC end user demand remained strong in the quarter, U.S. end user revenue continued to be pressured by strategic pricing initiatives by our commercial partner Mitek aimed at securing new and larger accounts to increase market share. We delivered a strong gross margin of 81% in the third quarter, up approximately 300 basis points from the third quarter of 2015. Total operating expenses in the quarter were $12.1 million compared to $10.5 million in the third quarter of 2015. We expect operating expenses to increase in the fourth quarter of 2016, due primarily to higher research and development spending including clinical preparation and non-clinical work for U.S. CINGAL approvals and plant, marketing and G&A activities as well. Income from operations increased $0.6 million to $13.8 million in the third quarter, as compared to $13.2 million for third quarter of last year. Net income in the quarter also grew by $0.6 million to $9 million compared to the $8.4 million in the third quarter of 2015. Diluted earnings per share were $0.59 in the quarter, up $0.04 from the third quarter of last year. We ended the quarter with approximately $120 million in cash and investments on our balance sheet. We have used a portion of our growing cash position to fund a $25 million accelerated share repurchase program that was completed in August with approximately 531,000 total shares being reacquired by Anika. Turning to guidance, based on fourth quarter orders on hand and distributor ordering trends and forecast, we are maintaining our revenue guidance for the full year 2016. We continue to expect product revenue growth for the full year 2016 to be in the mid to high-teens percentage range. We do not expect to recognize any milestone revenue in 2016. Total revenue growth for the year 2016 is expected to be in the low double-digit percentage range because of milestone contributions in 2015. In conclusion, we continue to deliver solid growth in the third quarter, while expanding globally, advancing our deep and differentiated pipeline and strengthening our infrastructure. We are well positioned to achieve our financial objectives for the year and create sustained value for our shareholders. We're now happy to take your questions. Thank you.

[Operator Instructions]. And our first question comes from the line of Joe Munda with First Analysis. Your line is now open.

Good morning, Chuck and Sylvia can you hear me okay?

Yes we can, Joe.

Real quick my first question and then a follow-up, CINGAL trial any ideas as far as patient size or cost. And then as far as my follow-up is concerned, Sylvia can you give us a little bit more color on the gross margin. I thought we were under the assumption that gross margin would likely come down and we're now are seeing it up over the 80% mark we haven't seen that in a while. So any color you can provide both on the trial cost or patient size as well as on the gross margin front would be great. Thank you.

Okay. I'll address the CINGAL trial and those issues and Sylvia will come back with the margins. I am fighting a bit of a cold so hopefully I don't have the blip in the question like I did in the prepared remarks. We finally we're able to have the meeting with the FDA and as you well know that took quite a bit of time. I think we had a meaningful discussion and I think we made a lot of progress with a lot of people participated in the meeting from the FDA as well as from Anika with clinicians and all kinds of folks adding inputs. With regard to the trial, that we need to do now. We are still discussing and they're evaluating a proposal that we made about how that trial should be constructed and basically what the endpoint should be. And we expect to hear back from them fairly soon within a couple of weeks as to their position on some of our proposals. And then we go from there to continue to negotiate whether it's through a submitted IND and use that as a vehicle to negotiate or which would allow us to give a lot more information that one they don't currently have or some other vehicle. Now to the trial size, the first trial was somewhere on the order of 350 patients and it had three arms, MONOVISC, CINGAL and saline, this trial will at the very least have CINGAL and the steroid. And may or may not include MONOVISC and we see no reason that we would ever run saline again. So if we make the assumption that we're going to have approximately the same number of patients, then the cost issue the first time I think was around $5 million or $6 million. So we would assume a similar level. We would also assume that we would go back to virtually all of the sites that performed well in the first trial to help us speed up enrollment. So I don’t know if that -- if you have additional questions the information I just gave you and you want some more clarification so I turn it get back to you.

I do Chuck. You ran that trial in Europe, is that the proposal that you run another one in Europe, is that what you're putting in front of the FDA?

That's what we will put in front of the FDA there. As you well know there is no requirements to run the trials for approval in the United States. We also have some people in Canada that have had really good success with the product are interested in participating in the trial. So we may have some Canadian sites as well. And it’s possible maybe we'll have some U.S. sites and that would be good to build up KOLs. However we're talking about trying to expedite this whole trial process such that we gain approval in the shortest possible time. And the quality of the data that we received out of the European sites the first time vis-à-vis dropouts and other types of things, which is absolutely excellent. So there is no reason to suspect that this trial would be any different.

Okay.

Joe, regarding the product gross margin question, so we’re quite pleased with the Q3 results 81%. The main reason, the primary reason for the favorability this quarter is the increase in production volume, a large increase in the production volume in the quarter compared to prior year as well as earlier quarters in the year that allowed us to lower the per unit cost because the fixed cost and labor cost can be spread over more unit. So, I don’t think that this quarter’s margin is indicative of all future quarter results due to a number of factors including production volume variability and revenue mix. So for the year we are still maintaining the product gross margin percentage to be in the mid to high 70% range. So, that is the summary related to your second question.

Okay. And I guess real quick a follow-up to that, can you give us some sense of what the contribution from CINGAL was in the quarter? I mean this is essentially the first real quarter where we would see some serious numbers, correct?

So you mean contribution to revenue?

Either to total revenue or orthobiologics either or.

Okay.

Okay. Contribution to -- you are correct, this is the first quarter with some real meaningful CINGAL revenue because the product was launched in Canada and Europe I think in late Q2. So, with regard to revenue for the year-to-date obviously there were no actively in Q1 and a little bit in Q2. Revenue is about $0.5 million to $1 million range. So, considering the size of the European market there is limited number of countries that had initial launches and looking at the lower pricing in Europe, I think this is a pretty good results for just little over three months of activity.

Yeah, I would add something to that there was a couple of facts I’ll put on the table that make us quite encouraged about these results. One, unsolicited pretty much, we are getting just tremendous feedback from physicians. Their comments go around, boy we are very impressed with how fast the effect of CINGAL take over; and two, we are equally and even more impressed with how the patients respond and how they get back to normal activity so quickly. So, this is really differentiated from any other product out there in their minds at least. We happen to believe that too, but this is the feedback we are getting. The second thing I would through on the table is that if you remember back when we launched MONOVISC in the United States recognizing of course that Canada and Europe and other countries are a slightly different than the United States, but the first whole year we got up to about 1% market share or so, I believe. And it was in the second year where we shot up from one to five or greater. So, these things take time when you introduce them to the markets. So, having only been out there for one quarter and getting this kind of enthusiasm around the product we’re pretty excited.

Okay, thank you. I’ll hub back in the queue.

Thank you.

Thank you. And our next question comes from the line of Ken Trbovich with Janney. Your line is now open.

Thanks for taking the question. I know you mentioned that the end points haven’t been resolved yet, but I am assuming that the proposal would include both a short-term paying reduction as well as a long-term paying reduction with regard to the trial result.

That’s correct, I mean the reason for adding the steroid in there was to get the short-term results and the reason for having the MONOVISC or the HA portion is to have those sustained long-term performance results. So, yes.

And from a power standpoint, what did you used to determine the size of the arms of the trail that you’ll need from a powering perspective?

Could you -- I think I know what you me, could you ask that question in a different…

Yeah so I’m trying to figure out I know you sort of alluded to the fact that the trial might be similar in size to the one that was previously conducted as a three arm study. But the three arm study that was previously conducted did not include a steroid. So I am trying to figure out from a difference in therapeutic response what sort of data you have that you’re driving the powering or using to determine the powering for the study that gives you confidence that in a two arm study or a three arm study you might need 370 patients?

Okay. Well there is a large number of studies done with the steroid as you might imagine and there have even been some pilot studies done with HA and the steroid. So we’re looking at all of that data and it’s fairly clear that the steroid effect is at best a three month period. So what we’re trying to understand in the short-term and try to take a look at maybe a little more closely is how does the steroid increase the very short-term effect in the first couple of weeks and we’re trying to tease out -- we will try to tease that out with new study. We have already got data on that because we’ve measured MONOVISC versus CINGAL, so we’ve got that piece. So we will put that together. With regard to beating the steroid in the long-term, I don’t think that there is too much worry about CINGAL beating the steroid at all. So if we just had the CINGAL versus the steroid the study could be quite small, depending of course on the endpoints, but if we are looking at short-term effect and long-term effect, we won’t need a lot of patients. If we have to also include a MONOVISC arm, which I don’t really see the value of but we may have to do that anyway, that will bring the patient numbers up. But we’re looking at -- and we haven’t reach full agreement on the size of any differences that we would have to measure, which of course then goes directly to the powering of the trial and the number of patients that you will need in each arm. So we are still working on that. But it is hard to imagine that we would end up in a situation where we would have to power the trial a certain way and result in having substantially more patients than we already investigated.

And I guess the only reason I am asking the question is because the [indiscernible] experience certainly we don’t know the details around the data in terms ultimately how closer or far away they were, but I guess that’s a question that from my perspective whether or not you do a pilot study to examine that first using CINGAL as oppose to relying on historical data in the literature.

One thing you have to -- okay. Let me throw a little bit more information out for you. First of all, one thing that you have to remember is that we have two approved products put together, that is MONOVISC and the steroid, which was in commercially called the risk sustain, we also have a strong data package which shows that they do not interact into two mixture. That is very different from what carboline was trying to do because that was a new drug entity because they didn’t have an approved, HA, they were trying introduce the steroid in a controlled delivery fashion. It was a very complicated system, ours is much more simple minded. The steroid is introduced fundamentally as a bolus. It’s just like injecting steroid without the HA and we’re looking only for short-term effects and the long-term pain relief is going to come from the HA, which is well established because we have an approved product called MONOVISC. So it’s a different situation in carboline, I mean we’re well down the road there is not to be any more pilot work required.

Thanks, I appreciate it. Thank you.

You’re welcome.

Thank you. And our next question comes from the line of Jim Gentrup with Val Vista Capital Management. Your line is now open.

Hi, good morning. Chuck and Sylvia, how’re you.

Good morning, Jim.

Good.

Just really want to drill down a little bit more on MONOVISC and the recent success. Like to start off by asking is the growth as of late more a function of market share gains against the competitor or is it -- is the whole category kind of increasing that this new product on the market? Because how long is it been on the market now a year or year and half?

It’s been on the market a couple of years it was introduced in -- launched in April ‘14.

I’ll let Sylvia kind of answer most of this, I’ll put in a paid political announcement at the beginning. It’s a very good product and it works really well, that’s my paid political announcement and I'll have a little color after Sylvia finishes so go ahead.

Thank you, Chuck. So to answer the question Jim yes, the increase in MONOVISC is due to volume increase and share increase. We’re seeing very good responses in the markets both domestically and internationally for MONOVISC contributing to the 33% in the quarter from a revenue growth standpoint and year-to-date is well above 50% from a revenue growth from this particular profit. So… yes go ahead.

Just wondering if the dynamics are different in the U.S., I'm sure they are a little bit but I mean can you elaborate a little bit on the dynamics between the U.S. and OUSA?

Yeah you want to do that, go ahead I’ll add the color.

Yeah in the United States as we said launched the product about couple of years ago and the product both from an efficacy and from a safety standpoint has a number of features that are really superior to other competition products and together with Mitek our commercial partner’s sales and marketing abilities we were able -- because they are really the only ones in the marketplace to have a portfolio of multi-injection and single injection. So that combination really positions Mitek well and the design and the efficacy of the product allow them to effectively gain share. As I mentioned in the scripted section we have in recent periods seen some price erosion on both ORTHOVISC and MONOVISC, but the important thing here is from a volume and from a revenue standpoint we see a combined increase from the two products and the growth rate for ORTHOVISC and MONOVISC is at a higher growth rate than the market growth rate. So we’re picking share and that’s positive point for the domestic market. Internationally most of the or the main reason for the revenue growth is due to expansion into new territories, as well as gaining shares in some existing territories and we’re seeing MONOVISC being a more innovative product in the marketplace where most of the countries are saturated with generic multi-injection products, we’re a lot more competitive on single injection front. So those are kind of the two different dynamics domestic versus international. So Chuck may have additional points to add.

Yeah I have a couple of points to add. In the U.S. it is way-way too early to tell, but in our conversations with our partners Mitek they think that maybe there is a little bit of movement toward the single injection product category, maybe and we can talk more about that in the fourth quarter and we’ll have some more data to see whether that’s true or not. So I throw that out. Internationally in a lot of territories, countries, there are a lot of multi-injection products and some of them are essentially generics and priced very, very low. So where we can differentiate ourselves really is in the single injection market and our partners have been pretty successful at doing that. Also there are some markets not all but some, where there is no real viable competitor and some of those markets have seen this one product there but it’s quite frankly that in some of those markets that product doesn’t have a very good reputation. So it’s -- we’ve been somewhat successful with gaining some share against in this one. So I guess that’s in summary, U.S. is different from the international market. So I think our most competitive products internationally will be MONOVISC and CINGAL unfortunately because of the pricing situation ORTHOVISC even though it's probably works extremely well is less competitive because of pricing. U.S. is slightly different there because of the pricing in the US. But anyway we're -- the products of the future are clearly going to be MONOVISC and CINGAL and we think we’re on a pretty good track.

Could I get one more follow up as well?

Sure.

Just could you again kind of frame for us the total size of the MONOVISC opportunities there and more importantly probably because I think you can -- it is what kind of penetration do you have so far both, I know internationally it's been on the market for longer than domestically, but of course you have a very strong partner domestically. But just kind of curious as to -- if you could remind us again what the size of the opportunity is? And also what kind of penetration you have right now assuming again the runway is? We're still pretty in early innings, but I just kind of wondering if that’s rolled out like you thought it would? Thank you.

So current penetration.

By the way Jim you asked about seven questions.

My apologies.

In terms of current penetration, as the comment is going to be mostly for the first half of the year, because we're still waiting to receive additional reports from competition including [ph] Genzyme's, Synvisc and Synvisc-One. So as far as we can tell based on our information and information available in the market, we are in -- we currently have about 6% to 7% of the overall viscosupplementation market for MONOVISC. And the U.S. market is essentially 40-60 so 40% on multi-injection side and 60% on the single injection side. Although recent data is going to suggest that the single injection is growing faster and that's the point that Chuck mentioned earlier. And it's a trend that we are -- pay attention to and monitoring closely. So with that said you can tell that on the single injection space there is a fair amount of room for us to grow. And we do believe that in the immediate term MONOVISC gaining share will contribute to our top-line revenue growth and will be the main driver and obviously supplemented by international MONOVISC growth as well as the CINGAL launch outside of the United States.

Yeah I would just make a comment about MONOVISC internationally, which you could also apply to CINGAL, but it's much earlier on is that in certain countries where we exist in Europe be it Western or Eastern Europe, we're doing pretty well. And the major growth -- growth will continue to be there, but the major growth probably won't come from there. There are pretty significant markets in Europe, which are very price sensitive, France being one of them where we don't even play. Spain is another one where we're trying to up our performance there. And so from Europe it's a point of getting into more valued countries and gaining sales that way. Outside of Europe we talk about Australia, we talk about India. We haven't mentioned China, but we're working can through the regulatory progress there with our partners. So probably the biggest growth at least from MONOVISC other than the United States is going to come through expansion. We just recently -- we partnered with Mitek for Brazil for instance for both for ORTHOVISC and MONOVISC. We just got approval for MONOVISC so we haven't really generated any sales yet, but we're on our way. So that would be an upside for us in '17. So most of in my opinion the MONOVISC growth is going to come from expansion and getting into territories where it can be competitive where we're not there right now. And good sized markets.

Thank you. And our next question comes from the line of Mike Petusky with Barrington Research. Your line is now open.

Hi, good morning. I guess my first question is around the pricing concession strategy that I guess Mitek is utilizing at this point. I mean, can you talk about either be a quantification or even anecdotally, what Mitek feels like they are seeing in terms of additional customer uptake of the products, as a result of what they’re doing on pricing? I mean, is there anything to kind of say there that this is working or not working?

So at a high level I would say that this is working and the reason is because of the increase in overall revenue from the ORTHOVISC and MONOVISC franchise in the United States.

And growing faster than market.

And the growth in terms of share faster than the market. In terms of which accounts and the order of magnitude of the price concession that is the level of information that we do not have access to. We have qualitative information or color from the partner, but we don't have that level of specific the account-by-account price concession information.

Yeah, but we can add a little more information there I think. Procedures are definitely growing, right?

Right.

But we look at the market pretty much in terms of revenue, right.

Yeah.

So procedures are growing, but the pricing is probably coming down a little bit. As Sylvia said we don't have account-by-account information, we just have generalities in the total picture. But from what we have it looks like the pricing for MONOVISC may have come down a little bit. But over the last couple of quarters on average seems like it's holding pretty steady. And it’s still quite high. So the reduction, I don't know maybe less than 10%.

Yeah.

So as far as price reduction I guess there is some, but maybe it’s not quite so significant at this point. The futures is the future.

I mean in aggregate MONOVISC is the main growth driver I’ll point to that one volume year-over-year nine months in terms of end user volume. Not the volume that we sell to Mitek the end user volume went up 80% because of the share taking and so forth. And if you look at the price for the same period, it come down like 5% to 8%. So that’s kind of the -- if you need quantitative information that’s the level, that we’re talking about.

Yeah, the other thing I would say Mike is that we don’t want to leave you with the wrong impression. While we don't have individual account versus individual pricing at our fingertips, this is the topic that we meet with Mitek fairly regularly and this is a topic that we talk about all the time. So we’re getting -- we’re trying to be as on top of this as we can. Mitek has done this a lot, they’re making the final decisions, but we’re definitely getting more plugged into understanding of the market through enhanced communication. So I didn't want to leave you with the impression that we were hands off with this whole process. But it’s always a concern in a competitive market that pricing will go down. I think to some degree Mitek has used some price reduction selectively to gain more share. And that seems to be working fairly well.

Okay, great. That’s super helpful. Sylvia I just want to make sure I understood a comment you made. So through nine months end user use of MONOVISC is up 80% and during that same period pricing is down approximately 5% to 8% of that is that what I heard?

Yes, correct.

Great, all right. One more question I guess, I have consistently miss modeled your R&D spend, keep thinking it's going to ramp and it sort of doesn't, and again you’re signaling it’s going to ramp up. I wonder, if we could do a quick exercise, obviously what you gave on the CINGAL U.S. trial I can kind of get to a number over the next 12 months or at least a guess there. In terms of some of the other products that you have on the advancing pipeline slide. Could you give just rough numbers as to what you think the incremental spend over the next 12 to 18 months or so will be around those other products, what you see as incremental spend?

Sorry I am just flipping to page six, the events you pipeline slide that you’re referring to.

Yes.

So CINGAL I think Chuck adequately addressed that MONOVISC Hip is funded by Mitek, so we do not expect incremental spend. HYLOFAST can and will be as we talked about earlier in terms of acceleration of patient enrollment and so forth can be in the low double-digit million dollars from an incremental spend standpoint. Tendinopathy is a project that we -- as you recall we received IDE approval earlier in the year and we have a protocol which is ready from a business priority standpoint as we recently came out with a positive discussion with the FDA, the CINGAL program obviously is underway and as the company prudently decided that it is best to make sure that we focus on the top most important program namely CINGAL and HYLOFAST. So in terms of timing of tendinopathy I do believe that sometime in 2017 we’ll pick up the spending on that and perhaps towards the second half instead of the first half and as far as the rate of spending I think at this particular point I am not in a great position to comment because a lot of it depends on the exact timing that we decide to commence this trial. From a UMass program standpoint, we do believe that we will pick up some additional spending on this program, currently we have a contract in place with UMass just fund this RA drug delivery program this innovated early stage program. Work has been done and we are looking at some increased activity. And keep in mind beyond these listed programs on page six, we also have other development product and projects that we are working on that we have not discussed publicly because of a number of reasons IT and other reasons. So that those programs will be contributing to the increased in research and development expenses in the future. But most of the spending will likely be from CINGAL.

Yeah I would just add a little more qualitative color since Sylvia is the master of the quantitative. But with regard to CINGAL we have to move that quickly we want to move that quickly. So where we can, we may outsource some of the activities that are necessary to put the IND together to get the sites up and running as rapidly as we can et cetera, et cetera. So the rate of spending that’s historical for us should go up. And once we have real clarity on where we’re headed there, which should be fairly soon we can open the spigot on the expenses and move that and it’s our goal to move that as fast as we can. We are starting to ramp up HYLOFAST and of course if you have a trial underway and you don’t have many patients included you’re not spending much money. So we’re hoping that we can rapidly increase that and therefore spend more money on that trial. Once we get those two under control, where we figure we’re on a trajectory that we want and is acceptable we’re going to initiate the tendinopathy trial. So I see expenditures in ‘17 actually going up a fair amount and I can’t speak to your modeling, but I would think that it would be our goal to move those programs quickly, which then would mean that we would be spending much more money next year than we did this year.

Okay, great. Can I ask one more?

Sure.

So, given all that you’re doing with the pipeline and particularly with CINGAL, is it fair to say that maybe the M&A activity is going to be at least back burner for the time being or are you still real active on that front?

I would say that it's on the middle of burner and that internally we've actually got some -- we've assigned responsibilities, we’ve got some activity going on there with a team of three or four people. So that's not to say that we will find anything, but I think we're more active now than we were a year ago for sure. But again our priorities are for the company are to of course to run it properly as we have in the past years. But to bring CINGAL to the market and get HYALOFAST headed toward the market as rapidly as we can. And if M&A gets in conflict with that then it will be the M&A activity that gets slow down.

Got you, okay. Super helpful, thanks guys. Really appreciate it.

You're welcome.

Thank you. And our last question comes from the line of Joe Munda with First Analysis. Your line is now open.

Yeah, thanks. Just a one quick follow-up, usually taking a look at the reimbursement come down particularly on MONOVISC year-over-year if we look back. Any thoughts on reimbursement going forward, we had talked briefly in the past about substantial value based pricing that we saw from that draft [indiscernible]. Any update you could provide us as far as reimbursement or what you're seeing going forward that would be helpful. Thank you.

I'll let Sylvia to address the reimbursement coming down issue the first part of your question. I'll talk about the proposals the value based things going forward. If you look at that what we hear from Mitek is that most of those as part of the reimbursement and all that installed [ph]. There is not a lot going on I guess some of that is there is some controversy over this in Congress. And there is not a lot of real activity with the FDA. So it looks like and they feel that nothing that really going to happen there next year or possibly not even the year after. However if you look at those proposals and you look at how that might affect our products in the pricing proposal schemes that they put out there at least the change from 6% to 2.5% with an added fee. It's not really impactful it's pretty small at the pricing levels. Because the impact increases as the price goes up. And so we're into the zone where regardless of the way it gets reimburses it's not a big impact. So anyway that's qualitative, but so far there from what we can tell from Mitek who keeps their finger on this pulse very carefully there is not a lot going on to move that aggressively forward. Now I'll turn it back to Sylvia to see if she has any comments.

Yeah Joe just still unclear on the question when you said reimbursement are you referring to the CMS reimbursement or?

Yeah the rate for MONOVISC I think the Q2 for CMS was like $917 I think last year at this time it was in the $950 range.

Correct, when MONOVISC was initially introduced or launched it was close to $1,000 the starting point. And currently we're at the $900 range that you've mentioned. So that is part of the kind of price erosions that we have been seeing and which has been reflected in the revenue for MONOVISC for us in each of the quarters during the last couple of years. And from a trend standpoint as of right now we do see that there is some pricing pressure. So we think that it will maintain or perhaps be slightly lower. But the important part about the MONOVISC story is that the volume and the share growth is very positive and strong and it's more than offsetting the price decline. So I think that is key to remember. And secondarily the MONOVISC pricing at $900 per unit is still at a very strong premium comparing to the other competition products, which are in the $600, $700 per unit and thinking about the fact that it’s premium priced and still be able to command good share take I think puts MONOVISC in a very good spot.

Thank you.

Thank you.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Dr. Charles Sherwood for any closing remarks.

Okay back to my prepared remarks and hopefully I don’t stumble this time. But I want to thank you all for spending time on the call today. I thought the questions were excellent and provided through the answers and the questions provided a much clear view of our business and where it’s headed. I’d say that we’re pretty happy to deliver another quarter of growth. We’re certainly excited about the potential to bring new and innovative products to the market and accelerate our growth moving forward. So Sylvia and I both can look forward to updating you again on our next earning call and have a great day.

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.