Good morning, ladies and gentlemen. And welcome to the Anika Therapeutics' Third Quarter 2017 Earnings Conference call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Sylvia Cheung, Chief Financial Officer. Please proceed.

Thank you, Dania. Good morning, everyone, and thank you for joining our third quarter earnings call. With me on the call today is Anika's Chief Executive Officer, Dr. Charles Sherwood. During today's call, Chuck and I will review our third quarter 2017 financial results and key business highlights, which were summarized in our earnings release issued yesterday. A copy of the earnings release is available in the Investor Relations section of our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website in the Investors Relations section, under the Events & 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 1. Before we begin, please remember that certain 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 also see our SEC filings for more information about factors that could affect our results. I'll now pass the call over to our CEO, Dr. Charles Sherwood. Chuck?

Thank you, Sylvia, and good morning, everyone. Third quarter was marked by rapid advancement across all of our strategic initiative. In fact, as we reflect on the progress made, the pace of overall innovation and the clearing of multiple regulatory milestones, we have a real sense of momentum as we head into 2018. Before we discuss our third quarter financial results, I'll share a few updates on some of the aforementioned progress focusing primarily on the ongoing CINGAL Phase III trial and the advancement in our regenerative medicine pipeline that may have been surprising news for many of you. Please now turn to Slide 2. First off, we have completed the enrollment of all 576 patients in our second Phase III trial for CINGAL well ahead of our yearend target. In addition to evaluating the safety of CINGAL, this trial will evaluate the effectiveness of CINGAL in improving pain, function and quality of life measures over 26 week period. For patients with mild to moderate knee osteoarthritis. CINGAL will be evaluated in comparison to MONOVISC and triamcinolone hexacetonide named with steroid PH. With this important achievement, we are on step closer to bringing this new and innovative non OPI therapy to millions of patients in need of relief. We continue to expect to complete the trial next year and to receive FDA approval during the first half of 2019. We remained focused on trial execution and completion. But we are particularly encouraged by the dynamic we have seen at trial site and with the trial physicians. The excitement we are seeing around this product is underscored by the rapid trial enrollment and growing physician interest as the market continues to seek safe, rapid pain relief and more durable solutions to what is currently available including a limitations inherit in steroid…

Thank you, Chuck. Please now turn to Slide 8. In the third quarter of 2017, we delivered solid top line growth while expanding globally and rapidly advancing our product pipeline. Total revenue for the quarter increased 5% year-over-year to $27.2 million, compared to $25.8 million for the third quarter of 2016. Revenue growth for the quarter was driven primarily by MONOVISC's worldwide growth of 50% year-over-year. As we expected, MONOVISC continue to gain share in the quarter as the market is migrating away from multi injection option in favor of more convenient, single injection treatment. For the third quarter, worldwide Orthobiologics revenue increased 7% year-over-year and international Orthobiologics revenue grew 10% year-over-year due to our global expansion effort and demand for our MONOVISC and CINGAL products. We delivered a strong product gross margin of 77% for the third quarter compared to 81% for the third quarter of last year. The decrease is primarily due to higher production volume in the third quarter of 2016, and inventory charges incurred in the third quarter of 2017. We continue to expect the product gross margin to be in the mid to high 70% range for the full year of 2017. Total operating expenses for the quarter were $16.9 million compared to $12.1 million in the third quarter of 2016. The year-over-year increase was due primarily to the planned increase in research and development spending. In fact, R&D spending in the quarter doubled from the third quarter of last year. These investments are required to advance our product pipeline and our expanded operational initiative, which are focused on developing the next generation of products that will deliver sustained growth and value for shareholders. Income from our operation was $10.5 million in the quarter compared to $13.8 million for the third quarter of last year.…

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

Good morning, Chuck and Sylvia. Thanks for taking the question. Can you hear me okay? So, Chuck, first off on the bone filler product, can you give us a little bit more color there? Looks like it's competing in the space that Zimmer ceramic product, I guess give us some thoughts on commercial strategy as far as and timing and as far as launch is concerned. You guys said you filed for the 510(k). I am just kind of find to figure out how we could model it and what it should look like? Thank you.

I am going to let Sylvia start then I am going to jump in. So maybe she -- or do you want me to take it, Sylvia?

Yes, I'll start and then you can add color that would be great. So, Joe as we mentioned in the prepared remarks section, the 510(k) was recently, the application was recently submitted. We hope to receive a clearance in the first half of 2018. Right now we are in the process of setting out the commercial strategy and as Chuck had mentioned, the lot of work has been done and we are looking to finalize that in a not too distant future and to share with you the specifics around how we are going to introduce, launch and have the product be available in the market. From the timing standpoint, I'd expect based on the approval timeline and our current plan that any incremental revenue will likely to be towards the latter part of 2018. And to address the earlier portion of your question with regards to product, the product design and the current competitive landscape. I'll turn it over to Chuck.

We are going to stand a little choppy today because I am calling in from Italy and Sylvia is in Massachusetts so with that we are going to back and forth little more than we normally we do. So I mean I shouldn't give you guidance and how to model the company. But for me I would assume that just like tennis elbow, the revenue from this product will be minimal in 2018. I am kind of looking at this product in for some application in some more advanced type of applications; possibly well in the knee for the bald structure in and around the cartilage. This is not going to -- we are not anticipating that this product will be run of the mill bone filler. Looking at highly specialized application that ducktail with some of the other things we are doing with some of the other products that we have.

Okay, that' helpful, Chuck. As far as I would like to talk a little bit about CINGAL. You had mentioned that the three months extended trial; can you just give us a circumstance that's why you are doing the three months extended trial? Did the FDA asked you to this trial? I guess some color there. As well as -- I'll wait for your answer but I have some other questions in regards to trial as well.

Okay. You I believe saw the data from the first highly successful trial. You saw that the pain relief for CINGAL at six months was essentially the same level and strong pain relief that we saw at about one month or one and half month. So this begs the question of how long it last. Clearly it's going to last more than six months. So we decided to tack on to our original trial, another protocol and get three months worth data on these same patients. We presumed that at nine months CINGAL will have good chance, we are still going strong. And if that is the case then we can promote that efficacy. And if that is the case I don't think anybody out there can touch that.

Is it open label you know?

No. It's -- the other -- it's the same trial. We just added on three more months. So the same patients are in the trial.

Okay.

However, it wasn't clear to you maybe but on we are still going in with the NDA for six months and then we will supplement that process with the nine months data after effect. It's complicated but what the message I wanted to give you is that the six months data approval is not in jeopardy because we are running -- we are keeping these patients in the trial and to answer your other question now that FDA did not make us to do this. This was something that we've been talking about for long time. And since the performance with CINGAL is so strong, it seems like why not tack it on the second trial we are running here.

Okay, okay. Then as far as the trial itself, did the FDA agreed that CINGAL versus MONOVISC as the secondary endpoint is sufficient endpoint for this trial? And have they given you a special protocol assessment for it?

Well, I am not sure I understand your question but I'll give you an answer anyway. Very risky I realized. The protocol was trials reviewed by the FDA approved right. So it's basically the same protocol give or take that we ran in the first trial with essential the same endpoint, the only difference is that instead of stenting we have steroid by itself. And we have -- the randomization is maybe little bit different more edged towards MONOVISC and CINGAL but essentially the same trial, just switching CINGAL, switching stenting in for the TH steroid. So -- both kind of -- I shouldn't say this but in principal seems kind of silly because we know the steroid is not going to last six months. And we also know what the -- from the first trial what the effect of the steroid was but the FDA wanted to see in arm of steroid especially in the trial. So it's good for us. We will have over like I said in previous calls; we'll have close to a 1,000 patient in total. I am sure we'll see an impeccable safety profile and we are sure hoping that we can extend our claims beyond six months. Stent would be game changing, that would be a big, big deal.

Okay. Chuck, and then my final question and that were very helpful. Pricing appears to be stabilizing, Mitek doing a solid job for you guys as far as commercialization is concerned I mean can you give some commentary regarding what you are seeing as far as single shot versus multi shot injection, that would be helpful as we go and model here going forward. Just love to hear what your thoughts on that. Thank you.

Joe, I'll take that question and let Chuck add additional comments at the end. With regard to pricing for nine months of 2017 we do see pricing stabilizing for both ORTHOVISC and MONOVISC. I think they moved a little bit up and down in Q1 and Q2, overall slightly up. For Q3, we saw that it's stabilizing and just slightly down sequentially from Q2 but year-over-year versus the previous year we are up for both ORTHOVISC and MONOVISC. And from volume standpoint, we are certainly seeing growth in the single injection; this is overall not just our MONOVISC, overall growth in single injection treatment over the last couple of quarters. And for our particular MONOVISC product, the end user growth is around 50% year-over-year which is very strong and one of the key drivers for the total revenue growth third quarter.

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

Good morning, guys. So I was hoping you can give me a sense, the 576 patients in the CINGAL trial a little bit up from your previous expectation or previous discussion and then obviously there is some cost associated with the three months extension. Can you guys just talk about I guess the incremental cost or if you just want give kind of total ballpark cost of this trial including the extension.

Sure, from a trial cost standpoint the operating expenses guidance that we gave previously incorporated the number of patients the 576 for Phase III study as well as the three months extension study. As Chuck had said before, we had always been -- we were always interested in looking at what the efficacy will look like beyond the six months because of the strength and the strong outcome from the initial study. So the plans had always been there and we are now executing towards that which is the reason why we have not changed the operating expenses guidance for the year. As you can probably tell already saw on the P&L for Q3 that our R&D expense doubled from the year before. And that is a direct result of rapid enrollment and at the 576 patients. So hopefully that answered your question with regards to the increasing number of patients. I'll turn it over to Chuck to add some commentary.

I just have one concept to talk about. So even though a newly approved product ended up getting into the marketplace recently having not done very impressive on one of their clinical trials. We didn't want to go down that path, so we had a highly successful first trial and we kicked up the patients to increase the power to give us the higher level of assurance that we would get that short term performance that we saw before. So that is why we ended up at 576 from 380 something. I think I already explained why we add tack on the additional three months. And I think that in my mind anyway if the data show nine months efficacy, that investment will pay for itself a 100 or 1000 times over.

All right, terrific. I guess since you sort of mention it, do you see any meaningful impact to MONOVISC particularly in terms of the new entrance potentially in the OAE market. I mean do you -- I mean other concerns around that or can you just I guess talked about that a little bit.

Basically really see much impact on MONOVISC myself .The entering is a steroid. I know that company refuses to call it steroid but it's a steroid. Also in their trial, one of the trial their product didn't show superiority against the run of the mill injected steroid. So maybe there something there but as far as what we see, we don't see HA product going away and we see ours is growing and we feel that we have the most powerful and the safest products on the market in that category. So and with CINGAL coming down the road, we think we are in a very, very good position in the space.

Okay, terrific. I guess in terms of your capital allocation priorities, one of them you mentioned lapse was strategic M&A and obviously with all that cash on the balance sheet and you guys have talked about strategic M&A for past couple years as a potential use of your balance sheet. Can you just talk about -- I mean is there anything front burner or we just kind of in the same where we continue to look at things but there is nothing really likely in the near term. Can you just speak to the pipeline for M&A right now?

I am going to make the comment and then I am going to ask Sylvia to comment and if she disagrees to me so be it. But I want to say that I think you should have gotten flavor for today's call that our internal pipeline is pulled to overflow. And so our -- what we feel is our need for acquisition to grow our company we are trying to find the reason why we think that's true. Having said that however we are a company that heads in lot of different directions all at the same time. So recently we just decided to put some more emphasis not necessarily on M&A but business development in general to as we develop commercialization plan to see if there is anything else out there from a company perspective, infrastructure perspective, new product perspective that will strengthen our offering to the customer base that we intend to serve in orthopedic space. So I don't know if that made things clear or maybe more confusing but I hope it's the former. And now maybe Sylvia has some comments.

Okay. I agree with Chuck's comments. I think Mike that we have always taken a very disciplined approach toward any plans and strategy that we put in place, while we have interest in the M&A area, we don't believe that it is the need that we have to execute on a given timeframe in order to meet our company's growth plans. However, it is an opportunity so we are taking a very careful approach towards that and I think you also had pointed very appropriately that we do have a number of key priorities from clinical standpoint CINGAL and how fast and from a commercial standpoint establishing our own direct sales capabilities. All of which are being focused on acutely at the company. So we do have our priorities but we want to recognize the fact that with the strength on our balance sheet, M&A is an opportunity for us.

Okay, great. And just real quickly couple more. Any update on the MONOVISC hip trial, any progress there?

Okay. We are trying to decide who is going to hand or having hand signals on the video try to decide who is going to answer this question. We are moving ahead. As I said before, Mitek is running this trial. As I said before we wish that the pace would be faster. I think they have got all the sites up and running now. So that should accelerate the enrollment but we are still well below 50% enrollment in the trial. However, having said that we still think that we have a good chance of being the first to approved indication in the hip for our product that actually works.

How many patients are you trying to enroll there in that trial?

Mitek is looking to enroll 560 patients for the hip study.

And then just last question real quick, Sylvia, CapEx for the quarter.

For the quarter -- I am going to have to apologize. I have the nine months numbers and I don't have the three months handy but you can -- I think, you can to do the math. So for deprecation for CapEx or for deprecation sorry.

I'll take both.

Okay. For CapEx for the quarter it's about $6.5 million, sorry did I say for the quarter? I mean nine months to date.

Got it, okay.

And for deprecation, nine months to date is around $3 million.

While I have got housekeeping, you have stock comp for nine months.

It's close to $4 million for nine months.

Thank you. And we do have a follow up question from Joe Munda from First Analysis. Your line is open.

Yes, thanks. So Chuck in regards to reinvestment just some thoughts on Anthem decision on Disco and then on the flip side their decision to cover it for temporomandibular joint, any thoughts there?

Joe, I am going to try to take a stab at the answering that question and let Chuck add some color towards the end there. With regards to Anthem, I think the news at least for us came to a little bit of surprise so the change has taken effect but we as well as Mitek do not expect a significant impact on the overall ORTHOVISC and MONOVISC franchise from a revenue standpoint. That's based on cover of life and the historic sales volumes with Anthem. Chuck, do you have any additional color?

Joe, I don't want to trivialize your question and make my answer not worth anything but the coverage you remember that [Blude] would never cover this product but now they are starting to cover it. Some people have gone away and cover it some come back. Mitek made some inroads with the VA. So there is thing of it like an octopus. They got a lot of tentacles out there trying to reach cover. So we were disappointed with the Anthem going away because just two months prior, there was an agreement to put OV and MV as the priority on their reimbursement list. So but I don't think it's going to have the real material effect anything that Mitek does and therefore us. On the TMJ, we trusted Mitek a little bit about that but honestly we haven't made a lot of progress in really analyzing that.

Is you see that as -- I mean you have talked to them, do you see as a potential significant opportunity for alternative indication for I mean it's for me it seems to come out of nowhere. It seems very interesting the potential use for -- extended use for your products.

Yes. One, I don't know whether I talked to you offline or whether we did this in the call but TMJ was evaluated I don't know how long ago, 15 years ago. It was one of the first thing that we started to take look at and this didn't see much there and we were also didn't see anyway that we could -- it was tough to get it approved because from what we determined saline injected to joint did very well. So that's one comment. We are still thinking about it. The second one is not the same customer that Mitek is generally deals with right. It's a whole -- it's a little bit of different channel. So we have to do thinking about how we could actually, yes, reimburse but I am not even sure if it is approved without indication. So we really have to cover a few more basis before you can really say anything definitive.

Thank you. This concludes today's Q&A session. And I would like to turn the call back over to Dr. Sherwood for closing remarks.

Okay. Thanks Dania. So first and foremost, thanks to all to be on the call today for listening or asking questions and for your interest in the company. We are pretty pleased with our execution and growth in the third quarter. Global expansion efforts and rapidly advancing pipeline continue to put us in very good position to drive sustained growth and create value for our shareholders. So we really look forward to updating you again on the next earnings call. I think there will be some interesting things that occur between now and then. So hopefully we'll see you again on the call. 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.