Anika Therapeutics, Inc. (ANIK) Q1 2018 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to Anika Therapeutics First Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder this conference maybe recorded. I will now turn the call over to Sylvia Cheung, Chief Financial Officer. Please proceed.

Thank you, Latif. Good morning everyone and thank you for joining our first quarter 2018 earnings call. With me on the call today is Anika's President and Chief Executive Officer, Joseph Darling. During today's call Joe and I will review our first quarter 2018 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 Investors Relations section of our website at anikatherapeutics.com. In addition, a slide presentation is posted on our website in the Investor 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 turn to Slide number one. 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 risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance and achievements. Please also see our SEC filings for more information about factors that could affect our results. Please turn to slide number two, while I pass the call over our CEO, Joseph Darling. Joe.

Thank you Sylvia and good morning everyone. Welcome to our 2018 first quarter earnings call. This morning I would like to share with you my vision for the future of Anika. I joined Anika in late July 2017 after spending the better part of the last two decades working on and overseeing general management and commercial operations at large publicly held companies, including Abbott Laboratories, Wyeth-Ayerst, Baxter International, Smith & Nephew and CONMED. When the opportunity to join Anika arose, I recognized not only an organization with a tremendously versatile technology platform, but also an organization with an expansive, innovative product portfolio and a pipeline filled with potential game changing opportunities. Even more importantly, I recognized an exciting opportunity to apply my experience and expertise to develop a strategy and build a direct commercial infrastructure from the ground up and to leverage our strategy and infrastructure to drive the next phase of the company’s growth. It is truly an honor and a great opportunity to lead Anika through the next phase of its evolution as we invest in and build our pipeline to deliver a series of innovative new treatments to the global orthopedic community over the next several years. Please now turn to slide number three. Whether you have a history with the Anika story or a new shareholder tuning in today for the first time, I think it is safe to say that this company has a reputation for both stringent, business practices and candor. These attributes of Anika were also factors that attracted me to the company and I intend to uphold them as we move forward. It is important for me to note that some of the discipline that was put to the test recently as new information arose that we knew would have a near term impact on our results. So before we review our first quarter results and I discuss what I believe to be such a promising and exciting time ahead, I want to review with all of you and offer some comments on our voluntary recall of three of our HYAFF-based products, specifically HYALOFAST, HYALOGRAFT-C and HYALOMATRIX, which we announced yesterday afternoon as part of our earnings release. Anika has always been committed to the highest standards of quality, a commitment for which we are known around the world. As part of that quality commitment, we maintain ongoing monitoring of all of our products. This voluntary recall was triggered by internal testing, which indicated that these products were at risk of not maintaining certain measures throughout their entire shelf life. While there is no indication of any impact on safety or efficacy of the products at this time, we have chosen to remove certain lots of the products from the field as a precautionary measure. Now I’m sure a question you may have is when will these products be back on the market? Let me address that for you now. Our goal is to have all three of these products back in the market by the end of this year. Our internal team is working diligently around the clock to resolve the issue, and we are also working closely with our partners to minimize the impact to our customers. All impacted distributors have been notified. We are in the process of communicating with all appropriate regulatory authorities. The internal team and I are laser focused on resolving this issue. It is also important to note that the HYALOFAST product being used to conduct the ongoing Phase III clinical trial was not impacted by the recall. Fortunately, this product group represented approximately 3% of our revenue stream in 2017. So while the short term financial impact was felt in the quarter, the impact on the year will not likely to be material on its own. Please turn to slide number four. Turning to our first quarter 2018 performance, the voluntary recall impacted our results by approximately $2 million, consisting of approximately $1 million of potential product returns, $600,000 in inventory reserves, and $400,000 in estimated recall related to administrative expenses. The year-over-year decline in total revenue was generally due to soft ORTHOVISC revenue and pricing in the U.S. as the transition from multi-injection modalities continues to shift to single=injection solutions more rapidly than anticipated. While the overall market in the U.S. declined during the first quarter, it was impacted by competitive pricing initiatives, the combined ORTHOVISC and MONOVISC end-user revenue surpassed the market leading treatments in the U.S. and achieved the number one position in the overall viscosupplement space in the U.S. during the first quarter. We continued to see strong end user demand for MONOVISC in the first quarter, resulting in worldwide MONOVISC revenue growth of 29% year-over-year. In late March, we were informed that our CE Mark for MONOVISC was temporarily suspended. This suspension is administrative in nature. It did not result from any safety or efficacy concerns. We are currently working with our notified body towards a resolution and we have a high degree of confidence that it will be resolved prior to the end of May. We do not expect any material impact on our 2018 financial results. Looking ahead, we will continue to drive expansion in the market by working with our distributors and creating new opportunities to further grow the franchise. As an example, last quarter marked the first shipments of MONOVISC to India and Australia. Both are early on in the launch phase, but we have high expectations for each of those regions. CINGAL which is commercially available in approximately 15 international markets delivered close to 280% year-over-year growth in the first quarter. Specifically, in Canada, we are experiencing rapid uptake with the physician community. On a recent trip in early quarter one of this year, I visited customers in Canada. Their feedback was overwhelmingly positive and they commented on the superior performance of the product. I was very impressed with our experience and more impressed with the feedback that their patients provided to them on both the immediate effects of the product and the long-lasting pain free period they were experiencing, oftentimes beyond the six-month timeframe. Please turn to slide number five. I would like to underscore that a critical driver of our growth strategy in the focus of our direct commercial efforts is our innovated and diversified pipeline, which spans beyond osteoarthritis pain management to tissue repair and regeneration in cartilage restoration. The corner stone and the most exciting near term pipeline candidate in CINGAL, a first of its kind combination Viscosupplement and steroid in a single injection. We believe CINGAL addresses a major treatment gap and provides a unique value to physicians and patients by potentially providing immediate and extended long term pain relief for OA patients. Please turn to slide number six. We are pleased to announce that in late April we completed the six month follow-up activities for patients in the CINGAL Phase III trial, which was designed to evaluate its efficacy and safety in comparison to its two components, MONOVISC was a steroid component, namely triamcinolone hexacetonide or PH as we like to call it. In addition, we are very excited that overall 320 patients from the 26 week trial have consented to enroll in our three month extension study. We are optimistic that the extension study will confirm superior pain alleviating effects of CINGAL, which can potential last a minimum of nine months. To put that in context a six month claim would stand up well against any current treatment standards in this class of compounds today. This would provide our commercial team with a powerful clinical product message that they could deliver to their physicians and that we believe will translate into share gains immediately. By the way, this was consistent with the feedback I received from the physicians during my Canadian visit that I mentioned earlier. If we are successful in a longer time period, we believe that durability of a nine month efficacy claim would be a game changer in the market and would significantly and uniquely separate us from the other products in the market. Again, providing a significant advantage over steroids and over generation VISCO supplements and potentially adding a favorable impact on overall market size, reimbursement and adoption rates. We remain on track for potential FDA approval of CINGAL around mid-2019. Please turn to slide number seven. I will now discuss our plans for scaling our commercial infrastructure and market readiness. First, I’d like to underscore that between myself our Chief Commercial Officer, Richard Hague and key strategic hires and consultants in our commercialization team, we have broad and deep expertise in core aspects of commercial operations, product launches, sales and marketing. We are deep in our experiences of key product launches including optimizing market penetration strategies, market sizing and scoping, building out sales forces and developing training programs from the ground up to ensure us a success launch. We have a strong physician relationship building capability and profiling experience. Navigating and priming the key payer landscape and optimizing the sales force launch and more importantly, the executing on marketing plans for the launch of new products. Our collective experience and expertise has allowed us to build what we consider to be a world class detailed and comprehensive plan to prepare for the eventual, successful commercial launch of CINGAL in the U.S. On the physician front, we made our debut appearance at this year’s AAOS meeting, the American Academy of Orthopaedic Surgeons Annual Meeting where we held several focused market research events for physicians and have received great feedback and insights on how payers effect prescribing decisions. To-date we have conducted approximately 50 interviews with orthopedic surgeons to better understand if and how they would adapt CINGAL in their clinical practice. During the course of this research, after reviewing the product profile for CINGAL over 50% of the orthopedic surgeons surveyed indicated that CINGAL would be their first line therapy of choice. This study revealed that CINGALs clinical profile is viewed as well differentiated from other intra-articular injections for the treatment of knee OA. Let me put that into perspective for you. This means that one out of every two physicians that were included in the market research indicated this would be their first line therapy and product of choice based purely on the profile of the product. This does not even include the detailing efforts, our sales force would deploy in the market, but rather it is solely off the product profile alone. We are very excited about having the opportunity to potentially displace many of the other Viscosupplements and steroids currently in the market and we look forward to the exciting times ahead in the launch of CINGAL. In addition, as part of our launch planning strategy, we commenced a payer research, a payer market research and segmentation analysis which involved conversations with multiple payers as well as meetings with members from the Academy Of Managed Care Pharmacy to gain insights into developing of CINGAL value proposition that will allow for optimal support and preferred physicians from the payer community. We are also working with various external strategic partners to implement strategies to improve our access to physicians and conduct physician segmentation analysis to enhance our targeting initiatives when we launch. Over the next quarter we plan to begin an initial sales force sizing and alignment project, as well as continue with other market research initiatives. Advancements of the CINGAL Phase III trial and the build out of our commercial operations remains the highest priority for the company as we prepare for its launch. We plan to continue to provide detailed updates on both initiatives over the next few quarters. By bringing commercial operations in-house, we will have greater visibility, control and predictability of product demand, volume and fulfillment. This will enable us to improve transparency with the investment community around volume and inventory. Most importantly, we will capture all end user revenues for the products we directly market, paving the way to potentially more than double our revenues over the next two to three years. Please turn to slide number eight. The yield to CINGAL is the lead candidate in our innovative regenerative medicine pipeline, HYALOFAST. HYALOFAST consists of a scalpel made of HYAFF, which is our proprietary solid hyaluronic acid technology that can be used with an autologous bone marrow aspirate concentrate of BMAC as we call it in knee procedures to treat cartilage injuries or defects. HYALOFAST with BMAC provides a stem cell rich media that allows cartilage to regenerate resulting in repair of the defect. HYALOFAST is currently in a Phase III clinical trial for U.S. FDA regulatory review. We are advancing the study to complete patient enrolment by the end of this year. As I previously mentioned, the voluntarily recall of HYALOFAST does not impact the ongoing Phase III clinical trial. Additionally our new rotator cuff repair product candidate continues to progress towards the conceptual phase of prototype development. As a reminder, this unique therapy is intended to aid the tissue regeneration process for patients with rotator cup tissue damage and will complement our growing regenerative medicine portfolio. With over 600,000 rotator cup procedures performed annually in the U.S. alone, we expect this to deliver significant opportunity to the growth of Anika. Before I turn the call over to Sylvia, I want to reiterate our commitment to sustain our legacy of trust, quality, execution and financial discipline while we build the infrastructure to drive the next phase of revenue growth. I will tell you first hand; this was certainly an interesting timeframe, but also an exciting one to take the reins at Anika. I have tremendous amount of faith in the talent, innovation and dedication of the team, coupled with a clear strategic vision and a focused hands-on leadership style with deep experience in this market space. Those will be the keys to our long term growth and success. I will now turn the call over to Sylvia to review our first quarter financial results.

Thank you, Joe. In the first quarter of 2018 we continued to execute on our strategic initiative aimed at accelerating our revenue and earnings growth in the years ahead. We made significant progress advancing the CINGAL Phase III trial, continued to expand MONOVISC and CINGAL in international markets and advanced our pre-launch activities to support the CINGAL U.S. commercial launch next year. Please turn to slide number nine. Total revenue for the quarter was $21.3 million compared to $23.4 million for the first quarter of 2017. As Joe mentioned, the year-over-year revenue decline which was partially due to $1 million related to the voluntary recall of three HYAFF-based products. Worldwide orthobiologics revenue decreased approximately $700,000 year-over-year for the quarter. This was primarily due to lower ORTHOVISC revenue as the trend of multi-injection to single injection shift continues. Overall, domestic ORTHOVISC revenue was also impacted by pricing, which was primarily offset by the increase in domestic MONOVISC revenue. On the sequential quarter basis, ORTHOVISC experienced a double digit percentage decline in price in the United States during the first quarter, while MONOVISC experienced a high single digit percentage price decline during the same period. Domestically despite the double digit rate overall market decline during the quarter, we are very pleased to report that our ORTHOVISC and MONOVISC products revenue at the end user level achieved the leading position in the overall market in the United States. MONOVISC’s worldwide revenue increased 29% year-over-year due to our global expansion efforts and the industry shift from multi injection options to more convenient single injection options. CINGAL also continued to perform very well, delivering revenue growth of close to 280% year-over-year for the quarter. International Viscosupplementation revenue grew 17% year-over-year due to continued strong demand from MONOVISC and CINGAL. Product gross margin was 63% for the first quarter compared to 74% for the first quarter of 2017. The decrease was primarily due to higher production costs for our solid HA products, certain inventory charges and the impact of the voluntary recall previously discussed. In the first quarter we initiated an action plan to reduce the increase in production costs and to improve our manufacturing yields. We expect our product gross margin to improve over time as they become more proficient on building our competencies related to the recently transferred HYAFF technology. Total operating expenses in the quarter were $29.1 million compared to $15.4 million in the first quarter of 2017. The year-over-year increase was due primarily to a one-time charge of $8.4 million consisting of mostly non-cash stock based compensation expense. The majority of this was related to the retirement of our former CEO. The increase in operating expenses was also reflecting costs associated with CINGAL U.S. pre-commercial initiatives, as well as product recall related costs. Loss from operations was $7.8 million for the quarter compared to income from operations of $8 million for the first quarter of last year. Net loss for the quarter was $6.7 million or a loss of $0.46 per diluted share compared to a net income of $5.5 million or $0.37 per diluted share in the first quarter of 2017. The decline was due primarily to the one-time charge I explained earlier and the impact of the voluntary recall previously discussed. These one-time events generated an unfavorable EPS impact of approximately $0.60 per share. We ended the quarter with approximately $163 million in cash and investments on our balance sheet. Our cash deployment strategy remains focused on sustained innovation to drive top line growth. First, we intend to continue R&D investment to execute our CINGAL and HYALOFAST Phase III trials and to prepare for and commence our tennis elbow post-market clinical study. Second, we will continue to invest in pre-launch planning activities to support a successful U.S. commercial launch for CINGAL in 2019. Third, we will continue to evaluate strategic M&A options to augment our organic growth. We expect that we will continue to generate strong cash from operations in 2018 despite the investments we’re making to advance our pipeline and build our commercial infrastructure. Based on our first quarter results and the currently available information, we have updated our guidance for the full year of 2018. We expect total revenue for the full year of 2018 to be around the same level as 2017. Product gross margin is expected to be in the mid to high 60% range for the full year of 2018. Total operating expenses for the full year of 2018 are expected to be in the high $90 million range, including the one-time charge associated with the retirement of our former CEO and the expenses associated with CINGAL pre-launch activities required to support a successful direct commercialization in the United States. A transformational change is underway here at Anika; one that will bring greater financial predictability and visibility and help enable us to improve transparency with the investment community. With the expected launches of CINGAL and HYALOFAST in the U.S., Anika is well positioned to accelerate revenue and earnings growth over the next few years. We are very excited about our next phase of growth and we intend to maintain our strong culture of financial discipline and accountability. Thank you, and we’re now happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Joe Munda of First Analysis. Your line is open.

Good morning Joe and Sylvia. Thanks for taking the questions.

Good morning Joe.

Good morning Joe.

First off, can you give us the circumstances, a little bit more of a time line if you will around the recall. When did you learn of the issues and when did you decide to recall these products?

Joe, as we talked about earlier, the recall was a very recent activity. It came about as part of our ongoing quality activities that we have. During the first quarter we came across certain data which indicated that the product’s shelf life maybe impacted over – these products have a five-year shelf life, and we saw some data that over the long term we may have challenges maintaining the shelf life over the course of the five-year period. As a result of precautionary measure, it’s not – there certainly is no indication of safety and efficacy issues. We made the decision in late April. We’re talking about within the last couple of weeks to initiate this voluntary recall and all the communication activities are happening very rapidly as a result of that decision.

Joe, I want to add a couple of comments to you know Sylvia’s answer to you. You know as Sylvia indicated, this is purely a voluntary recall, and as I mentioned early on in my beginning notes that you know it’s very important – we take our quality standards very seriously here at Anika, and you know the legacy of quality and trust has been one of the values in this company. So we felt that was important at that point in time based upon these indicators that Sylvia had mentioned, that it was important that we took the voluntary action.

Okay, and then flipping over to ORTHOVISC and MONOVISC, first on the MONOVISC side, can you talk a little bit about the CE Mark being temporarily suspended and the circumstances there and then as far as the U.S. is concerned, you know you talked about single-digit declines in MONOVISC pricing, double digit in ORTHOVISC. Is that a function of – you know we’ve been reading J&J is looking to rationalize some of its cost from its suppliers, as well as you know you talked about competitive pressure. So if you could give us a little bit more color there that would be great.

Yeah Jon, I am going to take the first part of your question as it relates to the CE mark, and then I’ll turn it over to Sylvia and she can address some of the supplier cost restructuring that we’ve all seen in the press. First of all, you know when you look at the certification process for the CE mark, that allows us to sell MONOVISC into the European markets. That was suspended back at the very end of March of this year. One thing I want to point out, it is not a product quality issue. This is purely an administrative issue between us and our notified body. One of the challenges that we’ve noticed with some of the notified bodies is the increase in the regulations that occurred during 2017 in the EU markets. As a result of that, that’s created a backlog. We were adjusting to the new information they were requesting, so a lot of this is more administrative. I can tell you personally, I’ve been involved in the calls with our notified body and we have a very high degree of confidence that’s going to be resolved in the next few weeks. So from my perspective this is just temporary. It was the result of some change in guidelines and regulations last year, and as you know we’ve been very diligent on what we call the RA/QA front, and during the process with the backlog, with the notified body, this result is being temporarily suspended. Sylvia, I’ll turn it – yeah, if you want to answer Joe’s second question.

Sure Joe, with regards to your question about price decline in the United States, as you know the U.S. pricing last year was more or less stable. What we saw in the first quarter was that both ORTHOVISC and MONOVISC experienced some high degree of price erosion. I talked about the sequential quarter price erosion and comparing this to the previous year’s Q1, both ORTHOVISC and MONOVISC experienced a high single digit price decline. What we learned from our partner Mitek is that it’s a combination of reacting to competitive pricing in the market as well as their strategic move to secure certain large accounts and we’re seeing that on our products’ ASP for this quarter. What’s important to know and I think both Joe and I had highlighted on our scripted section is that during the first quarter the market itself declined in the double-digit rate, at a double-digit rate, and despite that our products’ growth, especially MONOVISC was very robust. Year-over-year volume of MONOVISC went up 30% and that is certainly positive and reinforces the product differentiating features, as well as the shift in the market from multi-injection to the singe-injection segment. Hopefully that answered your question Joe.

Our next question comes from the line of Lisa Springer of Singular Research. Your line is open.

Thank you for taking my questions. My first question concerns ORTHOVISC. Is the expectation that that will gradually be replaced entirely by MONOVISC or is that always going to be a certain inch of the market that that product addresses?

Lisa, good morning. Thank you for the question. We believe that ORTHOVISC and the overall multi-injection market will always have its place based on certain physician practice preferences related to pricing and the lease of multi-injection efficacy. As it stands today, ORTHOVISC still maintains a large portion of the market, but we’re seeing the shift from multi-injection to single injection. So in short to answer the question, we believe ORTHOVISC will be there, but the growth will be from the single injection segment of the market.

Okay, thank you. And my second question concerns the R&D spend for the year. Do you expect it to be fairly even across quarters? Is it going to be more back loaded towards the second half of the year?

Overall for the year R&D spend is increasing comparing to last year. From a quarterly standpoint we believe that first half of the year will be heavier for CINGAL related activities as we complete our six month follow-up and the three month additional study, whereas on the second half of the year we have heavier HYALOFAST spending and in addition to that we will be commencing the tennis elbow post marketing study. So the timing of these studies contribute to the timing of the spend. So first half on CINGAL, second half more so on the HYALOFAST and the ORTHOVISC study.

Thank you. Our next question comes from the line of Jim Sidoti of Sidoti & Company. Your line is open.

Good morning, can you hear me?

We can Jim, thank you.

Great. First on the recall, is there any potential issues that caused you to recall these products could impact any of your other products or MONOVISC or ORTHOVISC or is this strictly related to those products?

The recall is strictly related to those products. As we mentioned before, these are HYAFF based products which were recently transferred to our Bedford facility, so they are completely separated both from a manufacturing space and process standpoint from our gel based products.

Okay, that’s good to hear. And then with CINGAL, has there been any change in the timeline since your last call?

No, we still remain on track with what we’ve indicated in the past Jim. It’s a great question. The team is working diligently and waiting, so we still remain on track for potential filing at midyear this year.

So with $163 million in cash you know are you prepared to go-to-market with just one product or would you anticipate possibly doing an acquisition prior to your launch of CINGAL so you could at least have two or three products in the bag when you go.

I am going to let Sylvia address part of that and then I am going to pick it up from there, so go ahead Sylvia?

Jim, you pointed out that our cash balance sheet is quite strong and we have a strong history of generating good cash flows. M&A will play an important part of our growth strategy and from a capital deployment standpoint we historically have had a pretty disciplined approach and our priorities will be in the order of organic growth, inorganic growth and return of capital and on the inorganic growth part, M&A will certainly be something that we will dedicate resource and effort to it and Joe will speak to the specifics and the progress that was made so far.

Yeah, so we – since I took over the reins about six weeks ago, I’ve been working with some members of the team and building out the, what I call the M&A process and the target profiles of those types of activities we’d want to engage in, so I can tell you Jim and it’s a great question considering your capital allocation here, that part of our short and long term strategy is to look at M&A. Of course we want to be – we want to make sure that whatever we’re looking at is a good fit for the business and the market space we’re in and that it’s not dilutive and that you know it would be a nice tuck-in in creating opportunity both short term and longer term for the company.

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

Hi, good morning. I may have missed this. I was temporarily called away from the call here. Have you guys talked about some of the capital allocation, the share repurchase become more on the table with the stock having come in fairly hard last few months?

Mike, we spoke or I spoke briefly about our capital deployment strategy in terms of the priorities. So our top focus is on organic growth followed by inorganic growth and Joe shared on the M&A front our philosophies and some latest activities. And the third item is the return of capital. So although at this time we have made no decision or there is no announcements that we can make, it is the topic that is routinely discussed by management and our board. So what I can tell you is its being looked at and evaluated but no decisions has been made.

And then the revenue guide for the year, that does still include an assumption of roughly a $5 million milestone in ’18, is that right?

It does include it and we’re closely monitoring the progress to make sure that we are advancing towards achievement.

Is that material in question at this point, whether you’ll make that?

It’s not materially in question.

I think that’s all I got, thanks.

Thank you. Our next question comes from the line of Joe Munda of First Analysis. Your line is open.

Yeah, just a couple of follow-ups here. Joe, could you provide us a little bit of a roadmap between now and CINGAL launch, some sort of benchmarks that we can you know kind of look at as we approach the launch here, perhaps the data readout on the trial if you will, some key benchmarks going forward?

Yeah, you know Joe and it’s a great question, thank you for asking that. You know there’s a couple of things that I would point out and I think I’ve shared this in the past and so you know when we came into the first of the year this year we really started to deploy the actual commercialization strategies. The first step in that process and the best opportunity at that point in time was at the AAOS meeting where we started to engage physicians and what I would call in-depth interviews, one-on-ones, quality time lasts 45 minutes to almost an hour and talking about the attributes of products that they like. The types of products they’ve used in the past, reimbursement, so pretty intensive one-on-one meetings with each of these physicians. The second component is you know – so that was at the end user base, which was really the immediate primary focus so that we can start to plan the additional types of activities. That would be the pathway taking us to the launch. So the second component to that was at the recent AMCP meeting which was held here in Boston just a few weeks ago and focusing in on the payer side of the business. And we’ve got a pretty good grasp on that and we are actually developing some advisory panels with some of these large payer groups and some of the directors of the formularities that control this type of a approval process. The next phase that we’ll be moving into is really scoping out and sizing out the market and what I mean that is, as we continue this market research we’ve have done in the past, now we’ll be continuing going forward. So I don’t want to discount that that is not an ongoing process. It is an ongoing process and as we move into the year we start to formulate the messaging, we start to formulate the types of materials, the clinical support, the publication strategies and then we start to look at sizing the market so that we can ready ourselves for the scope and size of the sales force which occurs towards the end of the year, beginning the first of next year as we get closer to the launch. So all of this is gated in a manner that would lead us right up to the launch of the product in sequential timed fashions that are important at that point in time. So, it’s a long pathway, a lot of work needs to be done, but the team has engaged already beginning the first of this year at the AAOS meeting in March to the AMCP meeting. We recently went the non-operative sports medicine meeting as well in Florida and conducted additional interviews when they held their meetings just, I think it was last week or the week before over in Orlando. So the team is using the opportunity when there is groups of physicians together initially, forming our strategy as we move forward and adjusting for that strategy so that we’ve got a good solid plan in place by the time we get to the launch of the product.

Okay and then just one follow-up. I know you talk about competitive pressures. Are you seeing any impact from the recent Zilretta launch in the market place? Is that the core driver of some of the pressure and then as far as product gross margin is concerned, I mean is that a direct result of the pricing itself or is there something else there?

So I’ll address the Zilretta question. So we are not seeing a lot to be honest with you Joe. It still seems to be quite. We even checked with our partners, they are not seeing any impact relative to Zilretta. You are still dealing with a steroid versus a VISCO supplement. So from our perspective we don’t see that as major impact and we haven’t seen much activity. So the information coming in indicates that no impact on our base of business. That could change potentially over time, but I just don’t see it at this point in time and we haven’t received that kind of feedback. In fact what’s interesting when we went out and did the studies the in-depth studies with physicians, part of the feedback coming back is we can see some of those physicians in the treatment algorithm shifting left, meaning using earlier intervention with CINGAL on the steroid side where they tend to use steroids first, so some of that feedback is coming back as part of our reviews. I’m a little off base on your question here, but I thought it’s important to put that in so that you could understand the full gravity of the situation.

With regards to product gross margin, the pricing certainly is a factor in the projection that we stated earlier, which is the mid to high 60% range, but it’s not a main driver. The main drivers are related to higher production costs for our solid HA products, as well as the chargers related to the voluntary recall that we talked about earlier.

Thank you. At this time I would like to turn the call back over to Joe Darling for any closing remarks. Sir.

Well, first of all I would like to thank all of you for your time today. I’d also like to reinforce how this first quarter in my opinion has strengthened our results to rapidly assume greater control and responsibility over our end user relationships through our direct commercialization initiatives and our revenue growth drivers. We have multiple revenue streams from a broad product portfolio, a deep and innovative pipeline with tremendous potential and a seasoned leadership team with proven commercial expertise. We expect the next 12 to 18 months to be transformational and a bridge to our direct commercialization initiatives for Anika. I look forward to leading the company through this inflection point into the next phase of its evolution. I also look forward to meeting with many of you in person on the road at investor events in the coming weeks and months. Thank you for your time this morning and have a great day.

Thank you, sir. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day.