Anika Therapeutics, Inc. (ANIK) Q3 2020 Earnings Report, Transcript and Summary

Good evening, ladies and gentlemen, and welcome to Anika's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Kristen Galfetti, Executive Director of Investor Relations. Please proceed.

Thank you, Gaylene. Good evening, everyone, and thank you for joining us. With me on the call today is, Dr. Cheryl Blanchard, President and Chief Executive Officer; and Michael Levitz, Executive Vice President, Chief Financial Officer and Treasurer of Anika. During today's call, Cheryl and Mike will review Anika's third quarter 2020 financial results and key business highlights, which were summarized in our earnings release issued today. A copy of the earnings release is available on the Investor Relations section of our website at anika.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 now to open the file and follow the presentation along with us. Please turn to Slide 2. Before we begin, please remember that certain statements made during this conference call constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations, including statements with respect to impacts of the COVID-19 pandemic on Anika. These statements 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. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial performance. A reconciliation of these non-GAAP financial results to the most comparable GAAP measurement, calculated and presented in accordance with the U.S. GAAP, is available under the Quarterly Results tab in the Investor Relations section of our website. I will now turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl?

Thank you, Kristen, and good evening. We hope that everyone joining us on this call remains in good health, while we navigate - continue to navigate the COVID pandemic. I am happy to report that the third quarter, showed positive momentum with continued gains in procedure rates and revenues relative to the impacted levels we saw in the spring and summer months, and we are seeing top line synergies from our recent transformative acquisitions with Anika's legacy business. I'm also very pleased with how the Anika's team has remained focused on execution, while successfully navigating the pandemic, as we see elective procedures, moving toward more normal patterns of activity. Please turn to Slide 3. As the integration of these businesses has progressed, our value proposition is clear. We are focused on creating and delivering meaningful advancements in early intervention orthopedic care. Our strategic plan to focus on Joint Preservation has expanded our addressable market from $1 billion for OA pain management to a much broader $8 billion addressable market that now includes faster growing segments of the orthopedic space, including sports medicine and extremities. By remaining uniquely focused on the Joint Preservation space, we are addressing significant surgeons and patient needs with a set of capabilities and technologies that leverage and complement each other to bring real value to the healthcare system and all of our stakeholders. We believe that Anika is unique in this focus. We are committed to investing and leading in high opportunity spaces within orthopedics including osteoarthritis pain management, regenerative solutions, soft tissue repair, and bone preserving joint technologies. By combining our ability to develop and offer new therapies across these key Joint Preservation spaces, we can provide full and unique solutions to our customers and leverage our commercial organization focused on the Joint Preservation orthopedic practitioner and patient. We also partner with those physicians to understand what they need most to treat their patients, and we work closely with them to collaboratively develop minimally invasive products that restore active living for people around the world. During this call, we will share with you the work we are doing to establish Anika as a force in these large and growing market, and why we have a right to win within these high opportunity spaces. In addition, we will share with you how we have successfully navigated the past several months during COVID, resulting in growth for Anika despite the difficult situation in the world and industry have experienced since early this year. Please turn to Slide 4. Even in light of the COVID pandemic, we delivered strong revenue performance in the quarter with total revenue increasing 7% year-over-year. This speaks to the success of executing on our strategic initiatives and the strength of our more diversified business. I'm encouraged as we continue to see elective surgeries come back in most markets, although like other companies that serve the elective surgery spaces, we do expect continued lumpiness over the next several quarters due to COVID. While we note that in-office injection procedures appear to lag the rebound in elective surgery, we are also seeing some nice top line synergies with the combination of the three legacy businesses, and are leveraging new products across the new Anika. As a reminder, the vast majority of our products are used in one of two environments. The first is office-based procedures for the OA pain management injectable side of the business. And the second is in surgical settings including hospital ORs and ambulatory surgery centers or ASCs. We anticipate hospitals will continue to face challenges to fully open up to elective surgeries with the ongoing dynamic COVID environment. We are encouraged by the recovery of elective procedures in the ASC and office settings, which we were at about 90% of pro forma historical levels in the ASC, and we're at about 75% to 85% in the office space procedures in the third quarter. Our surgical products are primarily used in the ASC settings, which puts us in a strong position to continue our positive momentum going forward. In fact, our Joint Preservation revenues increased 77% sequentially from Q2 to Q3, showing strong recovery and demand for our surgical products. Our integrated U.S. commercial team continues to sell our expanding portfolio with over 30 sales professionals and over 150 distributors, rounding out our hybrid sales model in the U.S. With the completion of the last seven product launches, our product portfolio now includes the six sports medicine and extremities product launched in Q3, as well as the Tactoset franchise expansion with the launch of the small bone cannula instruments to access smaller joints. Importantly, on the clinical trial site, we are pleased to announce that we enrolled and treated the first patient in the CINGAL pilot study. CINGAL is our single injection, hyaluronic acid and steroid combination to treat OA pain. We also resumed enrollment in the HYALOFAST Phase 3 trial. HYALOFAST is our hyaluronic acid-based scaffold for single stage cartilage regeneration. As a reminder, both trials were paused in March due to the pandemic. We are optimistic that the clinical trials will continue, but want to caution that the uncertainty that the COVID environment brings could affect our clinical trial enrollment rates and therefore completion timing. Additionally, CINGAL and HYALOFAST obtained regulatory approvals in Israel. And ORTHOVISC is now registered in Estonia and France with launches to follow in those geographies. We continued to look forward to pursuing both of these potentially game changing products in the U.S. market, based on our positive commercial experience with them internationally. Finally, we received - we recently issued a press release announcing the 510(k) clearance of our bone-sparing, wrist motion total arthroplasty system to treat pain associated with arthritis of the risk, which is a great accomplishment for the Company. The wrist motion system was developed by the legacy Arthrosurface team to add to the clinical and commercial success of the motion preserving, wrist motion, handy arthroplasty system implant that we currently sell today. Our new total risk product provides a unique solution to preserve wrist joint kinematics better known as dart thrower's motion that active people wish to retain. This product category comes from the acquired Arthrosurface business and is a great example of the differentiated solutions they've developed over 20 years and the continued engagement of that team. Please turn to Slide 5. We continued to add talented and experienced team members to Anika this quarter. The Company is now a combination of legacy Anika executives, talented leaders that joined Anika through the acquisitions of Parcus and Arthrosurface and recently added industry veteran. I am very pleased that Mike Levitz joined Anika in early August as CFO. Mike brings over 20 years of public company financial experience to Anika and has helped deliver significant increases in enterprise value and operating performance at several medical technology companies. We also added Ben Joseph, the VP of sales and marketing for the Americas. Ben is an orthopedic industry veteran with great experience in product branding, marketing, portfolio management and driving sales growth from his 10 years with Zimmer Biomet, leading their foot and ankle and upper extremities businesses. Additionally, we were delighted to expand our Board of Directors with the appointment of Jack Henneman and Steve Richard as Independent Directors in September. Jack joined the Anika's Board following a 25 year career in the healthcare industry, including executive management roles at Integra Life Sciences and NewLink Genetics Corporation. Steve brings a breadth of global leadership experience gained in multiple industries throughout his 30 plus year career including his current role as Chief Risk Officer and Chief Audit Executive at Becton, Dickinson and Company. Jack and Steve will serve as incredible advisors for Anika and have joined at a pivotal time as we continue to execute on our strategy and propel the Company toward a period of more rapid growth. Our enhanced team along with continued progress building out Anika's infrastructure sets us up very well for continued success in the current environment and moving forward. Today, we are pleased to share with you our high level, new product development roadmap shown on Slide 6. In February, we've taken a close look at the three legacy businesses and the technologies and capabilities they bring to bear. We have spoken to our surgeon customers, met with our Surgeon Advisory Board, looked at the unmet needs and mapped out an initial new product development roadmap for Anika. This refreshed roadmap includes products that range from disruptive innovation to gap fillers. The addition of these meaningful products will ensure we are carrying a fully competitive bag in the Joint Preservation space, while simultaneously advancing early intervention orthopedic care. In the near term, we will focus our R&D efforts on developing new kit configuration, new soft tissue fixation products and extremity products such as our recently cleared total wrist solution. Following this, we will start to leverage our core capabilities such as our hyaluronic acid-based regenerative solutions platform across the combined business to create great products targeted around tissue repair. This road map will include product development through both internal R&D activities as well as inorganic opportunities. We will continue to refine and develop a meaningful new product pipeline from which we expect to launch a steady cadence of high opportunity products over the coming years. As you look at the slide, you can see what we plan to focus and earn the right to win in our newly expanded $8 billion addressable market. On the left, OA pain management will continue to figure prominently in our strategy as we partner with J&J Mitek for sales and marketing of our viscosupplement products in the U.S. and continued to expand that business in international market. The OA pain management, new product development roadmap will continue to focus on CINGAL, our novel third generation viscosupplement therapy that combines hyaluronic acid and a steroid. CINGAL is commercially available now in over 30 countries outside the U.S. and we continue to progress with additional geographic expansion, while we focus on moving to approval in the U.S. This product is a very meaningful therapy for patients with knee osteoarthritis with a global market opportunity of over $1 billion. Moving to the next column, we show our Regenerative Solutions new product development roadmap. This space includes meaningful products to treat patients that have had their lives impacted because of cartilage damage and injuries to bone and multiple orthopedic soft issues. Our regenerative therapy's product development work will leverage the significant hyaluronic acid technology platform and expertise that Anika has built over the last 25 plus years. We remain excited to advance our development program for HYALOFAST, our game changing single stage cartilage repair therapy in the U.S. We currently sell HYALOFAST in over 30 international markets, where it has been growing strongly. In fact we are seeing nice traction in selling HYALOFAST in combination with the legacy Arthrosurface and Parcus portfolios, including our NanoFx, nanofracture instruments used to perform second generation microfracture procedures. Also in this category, relative to bone repair, we are working on additions to the Tactoset franchise, a product that addresses insufficiency fractures to include procedure and anatomies specific kit. We also view rotator cuff repair as a critical space for us and we are doing work to develop a comprehensive rotator cuff strategy that will build out a platform to treat these technologies, including combining regenerative materials such as hyaluronic acid with the delivery model. This again speaks to the strength of bringing these businesses together. And finally, in this section, we have work ongoing around surgical augmentation of other orthopedic soft tissues, which runs out a total market opportunity of $1 billion in the Regenerative Solutions area. The third area focus is soft tissue repair using more traditional sports medicine technologies. This area includes portfolio gap fillers and novel products for soft tissue fixation including suture anchors and instrumentation for rotator cuff repair. New resorbable sutures, procedural kits and deeper penetration into the hand and wrist, foot and ankle and in general extremities. This focus in the extremities market aligns well with our strength in the other areas of the combined Anika portfolio and for the Q3 launches of six new sports medicine products. As part of the soft tissue repair portfolio, we are planning to launch our next two new products from the legacy Parcus business, that are primarily used for rotator cuff repair. The first new offering will be resorbable suture anchors used to attach soft issue to bone and will round out our suture anchor portfolio so that we can be fully competitive in these cases. The second product is a usable suture passer also used in rotator cuff repair procedures. These product divisions provide enhanced access and traction in the over $2 billion soft tissue addressable market. A final area of our new product development roadmap includes bone preserving joint technologies with products that address areas of unmet needs where the disease process is further progressed and an implant is needed. These products will span multiple joints including the shoulder, hands and elbow and the foot and ankle. The methodology comes from the legacy Arthrosurface business and includes partial joint and resurfacing implants and minimally invasive and bones-bearing implants that will allow patients with further progression or visibility proactively. This is the category where we recently cleared wrist motion total arthroplasty systems that a launch that is planned in 2021. Bone preserving joint technologies is an expensive area of opportunity for Anika with a total addressable market of over $4 billion. As described our new product development roadmap will allow Anika to create and deliver meaningful advancements in early intervention orthopedic care to patients. Near term, our pipeline is focused on Joint Preservation implant and fixation solutions and mid to longer term opportunities are in the joint pain management and regenerative solutions areas. All are incremental to our business with truly innovative products. All of these areas represent large and faster growing orthopedic market opportunities, but we will continue to partner with physicians to develop minimally invasive products that restore active living for patients around the world. We expect the revenue from the opportunities I've just described to provide substantial incremental business for Anika in line with our stated five-year strategic goals of doubling our revenue with double-digit top line and EBITDA growth. I will now turn the call over to Mike to review our third quarter results and then I will wrap up with some additional comments on the quarter before opening the line for questions. Mike?

Thank you, Cheryl. I'm very excited to join the Anika team at such a pivotal time in the Company's growth and I look forward to our future successes together. If you would please turn to Slide 7. Total revenue for the third quarter 2020 increased 7% year-over-year to $31.7 million. The revenue growth was driven by $11.7 million in orthopedic joint preservation and restoration revenue, which rose $11.2 million from the prior year, primarily due to the acquisitions of Arthrosurface and Parcus Medical in the first quarter of this year. We are pleased that these revenues recovered significantly on a sequential quarter basis from the initial COVID impact that Cheryl mentioned, approaching pre-COVID pro forma level as procedure volume increased, our integrated sales team gained traction and as we introduced new products. This growth more than offset lower joint pain management revenue. As we mentioned on last quarter's earnings call, we had expected that orders from J&J Mitek, markets and distributes our MONOVISC and ORTHOVISC products in the United States would be lower in the second half of 2020 as a result of the COVID impact and Mitek's related ordering pattern. We expect Mitek to continue to manage their inventory levels in the fourth quarter as they work to fully address the impact of COVID by the end of the year. Also as expected, while down year-over-year due to COVID, our royalty revenue from Mitek recovered notably on a sequential quarter basis. As patients returned to doctor's offices and end-user sales in MONOVISC and ORTHOVISC rebounded from the initial COVID impact. As a result of the strong growth of our joint preservation and restoration sales as well as the unfavorable impact on the ordering by our joint pain management distributors, our revenue mix diversification accelerated notably in the third quarter, where joint pain management representing 58% of Anika's total revenue. That's down from 93% of revenue in the same period last year. Further, revenue from J&J Mitek represented 48% of total revenue in the third quarter. That's down from 71% in the same period last year. While we are pleased with the recovery of procedure volume across our product line, in the third quarter, we expect COVID related volatility to continue that's impacting our visibility in to revenue trends. Therefore, we are continuing to suspend our financial guidance to the remainder of 2020. Our product gross margin in the third quarter was 55%, that's compared to 80% in the third quarter of last year, with the decrease due primarily to the unfavorable 15 point impact, of $4.8 million of non-cash acquisition accounting related expenses, and the unfavorable COVID impact on revenue mix and manufacturing volumes. Research and development and SG&A expenses together totaled $21.1 million in the third quarter, that's up from $11.7 million in the same period of last year, reflecting the acquisitions of Arthrosurface and Parcus as well as expenses to support future growth such as clinical trial costs, incentive compensation and investments in our commercial and related support organization. Please note that total operating expenses also included a $4.2 million charge in the third quarter due to an increase in the estimated fair value of our contingent consideration liability associated with the acquisitions of Parcus and Arthrosurface. As a reminder, this liability is remeasured each period until it's safe and the increase this quarter is primarily due to the passage of time, higher than expected revenues during the quarter and a reduction in market-based borrowing rates. As a reminder, we have a similar charge in the second quarter driven by the same favorable operating dynamics. Also related to this contingent consideration, as Cheryl mentioned, we were pleased to receive 510(k) clearance from the FDA for our wrist motion device, subsequent to quarter end. This clearance triggers a $5 million payout for the Arthrosurface acquisition agreement and that was paid in the fourth quarter. Our net loss for the quarter was $6.4 million or $0.45 per diluted share, compared to net income of $9.2 million or $0.64 per diluted share in the third quarter of last year. Excluding the non-cash charges discussed earlier, we achieved adjusted net income of $800,000 or $0.05 per diluted share. Adjusted EBITDA was $4.9 million compared to $14.9 million for the same quarter of last year. The decrease in profitability was primarily due to the unfavorable COVID impact as well as investments supporting our future growth. As a reminder, adjusted net income, adjusted net income per share and adjusted EBITDA are non-GAAP measures, please refer to the reconciliations of these measures to the corresponding GAAP reported figures in our third quarter press release in the Investor section of our website. Lastly, with regards to our financial position, Anika ended the quarter with just under $125 million in cash and investments. As a reminder, in April, we drew down $50 million on our outstanding credit facility, to strengthen liquidity in light of COVID-19. Based on performance recovery and stabilization of our business through the pandemic thus far, we repaid $25 million of the outstanding principal amount to the credit facility during the third quarter. While we remain focused on controlling costs, we are also balancing that with reinvesting to support growth and long-term profitability, consistent with our strategic objectives. We believe the long-term fundamentals of our business remain strong and we are well positioned to navigate this period of uncertainty. I will now turn the call back over to Cheryl.

Thank you, Mike. Please turn to Slide 8. Our performance in the third quarter underscores the resolve of our leadership team and the strength, depth and diversity of our product portfolio propelling this organization forward. We are very pleased to see procedure volumes trending toward pre-COVID levels and are energized to position the new Anika to continue to provide products across our new, more diverse product portfolio by integrating the strengths that each legacy companies bring to the table. Our strong financial position and continued investment in R&D with our unique focus on joint preservation and an expanded $8 billion total addressable market positions us to address large and higher growth segments within the orthopedic market. This along with leveraging our commercial teams focused on the Joint Preservation cover point will be our growth catalyst into the future. Our expanded and talented team will continue to focus on delivering value to all of our stakeholders and we look forward to sharing our successes with you through future discussions. Please turn to Slide 9 and we're now ready to take your questions. Thank you.

[Operator Instructions] Our first question is from Jim Sidoti with Sidoti. Your line is open.

Can we just go through the revenue in the quarter a little bit. If you break out the revenue from the acquisition, your core revenue was about $20 million, compared to about $30 million a year ago. Now I don't think procedures were down 50% from a year ago. So, is that because some of the - some of the goods Mitek buying in June, and push-pull some of that revenue into the second quarter and can you comment on pricing.

Jim, this is Mike, I'll answer that question. So, you're correct that this is related largely to order timing, as was said on the last earnings call. Mitek had kept their order flows steady into the second quarter and therefore the impact of COVID on their purchases from Anika did not really reflect COVID until the third quarter as it related to their purchases from us. As a reminder, remember the revenue from Mitek is split between a combination of their purchases from us and then also the royalty fees that they pay us for sales they make to end customer. And so as I think we've said on the last quarter, we expect that the second half of this year to have lower revenues from Mitek as a result of their ordering pattern in 2020. But as I - as I said a little bit ago, we expect that to be resolved by the end of the year as they're continuing to adjust their inventory levels for COVID here as we go into the fourth quarter. In terms of the change year-over-year - the change year-over-year was largely driven by the volume that you saw there and that I just described. Pricing was not as big of an impact, volume was much more significant. And I think the pricing comments are things that I think that J&J Mitek would speak to more than we would, but I would say that from understanding our trend, it really looking at the volume is the important piece there. We did say that sequentially, we saw a nice recovery from the second quarter to the third quarter within the Mitek business, the joint pain business associated with the recovery of end user sales that we saw there.

So you say there could be some more inventory rationalization in the fourth quarter that it will be probably Q1 before they go back to their normal purchasing level. Is that right?

Yes, that's correct. And that's consistent with what was said on the call last quarter, really is the first half, second half impact and we expect that impact that we saw in the third quarter will continue on the purchases that we - that Mitek makes from us. We have a really good relationship with them and so we're really looking toward getting through COVID together and managing that out so that we can continue to grow this business. Yes.

So if we look at the business longer term, you did about 115 - $114 million, $115 million in 2019. I mean is there any reason why, and I'm not going to pin you down to a exact start but is there any reason why annual sales should get back to that level at some point in the next year or so.

Jim, I would just say, obviously we're not talking about guidance, but in terms of direction the Company laid out strategic targets of doubling the revenue by 20.4% and also driving double digit profitability. And that's exactly what we are focused on. We have not changed our focus one bit. So I think it's fair to say that in many ways, kind of a new Anika because historically and you saw that in the composition of the revenue. A year ago, 93% of the revenue came from joint pain - joint pain management part of our business. And now, that's down to 58% this quarter. And so, a significant part of our business is coming from the joint preservation and restoration, which we saw nice growth from in the quarter and we are very excited about where that is going. Cheryl mentioned procedure volumes are increasing faster in the surgery side, surgery center setting, than they are in the places where you might get your shots for viscosupplement and so we see a little bit of that dynamic playing out as well. But in terms of growth in the business, yes, I mean, we are very focused on our long-term target.

So there is no fundamental change with your relationship with Mitek, so once the noise from COVID dissipates, there's no reason why that chink it back to at least, where it was in 2018. It sounds like to me.

Yes, I think that first of all, they continue to be a very good sales and marketing partner for us with these products, they are very dedicated to these products. It's certainly a very important part of their business. And our good relationship continues and we see them being appropriately focused on this. You know, again, we're not giving guidance because of COVID which I know you understand Jim. But we remain bullish on this business along with them.

And then last question on R&D. Now that you're starting to ramp up the trial for CINGAL, do you expect those costs and again, I know you're not going to give guidance, but directionally should we model those cost ticking up as we get through the next three or four quarters.

Yes, Jim. Without giving guidance, and obviously we're going to give you guidance as soon as we can and but directionally Anika has been a company that is focused on R&D and innovation and that's going to continue. You're going to see an R&D spending as it's been in our numbers today, both on the traditional pain management side, but also with their R&D roadmap you can see a lot of the new areas where we're making investment. On the clinical trial front as Cheryl said, we've now just begun kind of moving forward with those, now as COVID is settling in a little bit, moving on with those clinical trials. And so those costs are going to be coming into our numbers, and that's going to be impacting the number as we go forward. But broadly speaking, nothing in what we're talking about is different than the historic direction and investment as an innovation company nor in line and they are in line with our double-digit EBITDA growth targets as we come out of '24.

And then, sorry I guess I lied, I have one more. Are you satisfied with the size of the sales force where it is or do you, as you add these new products, do you think you'll - will add salespeople as well.

Yes, that's a great question. First, I'll tell you, we're very bullish on this business and feel like that investments that we made with the acquisitions and really kind of bringing together the sales forces from all three legacy companies. We talked about the fact that that was really a transformative move that was going to be an investment for the company, but an investment that we work to pay off as we scale the sales line. And our ability to really drive into that focus call point of the Joint Preservation clinician that we call on. So we'll continue to obviously to look at all of the metrics as we run the business. But we feel like we are well positioned with a really strong commercial team right now to continue to drive an awful lot on the topline and especially as we launch a lot of the new products that we've announced in the last couple of quarters and that we've got in development coming out here probably over the next six to eight months.

The next question is from Mike Petusky with Barrington Research. Your line is open.

On those four columns where you essentially lay out the global market opportunity, are there, are there areas where you guys are more inclined to sort of internally developed products and solutions or versus sort of inorganic, I mean are there biases in certain of these categories where you say, hey, we got, we sort of got to buy our way in there but we really feel like we have an opportunity to develop special things that. Can you talk about that a little bit?

Absolutely. I mean I'll tell you a couple of things, if you focus in on the regenerative solutions call on for a second. We definitely planned to leverage the 25 plus years of expertise that Anika has invested developing out hyaluronic acid based, biomaterials technologies for that - for those regen med solutions. That said, we're not, we're continuing to look at new technologies from an opportunistic perspective that could represent bolt-on opportunities, that could represent adding another regenerative platform. We're open to the inorganic exploration piece of that also. And then on the soft tissue repair and the bone preserving joint technologies pieces. Those are really areas of expertise and technology platforms and manufacturing capabilities that we acquired on the soft tissue repair side through Parcus Medical and on the bone preserving joint technology side through Arthrosurface. So while we will be focused on our internal capabilities there, we definitely have interest in continuing to build out in the hand and wrist, in the foot and ankle, in extremities in general, and so we will continue to look at inorganic opportunities in some of those areas also.

Can you just remind me, and maybe a few other people and while as we've talked about this. How many, how many patients, I think on HYALOFAST I think it's 200 you're looking to enroll but on CINGAL what's the patient target and if I'm wrong on HYALOFAST please correct me.

Yes, it's around that number on HYALOFAST and I'm trying to find the exact numbers, I don't want to give you a wrong answer. The thing that I can't comment you on the CINGAL pilot trial is that it's really more focused on a bigger placebo and TH arm that kind of addresses the needs that the FDA put in front of us. So that trial design is really focused on making sure that we drive that piece of those pieces of the study arm.

Right. And what is - was that six months, 12 months like I can't recall.

Well, again with - the original timing for that was the entire study would take about a year, but that was pre-COVID. So again, we're not giving guidance on that timeline right now simply because we just at this point in time, don't really have a sense of what enrollment rates are possible because of COVID.

But Cheryl, would you mind giving a sense of when that initial patient - like was that patient enrolled in July or just in the last few weeks or when did you really…

Yes, the patient - actually the trial we started in September. So that first patient was enrolled in September.

And then I guess just in terms of, and I don't know how close you are to be able to speak to this, but just in terms of the last three, four weeks with the sort of the elevated spikes in COVID across most of the country, have you guys heard anything either from ASCs or whether you're sort of plugged in or some of the office based docs, you know about any changes in how they're seeing patients or how they're sort of allocating their time?

Yes, I think in general what we're hearing is that the - certainly the ASCs are coming back to fastest, but we are also hearing that there are as parts of the country are impacted by COVID that things will shut down temporarily as things despite so certainly the ASCs are coming back to fastest but are still kind of at risk for continued lumpiness I would say, because of COVID and then the in-office injectable procedures has just come back more slowly than the ASC. So, again I said, sort of the ASC recovery we're seeing is at about 90% and the in-office injections are ranging more between 75% to 85% of pre-COVID numbers.

All right. And maybe this might be more for Mike. But, Mike, as you guys think about sort of longer-term gross margin, just based on your current product portfolio and assuming sort of a normalized environment and no sort of unusual accounting related to M&A, I mean can you guys get back to the mid, mid-upper 60s or what's the longer-term reasonable gross margin target for you guys based on sort of your current product portfolio under normalized condition.

So if you look at the numbers for the quarter, we had a gross margin of 55% and we said that about, there was a 15 point unfavorable impact of the acquisition related accounting and that acquisition accounting related to the inventory fair value step up, the amortization of the sales technology intangibles and so on. So if you take out the acquisition related and do more of an apples to apples, as the historic level that would be around 70% and you know as you know, I'm new to the story here. I've only been onboard for not even three months now. But as I look at historic transcripts, I believe that it's been said in the past that 70% was more of the normative gross margin that the company had talked about. But I really - I can't comment further than what the company has said before but I would say that we now have joint pain management and Joint Preservation products in our mix. Obviously, COVID is creating all sorts of interesting impacts as we've described, and I think we'll all be happy when we are through that, but even in the midst of COVID, our gross margin this quarter was at 70% when you exclude the acquisition related accounting. So I don't think that that's all - all that different from where the company has talked about today.

And Mike, I've got those clinical trial number for you. The CINGAL pilot study is scheduled for 230 patients in total and the HYALOFAST trial is 200 patients just to give you a better update.

So just last question. So on HYALOFAST, previous management, I mean man, the enrollment for this thing has been several years. Can you talk about strategically. And again, I know it's the COVID environment so where everything just harder, but strategically, have you guys thought about ways to sort of unlock and sort of get that trial sort of fully enrolled and done?

Yes in fact, we had an accurate plan to do that and COVID hit. So we'll be - we changed the protocol, expanded the number of site and move to had implementing and network of international site that would have allowed us to significantly to increase enrollment rates and we did all that in, completed literally right the COVID hit. So our fortunately, our plans to do just get the thing enrolled in a very timely manner were interrupted by COVID. Again we've - we started enrollment in this trial, but we've got a number of International set lined up that we expanded do. And so I'm not giving any guidance and timing for that at the present time, simply because of the COVID dynamics, it's just difficult to know how quickly we will be able to evolve even in those international sites.

This concludes the question-and-answer session. I'd now like to turn the conference back over to Cheryl Blanchard for closing remarks.

Thank you for your time today everyone. We look forward to updating you as we continue to deliver progress on our strategic initiatives. Have a great evening. And please stay well.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.