The pharmaceutical industry is arguably one of the most lucrative industries in the contemporary business world. Not only is it immersed in an incomparable fashion of competition but operating expenses within the industry are also insanely high, making it hard for start-ups to operate profitably. Emerging growth companies in the pharmaceutical industry are therefore compelled to adapt to a business model that accommodates reduced spending and promotes growth.
Anika Therapeutics Inc. (NASDAQ: ANIK), a leader in providing therapeutic products for tissue protection, healing and repair, is one of the few emerging growth companies in the pharmaceutical industry that has learned to play the right card in light of the competition and high expenses. Not only is it a pioneer in its field, but its business model particularly focuses on providing products whilst minimizing costs.
Impressive spending cut backs
Anika’s prudential spending is clearly reflected in its latest 3Q earnings. One key take-away from the earnings report is the overall reduction in operating expenses. The company’s research and development expenses saw a reasonable dip, coming in at $1.2 million from $1.5 million a year earlier. The company attributed this reduction to the regulation of development activities. Selling, General and Administrative expenses also decreased from $4.7 million a year earlier to $3.6 million, reflecting major spending cutbacks in key sectors of the business.
Strong yearly revenue growth despite setbacks in third quarter
For the nine-month period ended in the third quarter, the company managed to post revenue of $48.8 million, signaling a 5 percent increase year-over-year. According to documents made public by Anika, it believes that it would have posted far much higher revenue were it not for a temporary supply constraint that affected Orthovisc, a knee drug and major revenue earner. The disruption in supply was brought about by a scale-up issue in its Bedford manufacturing facility. In fact, this disruption in supply resulted in a 20 percent decline in third quarter revenue which came in at $14.8 million.
The 5 percent growth witnessed in the nine-month period ended in the third quarter however overshadows the 20 percent dip in revenue.
While overall growth is still impressive, the supply setback in the third quarter had negative implications on net income, which came in at $1.6 million, dropping from $3.0 million a year earlier. The company’s president Charles Sherwood, PhD, stated “We have resolved the issues from the ramp up of our manufacturing in Bedford and are now prepared for increased production of our products.” Sherwood, in a conference call, further discussed the earnings and noted that the company had good fundamentals.
The fact that supply will increase following the Bedford ramp up, coupled with the company’s good fundamentals, suggest that Anika will be a huge growth story in Fiscal 2013 moving forward to 2014.
Currently trading at $10.51, there is a high possibility of its price trending upwards given its current performance and positive outlook.
Anika passes by as an emerging growth company for the canny investor looking to make sizeable returns in the long haul.