Anika Therapeutics (NASDAQ:ANIK) Q2 2019 Earnings Call

0:00 Good evening, ladies and gentlemen, and welcome to ANACA Therapeutics' second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance, please press the star, then the zero key. As a reminder, this call may be recorded. Up and now, I'd like to turn the call over to Sylvia Chung, Chief Financial Officer. Please go ahead.

0:28 Thank you, Catherine. Good evening, everyone, and thank you for joining our second quarter 2019 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 second quarter 2019 financial results and key business highlights, which were summarized in our earnings release issued today. 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 Investor Relations section under the Events and Presentations tab. We invite you to take a moment to open a file and follow the presentation along with us.

1:15 Please turn to slide number two. 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 see 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.

2:04 A reconciliation of these non-GAAP financial results to the most comparable GAAP measures, calculated and presented in accordance with GAAP, is available in the Investors Relations section of our website. I will now turn the call over to our CEO, Joseph Darling.

2:22 Thank you, Sylvia, and good evening, everyone. Welcome to our second quarter 2019 earnings call. In the second quarter, we continued to transform Ianica into a global commercial company positioned to deliver innovative products across the continuum of orthopedic and regenerative medicine therapies. We also generated strong earnings and cash flow in the quarter. We are realizing the benefits from our international commercial expansion initiatives as evidenced by 28% growth in our international fiscal supplement revenue year over year. As a result of our strong year-to-date performance, we are raising our revenue in adjusted EBITDA guidance for the full year of 2019.

3:11 Sylvia will discuss our updated outlook in detail following my remarks. Please turn to slide number three. Before we discuss the quarter and our other ongoing initiatives, I'd like to start with an important update on Singal. After extensive clinical, regulatory, commercial, and business analytics, along with discussions, we have decided to move forward in our efforts to bring this innovative treatment to the U.S. market. Initially, we will conduct a pilot study using a newly designed clinical trial protocol which we will discuss with the FDA in the coming months. We believe that this approach best balances time, cost, and risk.

4:00 We intend to use this pilot program to confirm our trial design, increase our probability of success in a Phase III trial, and generate data that ultimately will be needed to support FDA approval. In the analysis we conducted to reach these decisions, one of our most important considerations was the real-world evidence demonstrated by the continued strong performance and growth of Syngov in Canada and across Europe. International revenue from Syngov increased 125% year over year in the second quarter. This success, with over 100,000 procedures since launch, Together with the overwhelmingly positive feedback we continue to receive from patients and physicians has further reinforced our confidence in Singhal's clinical value as a safe and efficacious non-opioid solution to provide fast and durable relief.

5:04 Additionally, we recently conducted new primary market research with over 140 U.S. treating physicians. The results underscore the clinical need, the patient benefit, and the market opportunity for this innovative treatment in the U.S. The survey outcome indicated that Syngal is among the most likely treatments to be described out of a multiple new products evaluated in the research. All these factors have increased our confidence in Syngal's U.S. market opportunity, which we estimate to be approximately $1 billion. The pilot study is expected to enroll approximately 240 patients across 15 sites, primarily in the U.S., randomized to receive either Syngal, the steroid-triamcinolone hexacetinide, or saline placebo.

6:01 We expect the study to start in the first half of 2020 and take approximately one year to complete. While the pilot study will delay the potential launch of Syngal, We believe it will improve the probability of success by confirming our belief that the new study design, including modified patient and site selection criteria, will produce the pain-related outcomes the FDA is seeking for a successful NDA submission. We intend to explore with the FDA whether an adaptive trial design can be used so that a successful outcome in the pilot study may be leveraged to streamline a larger Phase III trial. Throughout this process, we also intend to explore potential collaboration opportunities on terms that would be beneficial to ANACA and its shareholders that could enable us to share development costs with a strategic partner.

6:58 Please turn to slide number four. In addition to the single pilot study, ANACA has a robust product pipeline spanning beyond osteoarthritis pain management to tissue repair and regeneration and Cartilage Restoration, which we continued to actively advance in the second quarter, while also strengthening our executive leadership and commercial teams. As I have discussed on previous calls, our company and growth prospects are driven by our focus on people, products and ultimately on enhancing our financial and operational performance. During the second quarter, we continued to identify and recruit the right people to drive our transformation.

7:47 It is very exciting to see the caliber of professionals joining ANACA at all levels of the organization. In particular, recently, we were pleased to announce that we continue to advance our U.S. hybrid commercial strategy and onboard three highly skilled regional sales directors under the leadership of our Vice President of U.S. Sales. These sales directors have extensive and relevant industry and product knowledge and will provide feed on the street to help build pre-market awareness for the upcoming launch for bone repair therapy. Additionally, they will support other orthopedic therapies currently in development, which will also be launched in the U.S., utilizing our hybrid commercial model.

8:35 We also continue to focus on our international sales performance under the leadership of our Vice President of International Sales. Here today, we have added three new international distribution partners to our global sales network and are aggressively expanding the international reach of our product portfolio. In the near term, we are on track to finalize the number of agreements and product registrations in a multitude of countries within Europe, Asia, and South America. We are actively increasing our focus on driving international growth through active and improved interactions with all key stakeholders across the more than 65 countries where we have a presence.

9:24 Additionally, we appointed James LaRope to the newly created position of Executive Vice President of Business Development and Strategic Planning. Jim is a 30-year industry veteran who will oversee our global business development function and advance our efforts to identify and evaluate potential acquisitions, partnerships, alliances, and licensing opportunities to expand our commercial portfolio and global footprint. Please turn to slide number five. ANACA is at an inflection point in its evolution. We are confident in our ability to take greater control of our future with our U.S. hybrid commercial model.

10:12 As I noted previously, we expect that this hybrid commercial approach will yield significant benefits for ANACA as compared to a full direct commercialization model. This approach will enable us to benefit from more rapid market penetration, allow us to drive stronger revenue growth, and increased profitability without the significant investment usually associated with building a large sales force internally. We believe this model will provide the most optionality in the ability to scale as we launch products across multiple categories. We will also benefit from greater visibility, control and predictability of product demand, volume and fulfillment.

10:59 The upcoming launch of our first surgically delivered therapy for bone repair procedures in the US in the third quarter of 2019 will be our first product launch under this hybrid commercial model. Our recently hired regional sales directors are actively preparing for the soft launch in the third quarter. As we move to full-scale commercial launch, we initially intend to utilize our sales directors and leverage regional and local distribution partners to drive rapid market uptake. In parallel, we will continue to evaluate potential commercial partners with established US orthopedic sales forces for this therapy. Please turn to slide number six.

11:45 I am very pleased to announce that we recently began showcasing the bone repair product at industry conferences including at the recent American Orthopedic Society for Sports Medicine held here in Boston and the International Society of Arthroscopy, Knee Surgery, and Orthopedic Sports Medicine meetings held in Cancun, Mexico. To continue building relationships with leading physicians and gain clinical insights as we prepare for its commercial launch. We are very encouraged by the positive feedback and constructive input. We received from these influential thought leaders and look forward to building on this momentum as we approach the launch. We expect our rotator cuff repair therapy will be the second product launched in the U.S. under our hybrid commercial model.

12:38 Product development is progressing as planned and in the second quarter we continued prototype refinement work following the completion of a pilot animal study in the first quarter. In the second half of the year, we will focus on the surgical instrumentation design for the rotator cuff therapy. Of note, we recently reviewed this therapy at multiple industry meetings and we conducted in-depth interviews with surgeons to gain insights on the design and optimization of the product and instrumentation. Both the bone repair and Rotator Cuff Repair Categories represent large and attractive near-term U.S. growth opportunities for anti-cuff.

13:25 We estimate the bone repair market to be $250 to $300 million and the rotator cuff market to be $150 to $200 million. Please turn to slide seven. During the quarter, We worked with the FDA to amend the protocol for the HyloFast Phase 3 trial in order to accelerate enrollment and enhance our probability of success. Through the protocol amendment, we expanded the number of sites from 40 to 60 and are currently adding new sites outside the US and Europe, which has the potential to accelerate the pace of enrollment. We also received approval to augment the inclusion criteria to target our optimal patient population.

14:15 Additionally, we recently held an educational symposium for orthopedic surgeons on HyloFast at the International Cartilage Regeneration and Joint Preservation Society focus meeting. We continue to see a very high level of enthusiasm among physicians and patients for this innovative regenerative treatment. Hylafast represents another significant U.S. market opportunity, which we conservatively estimate to be more than half a billion dollars. We believe that our future increasingly lies in regenerative medicine and other areas where we can leverage the broad utility of our proprietary solid HA or high-end technology platform.

15:02 We also know that the important steps that we are taking now will help pave the way for new product lines, increase control over the commercial management of those products, and enhance value for our position users, patients, and key shareholders. There are a number of valuable opportunities ahead, and we look forward to sharing the details of our five-year strategic plan at our Analyst and Investor Day on September 18th here in Boston. We are very pleased with our second quarter results and the progress we are collectively making across our organization as we evolve into a global commercial company. I'll now turn the call over to Sylvia to review our second quarter results.

15:48 Sylvia.

15:49 Thank you, Joe. Please turn to slide number eight. Total revenue for the second quarter was $30.4 million, compared to $30.5 million for the second quarter of last year. Our global Orthobiologics franchise grew approximately $300,000 during the quarter, primarily due to strong international VSCO supplement revenue. Global VSCO supplement revenue represented 84% of the second quarter total revenue. The U.S. VSCO supplement revenue decreased approximately 6% year-over-year for the quarter. And during the second quarter, U.S. OrthoVisc and Monovisc product transfer prices were impacted by the decreased market pricing that occurred in the fourth quarter of last year. As a reminder, the transfer prices were based on in-market net selling prices two quarters in arrears.

16:47 This impact was partially offset by increased royalty revenue in the quarter, which is calculated on a basis of U.S. OrphoVisc and MonoVisc end-user pricing during the period. On the sequential quarter basis, Domestic OrphoVisc end-user net sales price increased around 20% and MonoVisc net sales price increased in a high single-digit percent range. On a year-over-year basis, end-user volume for the quarter increased 9% for OrphoVisc and 18% for MonoVisc. The net 6% decrease in the U.S. VSCO supplement revenue was more than offset by international VSCO supplement revenue growth of 28% year-over-year.

17:36 This was driven primarily by Sengal, which achieved 125% revenue growth year-over-year for the quarter. Product gross margin increased to 78% for the quarter, compared to 73% for the second quarter of 2018. The strong year-over-year increase in product gross margin was primarily due to prior year results included inventory charges related to solid HA product lines. In addition, a more favorable revenue mix also positively impacted the product gross margin during the quarter. Total operating expenses in the quarter were $18.5 million compared to $19.3 million in the second quarter of 2018.

18:25 The year-over-year decrease in total operating expenses were primarily due to lower cost of product revenue and lower research and development expenses, partially offset by higher selling, general, and administrative expenses. Net income for the quarter was $9.4 million, or 67 cents per diluted share, compared to $10.1 million, or 68 cents per diluted share, in the second half of 2018. The year-over-year decrease in net income for the quarter was due primarily to tax benefits related to employee stock option exercises in the second quarter of last year. Adjusted EBITDA increased to $14.8 million for the quarter, compared to $14 million for the second quarter of last year.

19:16 The increase in adjusted EBITDA was primarily due to improvements in product gross profit and operating income as a result of reduction in inventory-related charges and more favorable revenue mix. We generated approximately $14 million in cash from operating activities in the first half of 2019, and we ended the quarter with cash and investments totaling approximately $141 million. During the quarter, we received an initial delivery of approximately 450,000 shares of common stock under our ongoing $30 million accelerated share repurchase program. We expect this ASR program to complete no later than the first quarter of 2020.

20:06 Our cash deployment strategy remains focused on making organic investments to drive top-line growth, pursuing strategic M&A to augment organic growth, and returning capital to shareholders through share repurchases. We will continue to be highly disciplined to ensure we're deploying our capital to the most value-creating opportunities. Turning to guidance on slide number nine. Based on year-to-date results and currently available information, we expect total revenue to be up around 1% to 4% for the full year of 2019 from prior year. Total revenue for the third quarter is expected to be up year-over-year in the low single-digit percentage range.

20:52 We now expect total operating expenses to be in the high $70 million range for the year as a result of internal cost control initiatives, which will fund the single pilot study we discussed earlier on the call. Adjusted EBITDA is anticipated to be in the high $30 to low $40 million range for the year. based on a net income expectation around the mid $20 million range for 2019. We continue to expect capital expenditures for the year to be between $5 and $8 million. This concludes our financial review, and I'd like to now turn a call back to Joe to discuss our near and long-term growth drivers.

21:35 Thank you, Sylvia. Please turn to slide number 10. As we look to the second half of the year, We will continue to take advantage of the multiple lovers we have to drive near and long-term growth across our business. These include advancing our hybrid commercial model and the launches of our bone repair, rotator cuff, cartilage repair therapies. Continue to focus on the international commercial expansion of our orthobiologics franchise, specifically Monovisc, Syngal, and Hilofast. Also, advancing our deep and innovative orthopedic and regenerative medicine pipeline, including the commencement and completion of the Syngal Clinical Program.

22:25 And, continuing to evaluate targeted partnerships and strategic tuck-in acquisitions that would complement our product portfolio, enhance our commercialization capabilities, and augment our technology. We also remain focused on solid execution across our organization in maintaining strong operational efficiency as we continue our disciplined and balanced approach to capital allocation. Before we open the line to questions, there are three things about Yanica that I hope you'll take away from our call today. First, We have taken significant steps over the last year to transform Anika into a global commercial company and position the company to accelerate growth and shareholder value creation in the coming years.

23:18 Secondly, we are laser-focused on delivering on the many organic and external growth opportunities for Anika. We have actively redeployed resources and added world-class talent as we leverage our strong market position to achieve our growth objectives. And third, ANACA, as I mentioned in previous calls, is at an inflection point in its ongoing evolution. As evidenced by our strong year-to-date performance, we are committed to sustaining our legacy of operational excellence in financial discipline while we drive our next phase of growth. We are now happy to take your questions. Thank you. Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then the one key on your touch-tone telephone.

24:10 If your question has been answered or you wish to remove yourself from the queue, please press the pound key. For our Q&A session, we are allowing one question and one follow-up, then we will move on to the next questioner. Our first question comes from Joe Munda with First Analysis. Your line is open.

24:30 Good afternoon, Joe and Sylvia. Can you hear me okay?

24:33 Good afternoon.

24:35 So my first question revolves around Singhal and the study. I'm just curious if, you know, first question, then the follow-up, you know, can you give us the context of why the decision to do a pilot study, 240, why not do a bigger study or a phase three? And then you talked about the possibility of adaptive trial design. Could you roll that pilot study into a phase three depending on the, you know, the data that's coming out of that study? I'm just curious to get, you know, some thoughts and how much is that pilot study, you know, do you think it's going to cost from an R&D perspective? Thanks.

25:18 Yeah. Joe, great questions. You've got a multitude of questions in there. We'll try to break it down and address each one, okay? We believe this approach best balances, as I mentioned previously, time, cost, and risk. We intend to use this pilot program to confirm our trial design and increase our probability of success in a Phase III trial and potentially generate data that ultimately would be needed to support FDA approval. We expect to discuss the trial design with the FDA in the coming months. and there were a number of factors that solidified our decision to move forward on the planned pathway with Singhal. One is that we've been so encouraged by the continued international revenue growth from Singhal.

26:09 As Sylvia and I both mentioned during the call, it increased 125% year-over-year in the second quarter. The real-world evidence demonstrated by the continued strong performance and growth of Syngal in Canada and across Europe with over 100,000 procedures since the launch further highlights to us the strength of the product. So to me, the success together with the overwhelmingly positive feedback we continue to receive from patients and physicians has further reinforced our confidence in Syngal's clinical value as a safe and efficacious non-opioid solution that provides fast and durable relief. And additionally, Joe, I'd like to add, too, that we recently conducted primary market research with over 140 interviews with U.S.

27:02 treating physicians. And the results from that survey underscore the clinical need, the patient benefit, and the market opportunity for this innovative treatment in the U.S. All of these factors combined have increased our confidence in St. Gall's U.S. market opportunity, which, as I mentioned on the call, to be approximately a billion dollars. While the pilot study will delay the potential launch of St. Gall, we also believe it will improve the probability of success by confirming our belief that the new study design, including modification of patient and site selection criteria, would produce the pain-related outcomes that the FDA is seeking for a successful NDA submission.

27:48 Throughout this process, Joe, we also intend to explore potential collaboration opportunities on terms of beneficial to ANACA that could enable us to share development costs with a strategic partner. Given all this, it was clear to us that moving forward in our efforts to bring this innovative treatment to the U.S. market is the right decision. And I'll now turn it over to Sylvia to address some of your financial questions related to the cost of the study.

28:15 Yep. I think the other two parts, one's the adaptive design and the other piece is cost related to the Sengal pilot study. From a trial design standpoint, we do believe that the revised trial design will be successful in meeting the requirements that the FDA has. Our intention, as Joe mentioned earlier, is to talk with the FDA on the design over the next few months. and particularly or specifically there are three elements that are involved in the revised design. One is the placebo arm. The second one is a much larger TH arm, meaning the steroid arm. And the third is modifying patient enrollment criteria to target the profile of the patients for inclusion and exclusion purposes. these elements that we believe are important in order to generate the data that we need. And from a adaptive study standpoint, we have not yet had the detailed discussions with the FDA, but as I mentioned earlier, we'll be conducting that in the coming months.

29:28 From a cost standpoint, we estimate the cost of the pilot study to be in the mid to high single-digit million dollars range. And this is included in the revised operating expenses that I discussed earlier. Joe, hopefully that answered your questions. Thank you. Our next question comes from Jim Sidoti with Sidoti & Company. Your line is open.

29:59 Good afternoon. Can you hear me?

30:01 We can, Jim. Good afternoon.

30:04 Great, great. So just a few more questions on the pilot study. You said it'll take a year to complete. Is that a year to complete enrollment or a year to complete the entire study?

30:17 It's one year to complete the entire study. The follow-up period is six months.

30:26 Okay, so it'll be 18 months before you have the data from this pilot study. Is that correct?

30:35 Sorry, can you repeat that?

30:38 I guess, how long will it take to complete enrollment?

30:41 Well, it'll take approximately one year to complete enrollment. I'm sorry, it'll take approximately six months to complete enrollment. Had that reversed, Joe, I apologize.

30:54 Yeah, so overall, it'll take us roughly a year to complete enrollment as well as the six-month follow-up. from there we'll be looking to complete the statistical analysis. So, you know, the specific timeframe, I think what you state at 18 months is roughly, you know, roughly the timing that we'll be looking at.

31:17 Okay, so after 18 months you'll review the data and then assuming everything's okay you would commence a larger study, is that correct?

31:28 Yes, sequentially, that would be the process. Having that said, we're internally looking at ways to shorten the clinical and the approval timeframe. But at this point, because we haven't had discussions with the FDA yet, we're not at the liberty of getting into specific details on this call.

31:49 Okay. So we shouldn't expect any revenue from Singal in the U.S. for at least Three years, it sounds like. Is that correct?

32:00 That is a correct assumption. I would say three to four years.

32:06 Okay. All right. I got it. And can you give us any sense on what the cost will be in 2020 for the pilot study?

32:15 The overall cost, as I mentioned earlier, is in the mid to high single-digit million dollars. will be starting some of the expenses this year. A good portion will be next year as we commence enrollment and look to complete the study.

32:33 Okay, and you mentioned that you might partner with someone. Have you ever partnered on a clinical study before?

32:43 We have. Earlier in Annika's history, we have partnered with a number of companies in terms of developing products. One come to mind was the dermal filler product. We had also previously partnered, given that it was later in the development program, partnered with J&J on clinical programs.

33:16 Okay, and so I assume that all that comes as part of the negotiations for a distribution product or distribution contract or something.

33:25 Potentially, Joe. You know, I think as part of the negotiations, and obviously we're on a public call today, a lot of opportunity to really take advantage of the collaborative environment that we're in today. and to look at potential partners. But I wouldn't really want to get into any more depth than that considering we're in the early stages of those conversations.

33:55 Okay. That's fine. And then if we just move over to the home repair product, it sounds like you're going to start a pilot launch or initial launch in the second half of the year. Who's going to be selling the product in 2019? Will it be your people or will it be some of these regional distributors?

34:14 Well, it's going to be a combination of both, but clearly our sales directors are going to engage local distributors, and obviously they've got responsibility for account management, meaning selling directly into the accounts. So it's going to be a combination of the two. I'd say in the early phase of the launch, you'll see primarily the focus of the sales directors personally selling the product as well.

34:41 Okay, and... I assume that you'll evaluate how things are going with the initial launch, and then you could use another distributor sometime in the future if the product looks like it's selling well. Is that right?

34:58 Yeah, we're very open to collaborative distribution arrangements with larger nationally-based sales forces. But I think out of the gate, to get the product up and running, to your point, we want to focus on the local and regional distributors. Thank you. And our next question comes from Lisa Springer with Singular Research. Your line is open. Thank you.

35:26 Good evening. I wonder if Sylvia could give us a little more color around the big year-over-year decline in cost of product revenue.

35:36 Yes, the year-over-year decline in product cost revenue are due to two factors. One was in Q2 of last year, we had some inventory-related charges related to our solid HA product lines, which weren't recurring for Q2 of 19. Secondarily, the Higher-than-expected pricing in the U.S. for our Orfavis and Monavis products led to a much more favorable revenue mix, which also contributed to the improvement in the product growth margin or, yes, the improvement in the product growth profit.

36:25 Okay. Thank you. You're welcome. Thank you, and our next question is a follow-up from Joe Munda with First Analysis. Your line is open.

36:36 Yeah, Joe and Sylvia, a couple follow-ups here. Sylvia, you gave some pretty good color on pricing and volume. I missed some of that. Maybe you could review that, and then I guess your thoughts, given the guidance, you know, your thoughts on pricing as we go ahead here and look out over the rest of the year. Okay.

37:00 Okay. Yep. So from a pricing standpoint, on a sequential basis, Orfavis increased in the 20% range, and Monovisc increased in the high single-digit percentage range. So this is Q2 of this year over Q1 of this year. And from a volume standpoint, both products experienced volume increase. largely due to our partner, MyTech's sales and marketing initiatives, OrthoVis volume increase year over year was 9%, and MonoVis volume increase year over year was 18%. From a second half of the year outlook standpoint, the guidance that we updated, which was an increase from previous guidance, was taking into account the very positive development that we saw in the first half of the year, in particular, second quarter of this year.

38:06 Having that said, we also look at a longer term historical trend meaning that we took a look at the last 12 to 18 months of pricing trend and noted that there was increased volatility. So as a result we want it to be prudent and take a more balanced approach to our guidance adjustment. So while we are very positive about Q2's results we want it to be prudent and we're taking a more Thank you. Thank you, and we have another follow-up from Jim Sidoti with Sidoti & Company. Your line is open.

39:12 Hi. Sylvia, you gave us pricing sequentially, but what was pricing year-over-year?

39:19 Year-over-year, monovus price increased while orthovus price was decreased from last year. So let me just get to – so orthovus price decreased year-over-year in the high single-digit percentage range, and monovus price increased are all slightly in the low single-digit percentage in Q2 this year versus Q2 last year.

39:47 Okay. And, Melissa, you've had two very different types of quarters relative to the course margin in Q1 and Q2. Do you expect the second half of the year to look more like Q1

40:00 or Q2? That's a good question, Jim. Our expectation of... cost of product revenue is built into the overall operating expenses and we don't separately provide margin guidance. And I think from a margin standpoint, each of the quarters had their kind of one-time and unique activities behind them. I would say that keeping to the total operating expense guidance that we gave to project profitability is the best approach. We will stay consistent with not providing product gross margin expectations.

40:50 Okay, maybe you could answer this then. Were there any one-time items that positively affected the gross margin in Q2 or negatively affected it in Q1?

41:04 In the second quarter, I had mentioned that the one-time high F related product line inventory reserve in Q2 of last year was a and so forth. So I think that should be taken into consideration, which means that without the adjustment last year, the increase in margin would be lower year over year.

41:35 Okay, then how about sequentially? Was there anything different in Q1, Q2 sequentially that was one time in nature?

41:44 From a Q1 to Q2 standpoint, we saw, you know, about 7% increase in our product gross margin. I would say that roughly half of that is due to revenue mix, and that is largely due to the price increases that I mentioned earlier for Orfavisq and Monavisq in the second quarter. So if pricing continues to trend up, then I think it will positively impact our margin profile for the second half of the year. If it doesn't, then it would have a more unfavorable impact. So that's one point to consider for the sequential Q1 to Q2 margin change. The other half of the increase from Q1 to Q2 is related to certain operating expenses and the timing of those events.

42:41 And these are what I would call period expenses, meaning that they are charged to the period. And some of them included utilities and timing of purchases of supplies. So those are more timing driven.

42:58 Okay. I guess I'm confused because overall you said U.S. revenue was down 6%. but pricing got better for monovisc year-over-year. Volume got better for both ortho-visc and monovisc year-over-year. So why was overall revenue down 6%?

43:18 Yeah, so the missing piece is the pricing for the product that we shipped was down, and I explained on the prepared remarks that the transfer price in Q2 was driven by the ASP in the fourth quarter of last year, which was a low transfer price quarter. So a portion of our Q2's results was favorably impacted by the in-market price in Q2, meaning the royalty component. But the other portion, which is the product shipment, was unfavorably impacted and many more. And we're looking to identify the low ASP from Q4 of last year which is just hitting this quarter's product revenue.

44:19 certainly would go up because of Q2's pricing improvement. What we at this point don't know about is the pricing trend for Q3 and Q4. So that is the element that we have to make some prudent and reasonable estimation based on historic trends. Thank you, and I'm showing no further questions. I'd like to turn the call back to Mr. Joseph Darling for any closing remarks.

44:56 First of all, I want to thank everybody for your time today. We are very pleased with our second quarter results and our progress transforming Anika into a global commercial company with a continuum of innovative orthopedic and regenerative medicines. We look forward to continuing to update you as we execute on our strategic initiatives in the year ahead. Thank you and have a great evening. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.