A battle is brewing over the future of Anika Therapeutics.

Caligan Partners LP, which owns an approximate 4% stake in the company, is pressuring Anika to re-evaluate its growth strategy and consider positioning itself for sale to improve shareholder value.

Caligan Managing Partner David Johnson scolded the company in a Feb. 21 letter for failing to acknowledge its mounting financial losses. Having tried unsuccessfully for months to resolve the issue, Caligan management is now determined to take the debate public.

“We have attempted to engage in constructive discussions with Anika for the last five months, but Anika’s Board and management have been reluctant to acknowledge that losses associated with the JP [Joint Preservation] segment have resulted in substantial shareholder value destruction and remain unwilling to consider alternative solutions to improve share price performance,” Johnson’s letter to Anika Therapeutics Board Chairman Jeff Thompson and CEO Cheryl R. Blanchard, Ph.D., stated. “After patiently engaging with Anika’s Board of Directors and management team…we believe now is the time for a public discussion about Anika’s future.”

Anika confirmed the joint meetings (eight times over six months) but said in a formal statement that its directors are confident the company’s strategy “will drive significant growth and value creation.”

Caligan, of course, disagrees, contending such growth and value creation is impossible with the significant losses posted by the firm’s Joint Preservation and Restoration segment. Anika established that division after acquiring privately-held Arthrosurface and sports medicine firm Parcus Medical in early 2020.

“We are very excited about these acquisitions,” late president/CEO Joseph Darling said in announcing the deal. “Importantly, we are confident these acquisitions, together with our existing product portfolio, will solidify Anika’s position in the $7 billion sports and regenerative medicine market and…drive sustained revenue growth that will ultimately enhance value for shareholders.”

But Anika’s foray into the joint preservation market has had the opposite effect, according to Caligan. In his letter, Johnson claims the company’s Joint Preservation segment operates at a $35 million annual loss; moreover, its $300 million of investments since 2015 has resulted in a -92% return for shareholders.

“Analysts and investors have noted the Joint Preservation segment’s products are predominantly made up of less innovative 510(k) products and have highlighted the segment’s material drag on overall profitability post-acquisitions,” the letter stated. “We calculate that, just for the segment to break even, Anika would need to grow JP revenue by 150%, with no incremental operating expense. This implies losses for more than a decade for a segment the company has guided to grow ‘low- to mid- single digits’ in 2022.”

Anika executives, however, insist the company is making progress toward gaining joint preservation market share.

“Anika has made meaningful progress against our strategy to become a leader in joint preservation and restoration, one of the highest opportunity spaces in orthopedics. This strategy expands Anika’s market opportunity from $1 billion to more than $8 billion,” the company’s statement reads. “At the same time, we continue to build on our leadership position in osteoarthritis pain management, which generates positive cash flows and supports, among other things, the investments we are making in new products across regenerative, sports medicine, and joint solutions to capitalize on our opportunity in joint preservation.”

Caligan argues those investments would be better off as share buybacks. Johnson suggested that Anika exit the joint preservation market to prevent further losses, and possibly consider going private or becoming part of a larger company.

Anika is best known for its viscosupplement portfolio, including Monovisc and Orthovisc, marketed by J&J.

Johnson also proclaimed Caligan’s intention to elect new board members at Anika’s annual shareholder meeting. He neither identified potential candidates nor disclosed the number of nominees.

Despite the pushback from Caligan, Anika seems adamant about maintaining its vision for future growth.

“Anika’s Board and management team are confident the continued successful execution of our strategy will drive significant shareholder value. With a strong balance sheet, a robust foundation of clinical data, a comprehensive portfolio across the joint preservation continuum of care and a regular cadence of new product launches planned for 2023 and beyond, we believe Anika is uniquely positioned for meaningful growth and value creation in the years ahead,” the firm said in its statement. “Our board and management team will continue to act in the best interests of the company and all of our shareholders.”