10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2006
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to

Commission File Number 000-21326

Anika Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Massachusetts	04-3145961
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)
160 New Boston Street, Woburn, Massachusetts	01801
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (781) 932-6616

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act. (Check One):

o Large accelerated filer      x Accelerated filer o Non-accelerated filer

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.               At July 24, 2006 there were 10,626,784 outstanding shares of Common Stock, par value $.01 per share.

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Anika Therapeutics, Inc. and Subsidiary
Consolidated Balance Sheets
(unaudited)

	June 30,			December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	46,127,054		$	44,746,656
Accounts receivable, net of reserves of $49,724 at June 30, 2006 and $22,558 at December 31, 2005	2,767,691			2,066,240
Inventories	4,435,092			3,270,678
Current portion deferred income taxes	1,301,085			1,301,085
Prepaid expenses and other receivable	458,469			1,025,481
Total current assets	55,089,391			52,410,140
Property and equipment, at cost	12,981,495			11,949,439
Less: accumulated depreciation	(10,056,533		)	(9,853,177		)
	2,924,962			2,096,262
Long-term deposits	143,060			143,060
Deferred income taxes	8,093,040			7,968,481
Total Assets	$	66,250,453		$	62,617,943
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,042,225		$	1,277,782
Accrued expenses	1,583,374			1,718,916
Deferred revenue	2,890,702			2,830,046
Income taxes payable	574,513			—
Total current liabilities	6,090,814			5,826,744
Other long-term liabilities	62,313			—
Long-term deferred revenue	18,449,722			18,900,000
Commitments and contingencies (note 7)
Stockholders’ equity
Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and outstanding at June 30, 2006 and December 31, 2005	—			—
Common stock, $.01 par value; 30,000,000 shares authorized, 10,625,584 shares issued and outstanding at June 30, 2006, 10,500,393 shares issued and outstanding at December 31, 2005	106,256			105,004
Additional paid-in-capital	35,795,219			34,272,881
Retained earnings	5,746,129			3,513,314
Total stockholders’ equity	41,647,604			37,891,199
Total Liabilities and Stockholders’ Equity	$	66,250,453		$	62,617,943

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

Anika Therapeutics, Inc. and Subsidiary
Consolidated Statements of Operations
(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Product revenue	$	7,115,484	$	4,084,132	$	13,381,318	$	9,761,069
Licensing, milestone and contract revenue	682,557		2,935,293		1,369,684		4,549,643
Total revenue	7,798,041		7,019,425		14,751,002		14,310,712
Operating expenses:
Cost of product revenue	2,890,904		2,117,208		5,938,722		5,111,172
Research & development	1,129,877		1,460,170		2,206,669		2,659,379
Selling, general & administrative	1,976,600		1,475,164		3,765,599		2,767,239
Total operating expenses	5,997,381		5,052,542		11,910,990		10,537,790
Income from operations	1,800,660		1,966,883		2,840,012		3,772,922
Interest income	489,772		274,084		950,846		486,293
Income before income taxes	2,290,432		2,240,967		3,790,858		4,259,215
Provision for income taxes	938,367		904,478		1,558,043		1,720,486
Net income	$	1,352,065	$	1,336,489	$	2,232,815	$	2,538,729
Basic net income per share:
Net income	$	0.13	$	0.13	$	0.21	$	0.25
Basic weighted average common shares outstanding	10,601,336		10,391,538		10,564,902		10,330,883
Diluted net income per share:
Net income	$	0.12	$	0.12	$	0.20	$	0.22
Diluted weighted average common shares outstanding	10,955,156		11,537,538		10,969,569		11,425,292

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Anika Therapeutics, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended
(Unaudited)

	June 30,			June 30,
	2006			2005
Cash flows from operating activities:
Net income	$	2,232,815		$	2,538,729
Adjustments to reconcile net income to net cash from operating activities:
Depreciation	203,356			222,889
Stock-based compensation expense	733,026			—
Tax benefits from exercises of stock options	—			1,105,436
Change in income taxes payable related to exercise of stock options	(183,272		)	—
Deferred income taxes	(124,559		)	—
Changes in operating assets and liabilities:
Accounts receivable	(701,451		)	(390,032		)
Inventories	(1,164,414		)	190,104
Prepaid expenses and other receivable	567,012			722,838
Accounts payable	(235,557		)	(409,695		)
Income taxes payable	757,785			—
Accrued expenses and other long-term liabilities	(73,229		)	(583,290		)
Deferred revenue	(389,622		)	(2,981,783		)
Net cash provided by operating activities	1,621,890			415,196
Cash flows from investing activities:
Purchase of property and equipment	(1,032,056		)	(326,063		)
Net cash used in investing activities	(1,032,056		)	(326,063		)
Cash flows from financing activities:
Proceeds from exercise of stock options	607,292			502,042
Tax benefits from exercises of stock options	183,272			—
Net cash provided by financing activities	790,564			502,042
Increase in cash and cash equivalents	1,380,398			591,175
Cash and cash equivalents at beginning of period	44,746,656			39,339,359
Cash and cash equivalents at end of period	$	46,127,054		$	39,930,534
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	261,477		$	25,113

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ANIKA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.Nature of Business

Anika Therapeutics, Inc. (“Anika,” the “Company,” “we,” “us,” or “our”) develops, manufactures and commercializes therapeutic products for tissue protection and healing. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. The Company’s currently manufactured and marketed products consist of ORTHOVISC®, which is an HA product used in the treatment of some forms of osteoarthritis in humans; AMVISC®, AMVISC® Plus, STAARVISC™-II, and ShellGelÔ, each an injectable ophthalmic viscoelastic HA product; and HYVISC®, which is an HA product used in the treatment of equine osteoarthritis. In the U.S., ORTHOVISC® is marketed by DePuy Mitek, Inc., a subsidiary of Johnson & Johnson, under the terms of a licensing, distribution, supply and marketing agreement. Outside the U.S., ORTHOVISC® has been approved for sale since 1996 and is marketed by distributors in over 15 countries. HYVISC® is marketed in the U.S. through Boehringer Ingelheim Vetmedica, Inc. We developed and manufacture AMVISC® and AMVISC® Plus for Bausch & Lomb Incorporated under a multiyear supply agreement. INCERT® is a HA based anti-adhesive for surgical applications.  Potential products in development include an HA based dermal filler used for cosmetic tissue augmentation (CTA) applications.  In June 2006, we entered into a license and development agreement and a supply agreement with Galderma Pharma S.A. and Galderma S.A. for exclusive worldwide development and commercialization of CTA products.

The Company is subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with FDA government regulations and approval requirements as well as the ability to grow the Company’s business.

2.Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States. In the opinion of management, these consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the financial position of the Company as of June 30, 2006 and the results of its operations and its cash flows for the six months ended June 30, 2006 and 2005.

The accompanying consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, 2005. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the year ending December 31, 2006 or any future periods.

3.Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned subsidiary, Anika Securities, Inc. (a Massachusetts Securities Corporation). All intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consists of cash and highly liquid investments with original maturities of 90 days or less.

Financial Instruments

SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, accounts receivable, and accounts payable. The estimated fair value of the Company’s financial instruments approximate their carrying values.

Revenue Recognition

The Company’s revenue recognition policies are in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” as amended by SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” and Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.”

On June 30, 2006, the Company entered into a License and Development Agreement with Galderma Pharma S.A., a joint venture between Nestlé and L’Oréal, and a Supply Agreement with Galderma Pharma S.A. and Galderma S.A., an affiliate of Galderma Pharma S.A., for the exclusive worldwide development and commercialization of hyaluronic acid based CTA products.  Galderma Pharma S.A. and Galderma S.A. are jointly referred to as Galderma. Under the agreements, the Company will be responsible for the development and manufacturing of the CTA products, and Galderma will be responsible for the commercialization, including distribution and marketing, of the CTA products worldwide.  The agreements include an up front payment, milestones upon achievement of predefined regulatory goals, funding of ongoing development activities, payments for the supply of CTA products, royalties on sales and sales threshold achievement payments for meeting certain net sales targets.  The Company will account for the agreements in accordance with the Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). Under the terms of the agreements, the Company received on June 30, 2006 a non-refundable, upfront payment of $1,000,000, which the Company recorded as deferred revenue as of June 30, 2006.

Milestone payments under the agreements are related to final regulatory approvals of the CTA products in the United States and Europe.  Achievements of regulatory approvals would entitle the Company to aggregate milestone payments of up to $5,000,000 for the initial CTA product and up to an additional $1,500,000 for each additional CTA product that the parties agree to develop and market.  In addition, the agreements contain payment terms for supplying Galderma with CTA products and royalties based on sales of the Company’s CTA products by Galderma to its customers.  The agreements provide for sales threshold achievement payments of up to $14,500,000 if CTA product net sales exceed certain net sales targets.  Under the terms of the agreements, Galderma will support the development of the Company’s CTA products, including reimbursement for certain development costs for the enhancement of the initial CTA product, line extensions and clinical trial support, and the Company will make appropriate regulatory filings with the U.S. Food and Drug Administration and regulators in the European Union to enhance features of its initial CTA product.  The agreements have an initial term of ten years, unless earlier terminated pursuant to any one of several early termination rights of each party.  In certain circumstances, an early termination of the agreements will require the Company to refund to Galderma certain product development milestone payments and reimbursements of development costs.  Following the initial term, the agreements will automatically renew for an additional three year period if a certain net sales target has been exceeded, unless terminated by Galderma prior to the expiration of the initial term.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on specific identification. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the

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allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, (“SFAS 123R”), “Share-Based Payment,” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS No. 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, (“APB 25”) “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The Company elected to adopt the modified prospective transition method as provided by SFAS 123R and, accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of expensing share-based compensation. See Note 4 for additional disclosures.

Disclosures About Segments of an Enterprise and Related Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions regarding how to allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. Based on the criteria established by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has one reportable operating segment, the results of which are disclosed in the accompanying consolidated financial statements. Substantially all of the operations and assets of the Company have been derived from and are located in the United States.

Product revenue by product group is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Ophthalmic Products	$	2,545,170	$	1,569,822	$	5,482,340	$	4,338,477
ORTHOVISC®	4,337,094		2,191,750		6,978,518		4,593,130
HYVISC®	222,720		322,560		909,960		829,462
INCERT®	10,500		—		10,500		—
	$	7,115,484	$	4,084,132	$	13,381,318	$	9,761,069

Product revenue by significant customers as a percent of product revenues is as follows:

	Percent of Product Revenue				Percent of Product Revenue
	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Bausch & Lomb Incorporated	32.4	%	29.8	%	37.5	%	38.1	%
Pharmaren AG/Biomeks	33.6	%	38.8	%	28.1	%	28.0	%
Depuy Mitek / Ortho Biotech	17.6	%	6.6	%	15.7	%	10.6	%
Boehringer Ingelheim Vetmedica	3.1	%	7.9	%	6.8	%	8.5	%
	86.7	%	83.1	%	88.1	%	85.2	%

As of June 30, 2006, five customers represented 92% of the Company’s accounts receivable balance and as of December 31, 2005, six customers represented 91% of the Company’s accounts receivable balance.

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Product revenue by geographic location in total and as a percentage of total product revenues are as follows:

	Three Months Ended June 30,
	2006				2005
			Percent of				Percent of
	Revenue		Revenue		Revenue		Revenue
Geographic location:
United States	$	3,276,354	46.1	%	$	1,856,523	45.5	%
Turkey	2,391,305		33.6	%	1,586,012		38.8	%
Europe and Other	1,447,825		20.3	%	641,597		15.7	%
Total	$	7,115,484	100.0	%	$	4,084,132	100.0	%

	Six Months Ended June 30,
	2006				2005
			Percent of				Percent of
	Revenue		Revenue		Revenue		Revenue
Geographic location:
United States	$	7,150,471	53.4	%	$	5,547,907	56.8	%
Turkey	3,758,493		28.1	%	2,732,858		28.0	%
Europe and Other	2,472,354		18.5	%	1,480,304		15.2	%
Total	$	13,381,318	100.0	%	$	9,761,069	100.0	%

Recent Accounting Pronouncements

In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes.” This interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

In May 2005, the FASB, as part of an effort to conform to international accounting standards, issued SFAS No. 154, Accounting Changes and Error Corrections, (SFAS 154). SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 or beginning on July 1, 2006. SFAS 154 requires that all voluntary changes in accounting principles be retrospectively applied to prior financial statements as if that principle had always been used, unless it is impracticable to do so. When it is impracticable to calculate the effects on all prior periods, SFAS 154 requires that the new principle be applied to the earliest period practicable. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. The adoption of SFAS 154 did not have a material effect on our financial position or results of operations.

4.Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions SFAS 123R, which establishes accounting for equity instruments exchanged for employee services. The Company estimates the fair value of stock options and stock appreciation rights using the Black-Scholes valuation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares. Key input assumptions used to estimate the fair value of stock options and stock appreciation rights include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company uses historical data on exercise of stock options and other factors to estimate the expected term of share-based awards. The expected volatility assumption is based on the unadjusted historical volatility of the Company’s common stock. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grants. The fair value of each stock option and stock appreciation rights awards during the first six months of 2006 was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

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	Three Months Ended
	June 30, 2006		June 30, 2005
Risk-free interest rate	5.03	%	3.66% - 3.8	5%
Expected volatility	65.82	%	69.02% - 69.1	7%
Expected lives (years)	4		4
Expected dividend yield	0.00	%	0.00	%

	Six Months Ended
	June 30, 2006	June 30, 2005
Risk-free interest rate	4.32% - 5.03%	3.54% - 3.85%
Expected volatility	65.77% - 65.82%	69.02% - 71.38%
Expected lives (years)	4	4
Expected dividend yield	0.00%	0.00%

The Company recorded $350,490 and $733,026 of share-based compensation expense during the three and six months ended June 30, 2006 for stock options, stock appreciation rights and restricted stock awards. The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to the same employees. Prior to 2006, the Company granted stock options to employees and members of the Board of Directors. In the first quarter of 2006, the Company granted 94,850 shares of share-based stock appreciation rights to members of its Board of Directors and company officers. The Company also granted 12,500 shares of stock options and 10,500 shares of restricted stock to non-officer employees during the first quarter of 2006. During the second quarter of 2006, the Company granted 5,000 shares of share-based stock appreciation rights to an employee.  These awards were granted under the Stock Option and Incentive Plan approved by the Board of Directors on April 4, 2003. See discussions under “Stock Option Plans” for more details, including key standard terms. The Company did not recognize compensation expense for employee share-based awards for the three and six months ended June 30, 2005, when the exercise price of the Company’s employee stock awards equaled the market price of the underlying stock on the date of grant.

The Company had previously adopted the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” through disclosure only. The following table illustrates the effects on net income and earnings per share for the three and six months ended June 30, 2005 as if the Company had applied the fair value recognition provisions of SFAS 123 to share-based employee awards.

	Three Months Ended			Six Months Ended
	June 30, 2005			June 30, 2005
Net Income
As reported	$	1,336,489		$	2,538,729
Add: Stock based employee compensation expense included in reported net income	—			—
Deduct: Total stock-based employee compensation under the fair-value-based method for all awards, net of taxes	(184,123		)	(329,780		)
Proforma net income	$	1,152,366		$	2,208,949
Basic net income per share
As reported	0.13			0.25
Proforma net income	0.11			0.21
Diluted net income per share
As reported	0.12			0.22
Proforma	0.10			0.19

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For the three and six months ended June 30, 2006, the adoption of SFAS 123R had the following effect on the Company’s consolidated statements of operations:

	Three Months Ended			Six Months Ended
	June 30, 2006			June 30, 2006
Cost of product revenue	$	72,247		$	142,140
Research & development	67,700			121,293
Selling, general & administrative	210,543			469,593
Income from operations	350,490			733,026
Income tax benefit	(82,981		)	(310,098		)
Net stock-based compensation expense	$	267,509		$	422,928
Basic net income per share	$	0.03		$	0.04
Diluted net income per share	$	0.02		$	0.04

Stock Option Plans

The Company had reserved 3,485,000 shares of common stock for the grant of stock options to employees, directors, consultants and advisors under the Anika Therapeutics, Inc. 1993 Stock Option Plan, as amended (the “1993 Plan”). In addition, the Company also established the Directors’ Stock Option Plan (the “Directors’ Plan”) and reserved 40,000 shares of the Company’s common stock for issuance to the Board of Directors. On March 3, 2003, the 1993 Plan expired in accordance with its terms and approximately 662,000 shares reserved under the plan were released. On April 4, 2003 the Board of Directors approved the 2003 Anika Therapeutics, Inc. Stock Option and Incentive Plan (the “2003 Plan”). The Company has reserved 1,500,000 shares of common stock for grant to employees, directors, consultants and advisors under the 2003 Plan, which was approved by stockholders on June 4, 2003. The Company issues new shares upon share option exercise from its authorized shares. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service condition and generally vest over 4 years with 25% of the shares vesting on each of the four anniversary dates from the grant date. Awards have 10-year contractual terms.

Combined stock-based awards activity under the three plans is summarized as follows:

	Stock Options and Stock Appreciation Rights				Restricted Stock
	Six Months Ended				Six Months Ended
	June 30, 2006				June 30, 2006
	Number of Shares		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share
Outstanding at beginning of year	1,795,394		$	5.80	—		—
Granted	112,350		$	10.52	10,500		$	10.51
Canceled	(70,002	)	$	7.60	(2,100	)	$	10.51
Exercised	(125,191	)	$	4.85	—		—
Outstanding at end of year	1,712,551		$	6.10	8,400		$	10.51
Shares exercisable at end of period	1,056,051		$	3.86	—		$	10.51

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The aggregate intrinsic value of stock options and stock appreciation rights fully vested at June 30, 2006 was $6,215,206. The aggregate intrinsic value of outstanding awards at June 30, 2006 was $6,746,192. The total intrinsic value of options, stock appreciation rights and restricted stock units exercised was $368,422 and $846,500 for  the three and six months ended June 30, 2006. Total tax benefits realized from stock option exercises were $26,452 and $966,567 for the three months ended June 30, 2006 and 2005, respectively.  Total tax benefits realized from stock option exercises were $183,272 and $1,105,436  for the six months ended June 30, 2006 and 2005, respectively. The Company received $208,968 and $366,547 for exercises of stock options during the three months ended June 30, 2006 and 2005, respectively.

A summary of the activity for nonvested stock options and stock appreciation rights awards as of June 30, 2006 and changes during the six month period is presented below:

	Number of Shares		Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2006	766,838		$	4.97
Granted	112,350		$	5.62
Vested	(154,275	)	$	2.67
Cancelled	(68,413	)	$	4.93
Nonvested at June 30, 2006	656,500		$	5.63

The following table summarizes significant ranges of outstanding stock options and stock appreciation rights under the three plans at June 30, 2006:

	Stock Options and Stock Appreciation Rights Outstanding				Shares Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$0.90 - $1.05	325,513	6.00	$	1.01	286,951	5.93	$	1.01
$1.06 - $4.75	352,244	4.86	$	1.41	346,869	5.20	$	1.38
$4.76 - $9.21	363,688	5.18	$	7.21	248,312	3.60	$	6.50
$9.22 - $10.50	338,756	7.72	$	9.38	149,131	7.43	$	9.30
$10.51 - $15.45	332,350	9.24	$	11.50	24,788	8.91	$	12.47
	1,712,551	6.56	$	6.10	1,056,051	5.42	$	3.86

As of June 30, 2006, the weighted average fair value per share for options and stock appreciation rights for shares outstanding and vested were $2.01 and $1.55, respectively. As of June 30, 2006, there was approximately $2.8 million, net of forfeiture assumptions, of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s stock plans. That cost is expected to be recognized over a weighted average period of 2.58 years.

5.Earnings Per Share

The Company reports earnings per share in accordance with SFAS No. 128, “Earnings per Share,” which establishes standards for computing and presenting earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding and the number of dilutive potential common share equivalents during the period. Under the treasury stock method, assumed proceeds is the sum of (i) unexercised “in-the-money” stock options are assumed to be exercised at the beginning of the period or at issuance, if later; (ii) the amount of compensation cost attributed to future services and not yet recognized; and (iii) the amount of tax benefits that would be credited to additional paid-in capital assuming exercise of the stock-based compensation. The assumed proceeds are then used to purchase common shares at the average market price during the period.

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Shares used in calculating basic and diluted earnings per share for the three and six-month ended June 30, are as follows:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2006	2005	2006	2005
Weighted average number of shares of common stock outstanding	10,601,336	10,391,538	10,564,902	10,330,883
Dilutive stock options	353,820	1,146,000	404,667	1,094,409
Shares used in calculating diluted earnings per share	10,955,156	11,537,538	10,969,569	11,425,292

Options to purchase 237,000 and 157,000 shares were outstanding at the three and six months ended June 30, 2006, respectively, but not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price during the period.  Options to purchase 10,125 and 36,625 shares were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2005, respectively.

6.Inventories

Inventories consist of the following:

	June 30, 2006		December 31, 2005
Raw materials	$	2,044,216	$	1,594,313
Work-in-process	1,581,687		1,506,565
Finished goods	809,189		169,800
Total	$	4,435,092	$	3,270,678

Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method. Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.

7.Guarantor Arrangements

In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the product. The Company may also warrant that the products it manufactures do not infringe, violate or breach any patent or intellectual property rights, trade secret or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of or in any way connected with any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligence or acts or omissions of the Company.  The Company maintains a products liability insurance policy that limits its exposure. Based on the Company’s historical activity in combination with its insurance policy coverage, the Company believes the value of these indemnification agreements is minimal. The Company has no accrued warranties and has no history of claims paid.

8.Income Taxes

The Company records a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse.

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The Company recorded a provision for taxes of $938,367 and $904,478 for the quarters ended June 30, 2006 and 2005, respectively.  The Company recorded a provision for taxes of $1,558,043 and $1,720,486 related to the income for the six months ended June 30, 2006 and 2005, respectively.  The effective tax rates were 41.1% and 40.4% for the three and six months ended June 30, 2006 and 2005, respectively. The adoption of SFAS 123R resulted in an increase in the 2006 effective tax rate as stock-based compensation expense related to incentive stock options are non-deductible until a disqualifying event occurs and the tax benefits are realized. The Company’s taxes payable balance was $574,513 at June 30, 2005.  At December 31, 2005, $276,721 of prepaid taxes was included in prepaid expenses.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding:

·our future sales and product revenues, including geographic expansions, possible retroactive price adjustments, and expectations of unit volumes or other offsets to price reductions;

·our efforts to increase sales of ophthalmic viscoelastic products and support of the distribution of ORTHOVISCÒ in the U.S. and internationally;

·our manufacturing capacity and efficiency gains and work-in-process manufacturing operations;

·the timing of, scope of and rate of patient enrollment for clinical trials;

·our expectation with respect to reimbursements of ORTHOVISC products under J code;

·the level of our revenue or sales in particular geographic areas and/or for particular products;

·the market share for any of our products;

·our expectations of the size of the U.S. and European markets for osteoarthritis of the knee;

·our intention to increase market share for ORTHOVISC in international and domestic markets or otherwise penetrate growing markets for osteoarthritis of the knee;

·our ability and Galderma’s ability to perform under the agreements entered into, and related development and commercialization of CTA products;

·our expectations that no additional clinical trials will be required related to CTA PMA and CE Mark supplements;

·our expectations for ophthalmic products revenue;

·our expectations regarding regular order flow for ORTHOVISC;

·our expectations regarding sales to DePuy Mitek and the positive effects on domestic ORTHOVISC sales related to DePuy Mitek’s expansion of its product specialist team;

·our expectations regarding HYVISC sales;

·our expectation to develop new distribution partners around the world;

·our expectations regarding costs related to the manufacturing facility;

·our expectation for increases in operating expenses;

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·our expectation for increases in capital expenditures;

·our expected tax rate and taxable revenues; and

·the rate at which we use cash, the amounts used and generated by operations, and our expectation regarding the adequacy of such cash.

Furthermore, additional statements identified by words such as “will,” “likely,” “may,” “believe,” “expect,” “anticipate,” “intend,” “seek,” “designed,” “develop,” “would,” “future,” “can,” “could” and other expressions that are predictions of or indicate future events and trends and which do not relate to historical matters, also identify forward-looking statements. You should not rely on forward looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, including those factors described in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K. These risks, uncertainties and other factors may cause our actual results, performance or achievement to be materially different from anticipated future results, performance or achievement, expressed or implied by the forward-looking statements. These forward looking statements are based upon the current assumptions of our management and are only expectations of future results. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences, including those factors discussed herein and in the “Management’s Discussions and Analysis of Financial Condition and Results of Operations” beginning on page 14 of this Quarterly Report on Form 10-Q, as well as the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2005 and in our press releases and other filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, future events or other changes.

Management Overview

Anika Therapeutics, Inc. (“Anika,” the “Company,” “we,” “us” or “our”) develops, manufactures and commercializes therapeutic products for tissue protection and healing. These products are based on hyaluronic acid (HA), a naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. Our currently manufactured and marketed products consist of ORTHOVISC® , which is an HA product used in the treatment of some forms of osteoarthritis in humans; AMVISC®, AMVISC® Plus, STAARVISC™-II, and ShellGel™, each an injectable ophthalmic viscoelastic HA product; and HYVISC®, which is an HA product used in the treatment of equine osteoarthritis. In the U.S., ORTHOVISC is marketed by DePuy Mitek, Inc., a subsidiary of Johnson & Johnson, under the terms of a licensing, distribution, supply and marketing agreement. Outside the U.S., ORTHOVISC has been approved for sale since 1996 and is marketed by distributors in over 15 countries. HYVISC is marketed in the U.S. through Boehringer Ingelheim Vetmedica, Inc. We developed and manufacture AMVISC® and AMVISC® Plus for Bausch & Lomb Incorporated under a multiyear supply agreement.  INCERT® is a HA based anti-adhesive for surgical applications.

Products in development include an HA based dermal filler used for cosmetic tissue augmentation (CTA) applications. In September 2005, we filed a Pre-Market Approval (PMA) application with the FDA seeking approval to market and sell our CTA product in the United States. We received CE marking approval for our CTA product in the first quarter of 2006.  In June 2006, we entered into a license and development agreement with Galderma Pharma S.A. and a supply agreement with Galderma Pharma S.A. and Galderma S.A. for exclusive worldwide development and commercialization of CTA products.  Galderma Pharma S.A. and Galderma S.A. are jointly referred to as Galderma. Galderma has requested that the Company make some product improvements that address cosmetic issues and the shelf life of the product.  These improvements increase the competitiveness of the product both in Europe and the North American markets.  These product and process modifications will require supplements to our PMA and CE Mark approvals.  Since the modifications do not address safety or efficacy issues, we do not believe additional clinical trials will be required.  Currently, Galderma is planning a worldwide launch of the enhanced version of the product in mid 2007.

Osteoarthritis Business

We have marketed ORTHOVISC, our product for the treatment of osteoarthritis of the knee, internationally since 1996 through various distribution agreements. International sales of ORTHOVISC contributed 43.4% and 36.5%, respectively, of product revenue for the three and six months ended June 30, 2006  and increased 60.5% and 37% compared to the same three and six month periods of 2005.  The increase was primarily due to increased sales to Turkey and Canada. We recently signed agreements with new distribution partners in Kuwait and Taiwan, but have not commenced sales in those countries pending the completion of product registration process.  We expect international sales to grow in 2006 compared to 2005 reflecting further increased market penetration in

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certain of our existing markets as well as anticipated expansion into new international markets. For these new opportunities we have assessed the world market, and we continue to make progress in developing new distribution partnerships around the world.

ORTHOVISC became available for sale in the U.S. on March 1, 2004, and is currently marketed by DePuy Mitek, Inc., a subsidiary of Johnson & Johnson, under the terms of a ten-year licensing, distribution, supply and marketing agreement (the “JNJ Agreement”). The JNJ Agreement was originally entered into with Ortho Biotech Products, L.P. (OBP), also a Johnson & Johnson company, and was assigned to DePuy Mitek in mid-2005. Sales of ORTHOVISC in the U.S. contributed 17.6% and 15.7%, respectively, of our product revenue for the three and six months ended June 30, 2006 and increased 364.8% and 103.6% from the same three and six month periods of 2005. The significant increase is partially due to DePuy Mitek’s  underlying sales to end-users more than doubled in the second quarter of 2006 compared to the same period in 2005, and increased 57% from the first quarter of 2006.  For the six month period of 2006, DePuy Mitek’s sales to end-users were 80.2% higher than in the same period in 2005.  Note that, due to initial overstocking of product by OBP in 2004, no units were sold to OBP/DePuy Mitek during the second quarter of 2005. DePuy Mitek’s inventory levels have now been reduced to the point where we now expect our sales to DePuy Mitek to more closely follow their end-user sales pattern.

Sales of ORTHOVISC to end-users grew slower than anticipated since 2004 as a result of a number of factors. We believe that one of the key contributing factors to this slower growth has been reimbursement and the lack of receiving assignment of a specific reimbursement code. The Healthcare Common Procedure Coding System (HCPCS) is a comprehensive and standardized coding system that describes classifications of like products that are medical in nature by category for the purpose of efficient claims processing. HCPCS codes are assigned by the Centers for Medicare and Medicaid Services (CMS). As it is typical for a newly-introduced medical device, initial sales of ORTHOVISC were made without a unique reimbursement code and reimbursement submissions were made using a miscellaneous code with no specified reimbursement dollar value. We believe that using the miscellaneous reimbursement code without a specified reimbursement dollar value negatively impacted end-user sales of ORTHOVISC in 2004 and 2005. ORTHOVISC has a C-Code for hospital procedure reimbursement. The Company is operating under a miscellaneous J-Code for physician’s office reimbursement for the balance of 2006. The CMS announced in April 2006 preliminary recommendations from its workgroup formed to study reimbursement for HA based osteoarthritis products. The workgroup has recommended that all HA Viscosupplement products be placed in one or two J-Code for 2007. A coding decision for 2007 is expected to be finalized during the second half of 2006. The continued required use of a miscellaneous J code may result in physician reluctance to utilize ORTHOVISC as compared to if a unique J code had been assigned. There can be no assurance regarding the future course CMS will set for ORTHOVISC reimbursement. DePuy Mitek is taking steps to assist in the reimbursement process in physicians’ offices. Year-to-date, DePuy Mitek has tripled the size of its product specialist team from 13 professionals in the field across the country at the end of last year. These professionals were added to support DePuy Mitek’s sales representatives and to provide hands-on assistance to the physicians’ offices. We believe that these specialists are having a positive effect on domestic ORTHOVISC sales.  DePuy Mitek also has developed a Web site for physicians’ office personnel as a resource for reimbursement issues.

Sales of HYVISC, our product for the treatment of equine osteoarthritis, contributed 3.1% and 6.8% of our product revenue for the three and six months ended June 30, 2006 and decreased 31% and increased 9.7% from the same three and six month periods of 2005. We continue to look at other veterinary applications and opportunities to expand geographic territories.  We expect HYVISC sales for 2006 to decrease slightly from 2005 levels.

Ophthalmic Business

Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. Sales of ophthalmic products contributed 35.8% and 41% of our product revenue for the three and six months ended June 30, 2006 and increased 62.1% and 26.4% from the same three and six month periods of 2005. Sales to Bausch & Lomb accounted for 90.6% and 91.5% of ophthalmic sales for the three and six months ended June 30, 2006 and contributed 32.4% and 37.5% of product revenue for the three and six month periods of 2006. We expect ophthalmic product sales for 2006 to increase moderately from 2005 levels.

Research and Development

Our CTA product is based on a family of chemically modified, cross-linked forms of HA designed for longer duration in the body. Cosmetic tissue augmentation is a therapy designed as a soft tissue filler for facial wrinkles, scar remediation and lip augmentation. Our HA based dermal filler is intended to supplant collagen-based products and to compete with other HA-based products currently on the market. In October 2005, we substantially completed a pivotal U.S. clinical trial to evaluate CTA’s effectiveness for correcting nasolabial folds. The trial was conducted by dermatologists and plastic surgeons at 10 centers throughout the U.S. The six month primary endpoint results of this trial were submitted to the U.S. Food and Drug Administration (“FDA”) in a Pre-Market Approval (“PMA”) application in September 2005. In the first quarter of 2006, we received CE mark approval to market

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our CTA product in the European Union.  During the first quarter of 2006, we commenced a European follow-on CTA trial. Enrollment in the trial has been completed and a 6 month follow up is expected to be completed in the fourth quarter of 2006.

 On June 30, 2006, the Company entered into a License and Development Agreement and a Supply Agreement with Galderma, for the exclusive worldwide development and commercialization of hyaluronic acid based CTA products.  Under the agreements, the Company will be responsible for the development and manufacturing of the CTA products, and Galderma will be responsible for the commercialization, including distribution and marketing, of the CTA products worldwide.  Galderma has requested that the Company make some product improvements that address cosmetic issues and the shelf life of the product.  These improvements are expected to increase the competitiveness of the product both in the European and the North American markets.  These product and process modifications will require supplements to our PMA and CE Mark approvals.  Since the modifications do not address safety or efficacy issues, we do not believe additional clinical trials will be required.  Currently, Galderma is planning a worldwide launch of the enhanced version of the product in mid 2007.

INCERT-S is our product designed to reduce post-surgical fibrosis following spinal surgery. We completed a pilot human clinical trial in Europe in December 2005 involving patients undergoing spinal surgery, and the results of the clinical trial demonstrated safety.

Summary of Critical Accounting Policies; Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 3 in the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006.

Revenue Recognition.

The Company’s revenue recognition policies are in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” as amended by SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” and Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.”

On June 30, 2006, the Company entered into a License and Development Agreement and a Supply Agreement with Galderma for the exclusive worldwide development and commercialization of hyaluronic acid based CTA products.  Under the agreements, the Company will be responsible for the development and manufacturing of the CTA products, and Galderma will be responsible for the commercialization, including distribution and marketing, of the CTA products worldwide.  The agreements include an up front payment, milestones upon achievement of predefined regulatory goals, funding of ongoing development activities, payments for supply of CTA products, royalties on sales and sales threshold achievement payments for meeting certain net sales targets.  The Company will account for the agreements in accordance with the Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). Under the terms of the agreements, the Company received on June 30, 2006 a non-refundable, upfront payment of $1,000,000, which the Company recorded as deferred revenue as of June 30, 2006.

Milestone payments under the agreements are related to final regulatory approvals of the CTA products in the United States and Europe.  Achievements of regulatory approvals would entitle the Company to aggregate milestone payments of up to $5,000,000 for the initial CTA product and up to an additional $1,500,000 for each additional CTA product that the parties agree to develop and market.  In addition, the agreements contain payment terms for supplying Galderma with CTA products and royalties based on sales of the Company’s CTA products by Galderma to its customers.  The agreements provide for sales threshold achievement payments of up to $14,500,000 if CTA product net sales exceed certain net sales targets.  Under the terms

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of the agreements, Galderma will support the development of the Company’s CTA products, including reimbursement for certain development costs for the enhancement of the initial CTA product, line extensions and clinical trial support, and the Company will make appropriate regulatory filings with the U.S. Food and Drug Administration and regulators in the European Union to enhance features of its initial CTA product.  The agreements have an initial term of ten years, unless earlier terminated pursuant to any one of several early termination rights of each party.  In certain circumstances, an early termination of the agreements will require the Company to refund to Galderma certain product development milestone payments and reimbursements of development costs.  Following the initial term, the agreements will automatically renew for an additional three year period if a certain net sales target has been exceeded, unless terminated by Galderma prior to the expiration of the initial term.

Reserve for Obsolete/Excess Inventory.

Inventories are stated at the lower of cost or market. We regularly review our inventories and record a provision for excess and obsolete inventory based on certain factors that may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, inventory cycle time, regulatory requirements and significant changes in our cost structure. If ultimate usage varies significantly from expected usage or other factors arise that are significantly different than those anticipated by management, additional inventory write-down or increases in obsolescence reserves may be required.

We generally produce finished goods based upon specific orders or in anticipation of specific orders. As a result, we generally do not establish reserves against finished goods. We evaluate the value of inventory on a quarterly basis and may, based on future changes in facts and circumstances, determine that a write-down of inventory is required in future periods.

Stock-based Compensation.

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, (“SFAS 123R”) “Share-Based Payment,” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Prior to January 1, 2006, the Company accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion No. 25, (“APB 25”) “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” The Company elected to adopt the modified prospective transition method as provided by SFAS 123R and, accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have not been restated to reflect the fair value method of expensing share-based compensation.

The Company estimates the fair value of stock options and stock appreciation rights using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company uses historical data on exercise of stock options and other factors to estimate the expected term of share-based awards. The expected volatility assumption is based on the unadjusted historical volatility of the Company’s common stock. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grants. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Prior to 2006, the Company granted stock options to employees and members of the Board of Directors. In the first quarter of 2006, the Company granted 94,850 shares of share-based stock appreciation rights to members of its Board of Directors and company officers. The Company also granted 12,500 shares of stock options and 10,500 shares of restricted stock to non-officer employees during the first quarter of 2006. During the second quarter 2006, the Company granted 5,000 shares of share-based stock appreciation rights to an employee.  These awards were granted under the Stock Option and Incentive Plan approved by the Board of Directors on April 4, 2003. See Note 4 to consolidated financial statements for details.

Deferred tax assets.

We record a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse. As of June 30, 2006, management determined that it is more likely than not that the deferred tax assets will be realized and, therefore, a valuation allowance has not been recorded.

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Results of Operations

Product revenue. Product revenue for the quarter ended June 30, 2006 was $7,115,484, an increase of $3,031,352, or 74.2%, compared to $4,084,132 for the quarter ended June 30, 2005.  Product revenue for the six months ended June 30, 2006 was $13,381,318, an increase of $3,620,249, or 37.1%, compared to $9,761,069 for the six months ended June 30, 2005.

Three Months Ended June 30,
(in thousands)					Increase (Decrease)
	2006		2005		$			%
Ophthalmic Products	$	2,545,170	$	1,569,822	$	975,348		62.1	%
ORTHOVISC	4,337,094		2,191,750		2,145,344			97.9	%
HYVISC	222,720		322,560		(99,840		)	-31.0	%
INCERT	10,500		—		10,500			—
	$	7,115,484	$	4,084,132	$	3,031,352		74.2	%

Six Months Ended June 30,
(in thousands)					Increase (Decrease)
	2006		2005		$		%
Ophthalmic Products	$	5,482,340	$	4,338,477	$	1,143,863	26.4	%
ORTHOVISC	6,978,518		4,593,130		2,385,388		51.9	%
HYVISC	909,960		829,462		80,498		9.7	%
INCERT	10,500		—		10,500		—
	$	13,381,318	$	9,761,069	$	3,620,249	37.1	%

The increase in Ophthalmic product sales for the three and six months ended June 30, 2006 is primarily attributable to increased sales to Bausch & Lomb. Sales to Bausch & Lomb increased 89.6% and 34.7% for the three and six month periods ended June 30, 2006 compared to the same periods last year. Ophthalmic product sales for the three and six months ended June 30, 2005 were negatively impacted by a voluntary product recall that reduced Ophthalmic sales in the second quarter of 2005 by $1,359,000.  Sales to Bausch & Lomb contributed 32.4% and 37.5% of product revenue for the three and six month periods ended June 30, 2006.  The increase in sales during the first half of 2006 is primarily related to Bausch & Lomb’s ordering patterns and is not indicative of results for the remainder of 2006.

The increase in ORTHOVISC sales for the three and six months ended June 30, 2006, is primarily due to an increase in international sales to our distributors in Turkey and Canada, and an increase in unit sales in the U.S. to our distribution partner DePuy Mitek. International sales of ORTHOVISC were 43.4% and 36.5% of product sales for the three and six month periods ended June 30, 2006, an increase of 60.5% and 37% from the same period last year. Sales of ORTHOVISC to our U.S. distributor, DePuy Mitek, were 17.6% and 15.7% of product sales for the three and six month periods ended June 30, 2006, an increase of 364.8% and 103.6% from the same period last year. Along with the lack of unit sales to DePuy Mitek in the second quarter of 2005, DePuy Mitek’s  underlying sales to end-users more than doubled in the second quarter of 2006 compared to the same period in 2005, which together were the primary reason for the increase.  For the six month period of 2006, DePuy Mitek’s sales to end-users were 80.2% higher than the same period in 2005.  DePuy Mitek’s inventory levels have now been reduced to the point where we now expect our sales to DePuy Mitek to more closely follow their end-user sales pattern.

HYVISC sales decreased 31% for the quarter ended June 30, 2006 compared to the same period last year.  For the six months ended June 30, 2006, HYVISC sales increased 9.7% compared to the same period last year.  HYVISC sales contributed 3.1% and 6.8% of product revenue for the three and six months ended June 30, 2006. The decrease in sales during the second quarter of 2006 was due to timing differences in customer order pattern. Despite the increase in sales for the six months ended June 30, 2006, we expect sales of HYVISC to decrease slightly in 2006 from 2005 based on current customer orders.

INCERT is a HA based anti-adhesive for surgical applications.  CE marking approval for commercial marketing and sale was received in the third quarter of 2004.  During the second quarter of 2006, the Company sold $10,500 of its INCERT product in the United Kingdom through our distributor Surgicraft Limited.  The Company also recently signed a distribution agreement with a current ORTHOVISC partner in Greece for the INCERT product.

Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the three and six months ended June 30, 2006 was $682,557 and $1,369,684, compared to $2,935,293 and $4,549,643 for the same period last year. For the first six months

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of 2006, licensing and milestone revenue includes the ratable recognition of the $27,000,000 in up-front and milestone payments from Ortho Biotech. These amounts are being recognized in income ratably over the ten-year expected life of the agreement, or $675,000 per quarter. Licensing, milestone and contract revenue in the second quarter and first six months of 2005 included $2,248,165 and $3,166,519, respectively, of contract revenue in connection with our development and commercialization contract with OrthoNeutrogena for its hyaluronic acid-based cosmetic tissue augmentation product. This contract was terminated in the third quarter of 2005.

Product gross profit. Product gross profit for the quarter ended June 30, 2006 was $4,224,580, or 59.4% of product revenue, an increase of $2,257,656, or 115%, from gross profit of $1,966,924 representing 48.2% of product revenue, for the quarter ended June 30, 2005. Product gross profit for the six months ended June 30, 2006 was $7,442,596, or 55.6% of product revenue, an increase of $2,792,699, or 60%, from gross profit of $4,649,897, representing 47.6% of product revenue, for the six months ended June 30, 2005. The increase in product gross profit is due primarily to higher production volume, lower raw material prices, and favorable product mix shift.  Furthermore, the three and six month periods in 2005 were adversely impacted by costs incurred from the prior year’s voluntary Ophthalmic product recall.

Research & development. Research and development expenses for the quarter ended June 30, 2006 was $1,129,877 a decrease of $330,293, or 22.6%, compared to $1,460,170 for the quarter ended June 30, 2005.  Research and development expenses for the six months ended June 30, 2006 was $2,206,669 a decrease of $452,710 or 17%, compared to $2,659,379 for the six months ended June 30, 2005.  Research and development expenses include costs associated with our in-house research and development efforts for the development of CTA product enhancements and next generation product for our HA-based technology, the costs of clinical trials, and the preparation and processing of applications for regulatory approvals at various relevant stages of development. The decrease in research and development expenses for the three and six months ended June 30, 2006 is primarily attributable to the completion of the pivotal CTA clinical trial during the fourth quarter of 2005, partially offset by costs related to a smaller scale European follow-on CTA trial commenced during the first quarter of 2006, as well as recording of stock-based compensation expense of $67,700 and $121,293 for the three and six month periods ended June 30, 2006, as a result of adoption of SFAS 123R effective January 1, 2006.  We expect increases in research and development costs going forward related to the Company’s next generation ORTHOVISC products.

Selling, general & administrative. Selling, general and administrative expenses for the three months ended June 30, 2006 was $1,976,600, an increase of $501,436, or 34%, compared to $1,475,164 for the same periods last year.  Selling, general and administrative expenses for the six months ended June 30, 2006 was $3,765,599, an increase of $998,360, or 36.1%, compared to $2,767,239 for the same periods last year. The increase in selling, general and administrative expenses is due primarily to recording of stock-based compensation expense of $210,543 and $469,593 for the three and six months ended June 30, 2006 as a result of adoption of SFAS 123R effective January 1, 2006. Selling, general and administrative expenses for the quarter also reflected increases in legal costs due to the Galderma agreements for approximately $121,000 and personnel costs of approximately $72,000.  Increase in selling, general and administrative expenses for the six month period in 2006 from 2005 reflected increases in legal costs incurred in connection with the Galderma agreements for approximately $189,000, and personnel costs of $161,000.

Interest income. Interest income for the three months ended June 30, 2006 was $489,772, an increase of $215,688, or 78.7%, compared to $274,084 for the same periods last year.  Interest income for the six months ended June 30, 2006 was $950,846, an increase of $464,553 or 95.5%, compared to $486,293 for the same periods last year.  The increase is primarily attributable to higher interest rates as a result of the numerous Federal Reserve increases, and higher cash balances.

Income taxes. Provision for income taxes was $938,367 and $904,478 related to income  for the quarters ended June 30, 2006 and 2005, respectively.  The Company recorded a provision for income taxes of $1,558,043 and $1,720,486 for the six months ended June 30, 2006 and 2005, respectively.  The effective tax rate for the provision in the three and six months ended June 30, 2006 were 41.0% and 41.1%, respectively.  The effective tax rate for the provision for the three and six months ended June 30, 2005 was approximately 40.4%.    The adoption of SFAS 123R resulted in an increase in the 2006 effective tax rate as stock-based compensation expense related to incentive stock options are non-deductible until a disqualifying event occurs and the tax benefits are realized.

LIQUIDITY AND CAPITAL RESOURCES

We require cash to fund our operating expenses and capital expenditures. We expect that our requirement for cash to fund these uses will increase as the scope of our operations expands. Historically we have funded our cash requirements from available cash and investments on hand. At June 30, 2006, cash and cash equivalents totaled $46,127,054 compared to $44,746,656 at December 31, 2005.

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Cash provided by operating activities was $1,621,890 for the six months ended June 30, 2006 compared with $415,196 for the six months ended June 30, 2005. Cash provided by operating activities for the first half of 2006 increased by $1,206,694 from the same period in 2005.  Increase in cash from operating activities for the first half of 2006 was primarily due to net income of $2,232,815, non-cash expenditures of $936,382, and the receipt of an upfront payment of $1,000,000 from Galderma, offset by a net cash usage from other operating assets and liabilities of $2,547,307.  Major causes for net cash usage from operating assets and liabilities during the first six months of 2006 include an increase in inventory due to the Company’s decision to increase inventory to more timely respond to customer opportunities; increase in accounts receivable as a result of increase in sales in 2006; and decreases in accounts payable and accrued expenses reflecting vendor and employee related payments during the first quarter of 2006. The decrease in deferred revenue reflects the amortization of upfront and milestone payments from Ortho Biotech. Overall working capital increased to $48,998,577 at June 30, 2006 from $46,583,396 at December 31, 2005.

Cash used in investing activities was $1,032,056 for the six months ended June 30, 2006. Cash used in investing activities was $326,063 for the six months ended June 30, 2005. Cash used in investing activities for 2006 primarily reflects capital expenditures for manufacturing equipment and construction costs to build a new manufacturing suite within our existing manufacturing facility in connection with our new CTA product, and computer equipment to expand operational functionality. We expect to increase our capital expenditures in 2006 over 2005 levels primarily to complete the upgrade and expansion of our manufacturing and packaging equipment. Since January 2005, the company has incurred approximately $2,200,000 related to the upgrade and expansion of the manufacturing facility for the CTA product.  The Company has substantially completed its facility build-out and manufacturing equipment acquisition as of June 30, 2006.

Cash provided by financing activities of $790,564 and $502,042 for the six months ended June 30, 2006 and 2005, respectively, reflected the proceeds from exercises of stock options and tax benefits from such exercises.

Recent Accounting Pronouncements

In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes.” This interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

In May 2005, the FASB, as part of an effort to conform to international accounting standards, issued SFAS No. 154, Accounting Changes and Error Corrections, (SFAS 154). SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 or beginning on July 1, 2006. SFAS 154 requires that all voluntary changes in accounting principles be retrospectively applied to prior financial statements as if that principle had always been used, unless it is impracticable to do so. When it is impracticable to calculate the effects on all prior periods, SFAS 154 requires that the new principle be applied to the earliest period practicable. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. The adoption of SFAS 154 did not have a material effect on our financial position or results of operations.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risks since the date of our Annual Report on Form 10-K for the year ended December 31, 2005.

As of June 30, 2006, we did not utilize any derivative financial instruments, market risk sensitive instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107. All of our investments consist of money market funds, commercial paper and municipal bonds that are carried on our books at amortized cost, which approximates fair market value.

Primary Market Risk Exposures

Our primary market risk exposures are in the areas of interest rate risk. Our investment portfolio of cash equivalent investments is subject to interest rate fluctuations, but we believe this risk is immaterial due to the short-term nature of these investments.

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ITEM 4.CONTROLS AND PROCEDURES

(a)           Evaluation of disclosure controls and procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (Exchange Act), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that material information relating to us required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. We currently are in the process of further reviewing and documenting our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b)           Changes in internal controls.

There were no changes in our internal control over financial reporting during the second quarter of fiscal year 2006 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.

PART II: OTHER INFORMATION

Item 1A.Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

The two risk factors below were disclosed on the Form 10-K for year ended December 31, 2005 and have been updated to provide additional information related to the agreements we entered into with Galderma on June 30, 2006 and our sales dependency on third party reimbursements:

FDA or other governmental approvals for our products may materially adversely affect our business, results of operations and financial condition.

Product development and approval within the FDA framework takes a number of years and involves the expenditure of substantial resources. There can be no assurance that the FDA will grant approval for our new products on a timely basis if at all, or that FDA review will not involve delays that will adversely affect our ability to commercialize additional products or expand permitted uses of existing products, or that the regulatory framework will not change, or that additional regulation will not arise at any stage of our product development process which may adversely affect approval of or delay an application or require additional expenditures by us. In the event our future products are regulated as human drugs or biologics, the FDA’s review process of such products typically would be substantially longer and more expensive than the review process to which they are currently subject as devices.

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Our HA products under development, including a product for the cosmetic tissue augmentation market (CTA) have not obtained U.S. regulatory approval for commercial marketing and sale. We received CE marking approval for our initial CTA product in the first quarter of 2006. In addition, we filed a pre-market approval application for our initial CTA product in September 2005 for our CTA product. On June 30, 2006, the Company entered into a License and Development Agreement and a Supply Agreement with Galderma, for the exclusive worldwide development and commercialization of hyaluronic acid based CTA products.  Galderma has requested that the Company make some product improvements that address cosmetic issues and the shelf life of the product.  These improvements are expected to increase the competitiveness of the product both in the European and the North American markets.  These product and process modifications will require supplements to our PMA and CE Mark approvals.

We cannot assure you that in the Company’s product development efforts:

·we will begin or successfully complete clinical trials for new products;

·the clinical data will support the efficacy of these products;

·we will be able to successfully complete the FDA or foreign regulatory approval process, where required; or

·additional clinical trials will support a PMA application and/or FDA approval or other foreign regulatory approvals, where required, in a timely manner or at all.

We also cannot assure you that any delay in receiving FDA approvals will not adversely affect our competitive position. Furthermore, even if we do receive FDA approval:

·the approval may include significant limitations on the indications and other claims sought for use for which the products may be marketed;

·the approval may include other significant conditions of approval such as post-market testing, tracking, or surveillance requirements; and

·meaningful sales may never be achieved.

Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by health care cost containment initiatives and changes in reimbursement related laws and regulations.

In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products, such as our products, generally rely on third party payers, including Medicare, Medicaid, other health insurance and managed care plans, and government agencies to reimburse all or part of the cost of the health care product. We depend upon the distributors for our products to secure reimbursement and reimbursement approvals. Reimbursement by third party payers may depend on a number of factors, including the payer’s determination that the use of our products is clinically useful and cost-effective, medically necessary and not experimental or investigational. There can be no assurance that third party reimbursement coverage will be available or adequate for any products or services developed by us. Outside the U.S., the success of our products is also dependent in part upon the availability of reimbursement and health care payment systems. Reimbursement laws and regulations may change from time to time.  Lack of adequate coverage and reimbursement provided by governments and other third party payers for our products and services could have a material adverse effect on our business, financial condition, and results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

On June 1, 2006, we held our 2006 Annual Meeting of Stockholders.  At our annual meeting, stockholders were asked to consider one proposal:  to elect two (2) Class I Directors, each to serve until the 2009 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified.  With respect to this proposal, Joseph L. Bower and Eugene A. Davidson, Ph.D., were nominated as Class I Directors of Anika.  Dr. Bower received 8,875,414 shares voted in favor of his election and 1,014,354 votes were withheld.  Dr. Davidson received 9,053,413 shares voted in favor of his election and 836,355 votes were withheld.  Drs. Bower and Davidson were therefore elected as Class I Directors.  Dr. Harvey S. Sadow and Raymond J. Land (Class II Directors), and Steven E. Wheeler and Charles H. Sherwood, Ph.D. (Class III Directors) continued to serve their respective terms after the Annual Meeting of Stockholders.

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Item 6.   Exhibits

Exhibit No.	Description
(3)   Articles of Incorporation and Bylaws
3.1	The Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993.
3.2	Certificate of Vote of Directors Establishing a Series of Convertible Preferred Stock, incorporated herein by reference to Exhibits to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange Commission on March 5, 1993.
3.3	Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-QSB for the period ended November 30, 1996, (File no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997.
3.4	Certificate of Vote of Directors Establishing a Series of a Class of Stock, incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 8-AB12 (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.
3.5	Amendment to the Amended and Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.3 of the Company’s quarterly report on Form 10-Q for the quarterly period ending June 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on August 14, 2002.
3.6	The Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.6 to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on August 14, 2002.
(4)   Instruments Defining the Rights of Security Holders
4.1	Shareholder Rights Agreement dated as of April 6, 1998 between the Company and Firstar Trust Company, incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 1998.
4.2	Amendment to Shareholder Rights Agreement dated as of November 5, 2002 between the Company and American Stock Transfer and Trust Company, as successor to Firstar Trust Company incorporated herein by reference to Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2002 (File no. 000-21326), filed with the Securities and Exchange Commission on November 13, 2002.
(10)   Material Contracts
+*10.1	License and Development Agreement between Anika Therapeutics, Inc. and Galderma Pharma S.A., dated as of June 30, 2006.
+*10.2	Supply Agreement among Galderma S.A, Galderma Pharma S.A, and Anika Therapeutics, Inc., dated as of June 30, 2006.
(11)   Statement Regarding the Computation of Per Share Earnings
*11.1	See Note 5 to the Financial Statements included herewith.
(31)	Rule 13a-14(a)/15d-14(a) Certifications

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*31.1	Certification of Charles H. Sherwood, Ph.D. pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Kevin W. Quinlan pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)   Section 1350 Certifications
**32.1	Certification of Charles H. Sherwood, Ph.D. and Kevin W. Quinlan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed herewith.

**Furnished herewith.

+Certain portions of this document have been omitted pursuant to a confidential treatment request filed with the Securities and Exchange Commission.  The Omitted portions have been filed separately with the Secutiries and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ANIKA THERAPEUTICS, INC.
August 7, 2006	By:	/s/ KEVIN W. QUINLAN
		Kevin W. Quinlan
		Chief Financial Officer
		(Principal Financial Officer)

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EX-10.1

Exhibit 10.1

REDACTED COPY
Confidential Treatment Requested(1)

LICENSE AND DEVELOPMENT AGREEMENT

between

ANIKA THERAPEUTICS, INC.

and

GALDERMA PHARMA S.A.

(1) Redacted portions have been marked with brackets containing asterisks ([***]).  The redacted portions are subject to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

Confidential Treatment Requested

TABLE OF CONTENTS

	Page
Article I - DEFINITIONS	1
Article II - PRODUCT DEVELOPMENT	7
Article III - COMMERCIALIZATION	11
Article IV - INTELLECTUAL PROPERTY LICENSE GRANTS	12
Article V - ASSIGNMENT OF RIGHTS IN TRADEMARK APPLICATIONS	13
Article VI - PAYMENTS	13
Article VII - PUBLICATIONS; TRANSFER OF DATA; CONFIDENTIALITY; COOPERATION	16
Article VIII - PATENT RIGHTS	19
Article IX - CREATION, REGISTRATION, MAINTENANCE AND PROTECTION OF TRADEMARK PORTFOLIO	25
Article X - REPRESENTATIONS AND WARRANTIES.	26
Article XI - ANIKA’S GENERAL OBLIGATIONS AND COVENANTS	29
Article XII - GALDERMA’S GENERAL OBLIGATIONS AND COVENANTS	30
Article XIII - TERM AND TERMINATION	32
Article XIV - INDEMNIFICATION	37
Article XV - STEERING COMMITTEE	41
Article XVI - DISPUTE RESOLUTION	42
Article XVII - MISCELLANEOUS	43
EXHIBIT A:  ANIKA PATENTS AND ANIKA PATENT APPLICATIONS
EXHIBIT B:  TRADEMARK APPLICATIONS
EXHIBIT C:  SPECIFICATIONS
EXHIBIT D:  COUNTRIES FOR ADDITIONAL ANIKA PATENT APPLICATIONS
EXHIBIT E:  ARBITRATION

Confidential Treatment Requested

LICENSE AND DEVELOPMENT AGREEMENT

THIS LICENSE AND DEVELOPMENT AGREEMENT (this “Agreement”) is made effective as of June 30, 2006 (the “Effective Date”) by and between ANIKA THERAPEUTICS, INC., a Massachusetts corporation having a place of business at 160 New Boston Street, Woburn, Massachusetts 01801 (“ANIKA”), and GALDERMA PHARMA S.A., a Swiss corporation having a place of business at Zugerstrasse 8, Cham CH-6330, Switzerland (“GALDERMA”).  ANIKA and GALDERMA are each referred to by name or as a “Party,” or collectively as the “Parties.”

RECITALS

1.                     ANIKA develops, manufactures and commercializes therapeutic products and devices.  Furthermore, ANIKA has been developing a proprietary product intended for use in cosmetic-dermatological procedures, including cosmetic-tissue augmentation.

2.                     On September 2, 2005, ANIKA submitted a PMA to the FDA for a cosmetic-tissue augmentation product.

3.                     On January 30, 2006, ANIKA received CE Mark approval in the European Union for a cosmetic-tissue augmentation product.

4.                     GALDERMA possesses commercialization capabilities in the dermatological and cosmetic fields.

5.                     ANIKA desires to supply the Current Licensed Product to GALDERMA and GALDERMA desires to purchase the Current Licensed Product from ANIKA and to commercialize, distribute and sell it within the Field and in the Territory pursuant to this Agreement and a Supply Agreement entered into concurrently herewith and intended to be coterminous herewith (the “Supply Agreement”).

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I - - DEFINITIONS

When used in this Agreement, each of the following terms shall have the meaning set forth below.  The term shall have the same meaning whether the singular or plural form is used.

“Acquisition Entity” shall have the meaning set forth in Section 12.1(j).

“Additional ANIKA Patent Applications” means the patent applications relating to the Licensed Products and the Field that are contemplated to be filed by ANIKA during the Term in the countries identified in Exhibit D after the Effective Date.

Confidential Treatment Requested

“Affiliate” of a Person means any company or entity which controls, is controlled by or is under common control with such Person, where control, for purposes of this definition, means (i) the possession, directly or indirectly, of the power to direct the management or policies of a Person or to veto any material decision relating to the management or policies of a Person or a majority of the composition of the board of directors (or similar governing body), in each case, whether through the ownership of voting securities, by contract or otherwise, or (ii) the Beneficial Ownership, directly or indirectly, of at least 50% of the voting securities of a Person.  “Beneficial Ownership” shall be determined in compliance with Rule 13d-3 of the Securities Exchange Act of 1934.

“Agreement” shall have the meaning set forth in the preamble.

“ANIKA” shall have the meaning set forth in the preamble.

“ANIKA IP” means ANIKA Know-How, ANIKA Patents, ANIKA Patent Applications, and Trademark Applications.

“ANIKA Know-How” means Information in ANIKA’s Control, including but not limited to Specifications, which is developed or acquired by ANIKA, either as of the Effective Date or at any time during the Term, which relates to the manufacturing of the Licensed Product in the Field.  Notwithstanding anything herein to the contrary, ANIKA Know-How excludes ANIKA Patents.

“ANIKA Patents” means any patents relating to the Licensed Product and the Field that are Controlled by ANIKA during the Term, including without limitation the Joint Patents.  A list of current ANIKA Patents is recited in Exhibit A, which may be updated from time to time.

“ANIKA Patent Applications” means the patent applications filed by ANIKA identified in Exhibit A.

“Applicable Law” means, with respect to Licensed Product in any country in the Territory, all domestic, foreign, national, federal, state, local, governmental, judicial, arbitral and other laws, statutes, codes, treaties, conventions, rules, regulations, judgments, awards, orders, directives and other pronouncements having the effect of law or similar binding effect, governing the activities contemplated by this Agreement and the Supply Agreement.

“Audit” shall have the meaning set forth in Section 6.5(c).

“Back-up Trademark” means any trademark to be applied for or already registered and/or used in connection with the Licensed Product in any country of the Territory where the Main Trademark is not available.

“Bankruptcy Code” shall have the meaning set forth in Section 17.16.

“Business Day” means a day on which banking institutions in New York, New York are open for business.

“Calendar Quarter” means a quarter in a calendar year.

2

Confidential Treatment Requested

“CE Mark” means the procedure defined by the Directive 93/42, dated June 14, 1993, as amended from time to time.

“cGMP” means “Good Manufacturing Practices” as such term is generally understood in the medical device industry, as in effect from time to time.

“Claiming Party” shall have the meaning set forth in Section 14.6.

“Clinical Development” means all activities directly related to human clinical studies.

“Commercialization” means to make a bona fide offering of the Current Licensed Product to the market of which ANIKA is promptly notified in writing by GALDERMA; provided that such notification is not a condition to any such offering.

“Competing Product” shall have the meaning set forth in Section 12.1(j).

“Condition Precedent to Commercial Sale” means, with respect to a given Licensed Product and a given country in the Territory, a Regulatory Approval shall have been issued in such country contemplating at least a 12-month shelf life for such Licensed Product.

“Confidential Information” shall have the meaning set forth in Section 7.1.

“Control” or “Controlling” means, with respect to ANIKA, owned by or possesses the right to grant a license or sublicense without violating the terms of any agreement of ANIKA with any Third Party.

“Current Licensed Product” means a product in finished packaged form [********************] and conforming to the Specifications, but shall not include any Line Extensions.

“Date of First Sale” means, with respect to a country, the date on which a GALDERMA Seller first sells a Licensed Product, in such country within the Territory, to a Third Party in an arms-length commercial transaction in conjunction with a commercial launch of such Licensed Product pursuant to a launch plan reviewed by the Steering Committee.

“Develop” or “Development” means all activities related to developing a product for Clinical Development, and if no Clinical Development is required, obtaining Regulatory Approval, including but not limited to generating any Information in this respect, chemical and analytical development, pre-clinical testing, toxicology, formulation, manufacturing process development, quality assurance and quality control, pharmacokinetics and the development of any assays requested by health authorities; provided that Develop or Development shall not include Clinical Development.

“Dollars” or “$” means lawful money of the United States in immediately available funds.

“Effective Date” shall have the meaning set forth in the preamble.

3

Confidential Treatment Requested

“Europe” means, from time to time, the member states of the European Union, including any successor states thereto; provided, however, that from and after June 30, 2006, Europe shall mean those member states of the European Union as of June 30, 2006.

“FDA” means the United States Food and Drug Administration or any successor agency.

“Field” means injectable products for use solely in cosmetic dermatology procedures in humans, including but not limited to the correction of soft tissue contour deficiencies such as wrinkles, folds, and scars, and the enlargement and/or smoothing of the appearance of lips.

“GALDERMA” shall have the meaning set forth in the preamble.

“GALDERMA Seller(s)” means GALDERMA and its permitted sublicensees under Section 4.1.

“HA” means a hyaluronic acid from any source whether as an acid, a pharmaceutically acceptable salt, or a mixture thereof, in any solid or solution phase form thereof or cross-linked or chemically modified hyaluronic acid derivatives [********************].

“HA Product” means a product for use in the Field, one principal component of which is HA.

“Information” means technical information, techniques and data, whether in writing or not, relating to the Licensed Product and its use in the Field and including Product Information, techniques and data, including, but not limited to, screens, models, inventions, practices, methods, knowledge, know-how, skill, experience, test data including pharmacological, toxicological and clinical test data, analytical and quality control data, marketing, pricing, distribution, sales, manufacturing data, processes necessary and sufficient to manufacture the Licensed Product in finished packaged form, Specifications, and patent and legal data or descriptions.

“Initial Marketing Territory” shall have the meaning set forth in Section 3.2.

“Initial Term” shall have the meaning set forth in Section 13.1(a).

“Joint Patents” means the patents jointly owned by ANIKA and the Joint Patent Holder identified in Exhibit A.

“Joint Patent Holder” means [********************] or any related Person.

“Knowledge” means the facts and circumstances that [*********************************

*************************] actually know after reasonable inquiry and investigation.

“Licensed Product(s)” means the Current Licensed Product and any Line Extension developed pursuant to Article II of this Agreement.

“Line Extension(s)” means either (i) a change in the indication(s) for use set forth in the PMA for the Current Licensed Product that expands the applications of the Current Licensed Product or (ii) [************************************************

4

Confidential Treatment Requested

*************************].  For avoidance of doubt, a mutually-agreed change in Specifications that satisfies either clause (i) or clause (ii) in the immediately preceding sentence shall, for all purposes under this Agreement, be considered a Line Extension and not solely a change in Specifications, unless the Parties otherwise agree in writing at the time such change is made.  Any variation in the Licensed Product which modifies a Licensed Product to the extent that the Licensed Product does not conform to the definition of Line Extension shall be considered a Next Generation Product to the extent it satisfies the definition thereof.

“Main Trademark” means [********************] or any other trademark designated in writing by GALDERMA on or before [********************] for use in connection with the Licensed Products in the majority of the countries in the Territory.

“Net Sales” means, for sales of Licensed Product in the Territory, the amount invoiced by GALDERMA Sellers to customers, less credits taken and actual payments made for:  (i) discounts, including cash discounts, unit discounts, rebates paid and retroactive price reductions or allowances actually allowed or granted from the billed amount, and (ii) credits or allowances actually granted upon claims, rejections or returns of such sales of Licensed Products, including recalls (provided such recalls are in accordance with Sectionof the Supply Agreement and except to the extent ANIKA has otherwise paid for such recall such that GALDERMA receives full payment for the recalled Licensed Products and does not have to refund any portion thereof).  For purposes of calculating “Net Sales,” (a) amounts invoiced are for product sales only and exclude non-product line items such as taxes and shipping charges; (b) a Licensed Product shall be considered “sold” upon the invoicing of such Licensed Product by GALDERMA Sellers to Third Parties; and (c) Samples are to be excluded from both the Dollars and unit count.  The determination of Net Sales shall be consistent with GALDERMA’s recordkeeping for its sales transactions, in particular with the definition of “sale of goods” under IAS 18.14.

“Net Sales Threshold,” [********************

********************	********************
********************	********************
********************	********************
********************	********************
********************	********************
********************	********************]

“Next Generation Product” means any HA Product for use in the Field anywhere in the Territory, the specifications of which differ from the Licensed Product in such a way that it is not covered by the definition of Licensed Product.  For avoidance of doubt, a mutually-agreed change in Specifications that satisfies the conditions in the immediately preceding sentence shall, for all purposes under this Agreement, be considered a Next Generation Product and not solely a change in Specifications, unless the Parties agree in writing otherwise at the time such change is made.

“North America” means the United States and Canada.

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“Party” or “Parties” shall have the meaning set forth in the preamble.

“Patent Costs” means the reasonable fees and expenses paid to outside legal counsel and other Third Parties and preparation, filing, prosecution and maintenance expenses incurred in connection with the establishment and maintenance of Patent Rights.

“Patent Rights” means (i) valid and enforceable patents, including any extension, registration, confirmation, reissue, continuation, divisional, continuation-in-part, re-examination or renewal thereof, and (ii) pending applications for letters patents, in any jurisdiction within the Territory.

“Per Unit Price” means the amount set forth in Exhibit A to the Supply Agreement.

“Person” shall mean any natural person, corporation, firm, limited liability corporation, limited liability partnership, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or any agency or political subdivision thereof.

“Phase IV Studies” means studies requested by health authorities as a condition to obtaining and maintaining any Regulatory Approval in the United States.

“PMA” means a premarket approval application filed with the FDA as defined in 21 CFR Part 814 or any successor provision.

“Price Per Sample” means the amount set forth in Exhibit A to the Supply Agreement.

“Product Development” means the combination of activities defined as Development and Clinical Development.

“Product Information” means any Information in ANIKA’s Control regarding any Licensed Product that is useful or necessary to GALDERMA in connection with the performance of its obligations under Section 3.1.

“Regulatory Approval” means, with respect to a Licensed Product in any country in the Territory, all unrestricted approvals, clearances, registrations and permits required under Applicable Law for first use or sale of such product, whether a medical device and/or drug.

“Regulatory Approval Application” means an application for Regulatory Approval required before commercial sale or use of a Licensed Product as a drug or a medical device in any jurisdiction.

“Samples” means samples of the Licensed Products labeled as such and provided by ANIKA to GALDERMA under Section 2.4 of the Supply Agreement.

“SKU” means each unique packaging configuration for a Licensed Product.

“Specifications” means the specifications attached hereto as Exhibit C for the Current Licensed Product, as amended from time to time by the Steering Committee pursuant to Section 15.4(ii) of this Agreement.

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“Steering Committee” shall have the meaning set forth in Section 15.1 of this Agreement.

 “Supply Agreement” shall have the meaning set forth in the recitals.

“Term” shall have the meaning set forth in Section 13.1(b).

“Territory” initially means the world and thereafter those countries that remain after the loss of countries from the Territory pursuant to Section 5.3 of the Supply Agreement.

“Third Party(ies)” means any entity other than ANIKA, GALDERMA, GALDERMA Sellers, or any Affiliates of ANIKA or GALDERMA.

“Trademark Applications” means the applications filed by ANIKA to register the marks listed in Exhibit B.

“Trademark Clearance Process” means the process of verifying that filing an application for or use of the Main Trademark or Back-up Trademark does not raise the risk of infringing the trademark rights of a Third Party.

“Trademark Creation Process” means the process of creating or otherwise acquiring trademarks for use in connection with the marketing and sale of Licensed Products hereunder.

“Trademark Portfolio” means the Trademark Applications and all other trademarks that have been created by GALDERMA and for which GALDERMA has filed applications or otherwise secured or maintained protection for use in connection with the marketing and sale of Licensed Products hereunder.

“Trademark Registration Process” means the process consisting of the registration of the Main Trademark or Back-up Trademark in any country within the Initial Marketing Territory or any country approved for Product Development by the Steering Committee.

“Unit” means each syringe containing Licensed Product.

“United States” means the United States of America.

“Validity Challenge Claim” shall have the meaning set forth in Section 8.5(a).

ARTICLE II - - PRODUCT DEVELOPMENT

2.1.          Product Development of the Current Licensed Product.

(a)           ANIKA shall be responsible for and shall use commercially reasonable efforts to conduct the Product Development of the Current Licensed Product in connection with the obtaining of Regulatory Approval of the Current Licensed Product in the Initial Marketing Territory and in any country approved for Product Development by the Steering Committee pursuant to applicable Product Development plan(s) and budget(s) that shall be prepared by ANIKA.  Such plan(s) and budget(s) shall address the Specifications and timing and shall be agreed to, and adjusted from time to time, as appropriate, by the Steering Committee.

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GALDERMA, at the request of ANIKA, shall provide reasonable assistance to ANIKA in conducting such Product Development for the Current Licensed Product, including without limitation reviewing clinical trials, Regulatory Applications and proposed labeling for the Current Licensed Product.

(b)           All reasonable and reasonably documented costs and expenses associated with the Clinical Development of the Current Licensed Product commenced after the Effective Date that either are required for any Regulatory Approval or are otherwise approved by the Steering Committee, including without limitation ANIKA’s reasonable internal and out-of-pocket expenses associated with such Clinical Development, costs of hiring contract research organizations and all fees and expenses associated with any Regulatory Approval for the Current Licensed Product shall be paid by GALDERMA, except for all costs and expenses related to the PMA and the CE Mark for the Current Licensed Product, which shall be paid by ANIKA.  The costs and expense relating to any [********************], however, shall be shared equally between ANIKA and GALDERMA.  If Clinical Development costs for the Current Licensed Product exceed the budget approved by the Steering Committee for such Clinical Development, then such excess shall be borne by (i) GALDERMA, if such excess resulted from a change in Specifications or a change in the agreed Clinical Development plan requested by GALDERMA or the Steering Committee, required by the FDA or any other regulatory authority or requested by ANIKA and agreed to by GALDERMA, but in each case only to the extent GALDERMA is responsible for such costs pursuant to the preceding sentence or (ii) ANIKA, if such excess resulted from any mismanagement of the agreed upon budget.

(c)           [******************************************************************************** *************************************************************************].

2.2.          Development of Line Extensions.

(a)           Should the Steering Committee decide to pursue any Line Extension, ANIKA shall be responsible for and shall use commercially reasonable efforts to conduct the Product  Development of such Line Extensions pursuant to applicable Product Development plan(s) and budget(s) that shall be prepared by ANIKA, which plan(s) and budget(s) shall address specifications and timing and shall be agreed to, and adjusted from time to time, as appropriate,  by the Steering Committee; provided, however, that GALDERMA shall provide reasonable assistance to ANIKA with such Product Development efforts.  The Parties currently intend that one of the Line Extensions to be pursued will be a [********************] product.  GALDERMA shall bear all reasonable and reasonably documented costs and expenses associated with Clinical Development of any such Line Extension, including without limitation ANIKA’s reasonable internal and out-of-pocket expenses associated with such Clinical Development, costs of hiring contract research organizations and all fees and expenses associated with any Regulatory Approval for any such Line Extension.  If such costs and expenses exceed the budget for such Clinical Development approved by the Steering Committee, then such excess shall be borne by (i) GALDERMA, if such excess resulted from a change in Specifications or a change in the agreed Clinical Development plan requested by GALDERMA or required by the FDA or any other regulatory authority, or requested by ANIKA and agreed to by GALDERMA, or (ii) ANIKA, if such excess resulted from any mismanagement of the agreed upon budget.

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Notwithstanding the foregoing, if the Steering Committee has approved a Line Extension pursuant to Section 2.2(b) and if GALDERMA decides not to proceed with the further Product Development of such Line Extension for any reason, then GALDERMA shall reimburse to ANIKA all of ANIKA’s reasonable and reasonably documented internal and out-of-pocket expenses associated with such Product Development that were not previously reimbursed, such reimbursement not to exceed the estimate of total Product Development costs presented to the Steering Committee pursuant to Section 2.2(b), as adjusted from time to time by the Steering Committee, and provided that, if ANIKA has commenced a clinical trial for any such Line Extension with respect to which GALDERMA decides not to proceed, such reimbursement shall include all of ANIKA’s reasonable and reasonably documented internal and out-of-pocket expenses associated with the completion in full of such clinical trial, unless the Steering Committee determines to terminate such clinical trial prior to completion.

(b)           The Product Development of Line Extensions contemplated by Section 2.2(a) shall be approved by and guided by the Steering Committee pursuant to Product Development plan(s) and budget(s) approved in accordance with Article XV hereof.  Any such Product Development plan(s) shall address design inputs, budgets, an estimate of total Development costs, clinical trial protocols and timing, Product Development timetables, Product Development stages and milestones, the Per Unit Price, the Price Per Sample, sampling plan, pricing pursuant to Section 6.2 and such other issues as the Steering Committee determines are necessary.  In addition, the Parties shall agree to the term of the arrangements with respect to each Line Extension.  To the extent such agreed term is longer than the Initial Term, the Parties shall amend this Agreement as appropriate.

2.3.          Next Generation Products.

(a)           Notwithstanding any provision in this Agreement to the contrary, this Agreement confers no rights to GALDERMA in any Next Generation Product; provided, however, that, if ANIKA wishes to commercialize any Next Generation Product during the Term in any country in the Territory and seeks to outsource such commercialization to a Third Party (it being understood that the engagement of a third party contract sales organization shall not be deemed to be an outsourcing for purposes hereof, provided that such organization specializes in providing marketing and sales support to its customers on a contract basis), then ANIKA shall notify GALDERMA in writing of such intent and provide such information about such Next Generation Product as GALDERMA may reasonably request.  In such case, GALDERMA shall have until the thirtieth (30th) day after actual receipt of such written notice from ANIKA to notify ANIKA in writing whether or not GALDERMA desires to negotiate commercial arrangements concerning such Next Generation Product in one or more countries in the Territory.  If GALDERMA desires to negotiate a commercial arrangement concerning such Next Generation Product, then for sixty (60) days following the actual receipt of such written notice by GALDERMA, GALDERMA and ANIKA shall use commercially reasonable efforts to negotiate such arrangement, provided, however, that neither Party shall be obligated to accept any offer concerning such Next Generation Product or be required to enter into any agreement.  After the termination of such sixty (60) day period, ANIKA may pursue negotiations with Third Parties concerning commercial arrangements regarding the same Next Generation Product and shall be free to enter into any agreements with Third Parties concerning such Next Generation Product on any terms.

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(b)           Notwithstanding any provision in this Agreement to the contrary, this Agreement confers no rights to ANIKA in any Next Generation Product; provided, however, that, if GALDERMA wishes to undertake the development or manufacture of any Next Generation Product during the Term in any country in the Territory and seeks to outsource such development or manufacture to a Third Party, then GALDERMA shall notify ANIKA in writing of such intent and provide such information about such Next Generation Product as ANIKA may reasonably request.  In such case, ANIKA shall have until the thirtieth (30th) day after actual receipt of such written notice from GALDERMA to notify GALDERMA in writing whether or not ANIKA desires to negotiate commercial arrangements concerning such Next Generation Product in one or more countries in the Territory.  If ANIKA desires to negotiate a commercial arrangement concerning such Next Generation Product, then for sixty (60) days following the actual receipt of such written notice by ANIKA, ANIKA and GALDERMA shall use commercially reasonable efforts to negotiate such arrangement, provided, however, that neither Party shall be obligated to accept any offer concerning such Next Generation Product or be required to enter into any agreement.  After the termination of such sixty (60) day period, GALDERMA may pursue negotiations with Third Parties concerning commercial arrangements regarding such Next Generation Product and shall be free to enter into any agreements with Third Parties concerning such Next Generation Product on any terms.

(c)           For the avoidance of doubt, this Section 2.3 shall not apply to any Next Generation Product owned or licensed by any Person that acquires or is acquired by GALDERMA or ANIKA or is merged or otherwise combined with either GALDERMA or ANIKA, as the case may be, at the time of such acquisition, merger or combination.

2.4.          Ownership, Filing of Regulatory Approval Applications and Obtaining Regulatory Approvals.

(a)           ANIKA (i) shall be responsible for and shall use commercially reasonable efforts in filing Regulatory Approval Applications and obtaining and maintaining Regulatory Approvals for Licensed Products in the Initial Marketing Territory and in any country approved for Product Development by the Steering Committee, (ii) shall determine in consultation with the Steering Committee when such Regulatory Approval Applications shall be filed, (iii) shall own all Regulatory Approval Applications and Regulatory Approvals (unless prohibited by Applicable Law), and (iv) shall inform GALDERMA of any action taken in connection therewith.  ANIKA shall bear all costs and expenses associated with Regulatory Approval Applications and Regulatory Approvals for the Current Licensed Product in the United States and in Europe.  GALDERMA shall bear all reasonable and reasonably documented costs and expenses associated with Regulatory Approval Applications and with Regulatory Approvals (x) for the Current Licensed Product in all other countries and (y) for Line Extensions in any country in the Territory.

(b)           Unless prohibited by Applicable Law, all Regulatory Approvals for Licensed Products will be issued under ANIKA’s name and ANIKA will own all relevant documents associated with such Regulatory Approvals and corresponding Regulatory Approval Application materials.  If Applicable Law prohibits the issuance of any Regulatory Approval for Licensed Products under ANIKA’s name, then ownership of such Regulatory Approvals shall be assigned to ANIKA or its designated assignees, to the extent permissible under Applicable Law, upon any

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termination or expiration of this Agreement or earlier if permitted.  ANIKA shall provide GALDERMA with access to an electronic copy of all Regulatory Approvals and Regulatory Approval Applications for Licensed Products.

(c)           ANIKA shall be responsible for all communications with any governmental authority or agency concerning the Licensed Product; provided, however, that if the Applicable Law of a local jurisdiction requires that GALDERMA be responsible for communications with any governmental authority or agency concerning the Licensed Product within such jurisdiction, then this responsibility shall be assigned by ANIKA to GALDERMA within such jurisdiction, and GALDERMA will promptly notify ANIKA of the receipt of any such communication and consult with ANIKA in formulating a response.  ANIKA shall keep GALDERMA closely informed of the contacts with such authorities, forward to GALDERMA any significant written correspondence therewith and allow GALDERMA the opportunity to participate in the portion of any meeting pertaining to any Licensed Product (whether in person, telephonic or otherwise); provided, however, that, if it is not practicable for ANIKA to provide GALDERMA the opportunity to participate in any such meeting, then ANIKA within a reasonable period of time shall update GALDERMA on any significant developments from such meeting concerning the Licensed Products.  GALDERMA agrees and acknowledges that, in fulfilling its obligations under this Section 2.4(c), ANIKA shall be permitted to take reasonable precautions to preserve the confidentiality of trade secrets or commercially sensitive information of ANIKA or Third Parties, including without limitation redacting from any applicable correspondence or documents information that does not pertain to a Licensed Product.

(d)           If ANIKA fails to obtain a Regulatory Approval for a Licensed Product in a country in the Initial Marketing Territory or in any country approved for Product Development by the Steering Committee within a reasonable period of time, as determined by the Steering Committee, GALDERMA shall be relieved of its obligations under Section 12.1(j) solely for such Licensed Product and solely in the country with respect to which such Regulatory Approval failure occurred.

ARTICLE III - COMMERCIALIZATION

3.1.          GALDERMA’s Commercialization Obligations For Licensed Products.  GALDERMA shall be responsible for and shall use commercially reasonable efforts to conduct the Commercialization, sale, offering for sale, advertising, marketing, and/or promotion of all Licensed Products under this Agreement and the Commercialization of any particular Licensed Product in a particular country in the Initial Marketing Territory and in any country approved for Commercialization by the Steering Committee.  As provided in Article XV, the Steering Committee shall review and approve the relevant marketing, sales and other commercialization activities including, at a minimum, a semi-annual review of the global sales and marketing plan.

3.2.          Commencement of Commercialization of the Current Licensed Product.  A GALDERMA Seller shall cause Commercialization to occur on a country by country basis in the following countries: [**************************  **********************************************] (the “Initial Marketing Territory”) within [********************] of the satisfaction of the Condition Precedent to Commercial

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Sale with respect to such country, provided that in no event shall GALDERMA be required to cause such Commercialization to occur prior to [*********************************].

3.3.          Right to Accompany.  Subject to GALDERMA’s reasonable approval, ANIKA, at its expense and upon reasonable notice to GALDERMA, shall have the right to accompany GALDERMA or GALDERMA’s Sellers on any sales or marketing calls to customers or prospective customers; to any conventions and any other marketing events; and to any meetings with any regulatory authorities or any governmental or reimbursement agency or carrier, in each case including without limitation in-person calls and calls facilitated by telephonic or electronic means.

3.4.          Determination Not to Commercialize.  If during the Term GALDERMA decides not to Commercialize a country in the Territory that is in the Initial Marketing Territory or that has been approved for Commercialization by the Steering Committee and provides written notice of such decision to ANIKA, GALDERMA’s right to market and distribute Licensed Products in such country shall immediately terminate for use in such country, all trademarks assigned to GALDERMA pursuant to Article V shall be reassigned to ANIKA at no cost, and ANIKA shall be free to market and distribute Licensed Products in such country or to license such rights to do so to any Third Party.  The termination of marketing and distribution rights pursuant to this Section 3.4 shall not be ANIKA’s exclusive remedy for GALDERMA’s failure to Commercialize any such country.

ARTICLE IV - - INTELLECTUAL PROPERTY LICENSE GRANTS

4.1.          ANIKA hereby grants to GALDERMA, for the Term, an exclusive (except as set forth in this Agreement or the Supply Agreement and except as to ANIKA), non-transferable and, upon ANIKA’s receipt of the payment contemplated by Section 6.1(a) below, paid-up license under the ANIKA Patents and Product Information, solely to use, promote, sell, offer to sell, and distribute the Licensed Products in the Field in the Territory and for no other purpose, with a right to grant sublicenses, provided, however, (a) in the United States, GALDERMA may only grant sublicenses to Affiliates or, if approved in advance in writing by ANIKA, such approval not to be unreasonably withheld, to Third Parties and (b) GALDERMA may grant sublicenses in countries other than the United States to its Affiliates or to Third Party distributors (to the extent such Third Party distributors are GALDERMA’s or an Affiliate’s (as the case may be) customary, historical, normal course distributors consistent with past practice) without prior notice or approval by ANIKA, and to other Third Party distributors only upon prior written notice and approval by ANIKA, not to be unreasonably withheld.  With respect to any such sublicensee, GALDERMA shall be responsible for making any payments due under this Agreement to ANIKA resulting from sales made by such sublicensee and the compliance by sublicensee with all applicable terms of this Agreement. GALDERMA shall ensure that any such sublicensee agrees in writing to comply with the provisions of Section 7.1.

4.2.          Notwithstanding anything herein to the contrary, ANIKA shall retain all rights necessary including all such rights under the ANIKA Patents and Product Information in order to fulfill its obligations under this Agreement (including but not limited to its obligation to manufacture and sell Licensed Product to GALDERMA).

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4.3.          Subject only to the rights granted to GALDERMA under this Agreement and the Supply Agreement and the obligations of ANIKA under Sections 2.3 and 11.1(c) hereof, ANIKA maintains all right, title and interest in, to and under the ANIKA Know-How, ANIKA Patents, ANIKA Patent Applications, Additional ANIKA Patent Applications and all Licensed Products.

ARTICLE V - - ASSIGNMENT OF RIGHTS IN TRADEMARK APPLICATIONS

5.1.          Trademark Assignment.  ANIKA shall assign each Trademark Application to GALDERMA as soon as is permitted under applicable trademark law, but in any event as promptly as practicable after filing a Statement of Use or an Amendment to Allege Use for such Trademark Application; [***************************************************  *******************************************].  GALDERMA shall have the right to record such assignment with the United States Patent and Trademark Office.

5.2.          Further Actions.  ANIKA hereby agrees that any time after the Effective Date it shall, upon GALDERMA’s request, execute, acknowledge and deliver or cause to be executed, acknowledged and delivered all such further assignments, transfers, conveyances and assurances as may be required for assigning all of ANIKA’s right, title and interest in and to the Trademark Applications to GALDERMA.

5.3.          Trademark Documentation.  ANIKA shall provide GALDERMA all of the trademark-clearance reports prepared in connection with the Trademark Applications.  Within five (5) Business Days after the Effective Date, ANIKA shall notify its trademark agent in the United States of the assignment of the Trademark Applications hereunder, and shall instruct such trademark agent to cooperate with GALDERMA in connection therewith, including without limitation transferring to GALDERMA (or a Person designated by GALDERMA) all of the documents pertaining to the Trademark Applications.

ARTICLE VI - - PAYMENTS

6.1.          Payments.  In consideration of the rights and licenses granted under this Agreement, GALDERMA agrees to pay ANIKA the following non-refundable amounts:

(a)           Up-Front Fee.  In consideration of the license grant set forth in Section 4.1 above, GALDERMA agrees to pay to ANIKA a non-refundable upfront payment of one million Dollars ($1,000,000) on the Effective Date.

(b)           Milestone Payments.  GALDERMA agrees to make the following non-refundable, one-time payments to ANIKA upon the occurrence of any of the events specified in Sections 6.1(b)(i)-(iii) below, in each case within thirty (30) days following receipt from ANIKA of a notice and invoice regarding the achievement of each of the following events.

(i)            With respect to the Current Licensed Product, [****************************], payable as follows:

(A)          [****************************************************];

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(B)           [***********************************************];

(C)           [***********************************************];

(D)          [***********************************************];

(ii)           With respect to each Line Extension,

(A)          [****************************************************];

(B)           [****************************************************];

(iii)          With respect to the Licensed Products,

(A)          [****************************************************];

(B)           [****************************************************];

(C)           [****************************************************];

For the avoidance of doubt, GALDERMA shall be required to make each payment contemplated by this Section 6.1(b) only once; it being understood, however, that achievement of multiple milestones in any one instance by ANIKA shall obligate GALDERMA to make payments that are equal in the aggregate to all milestones achieved in such instance, and the payments contemplated by Section 6.1(b)(ii) shall be made with respect to each new Line Extension.

(c)           Licensed Product Royalties.

(i)            Within forty-five (45) days following the completion of each Calendar Quarter during the Term, GALDERMA will pay to ANIKA a quarterly royalty equal to the difference of:

(A)          [****************************************************];

(B)           [****************************************************].

(ii)           [***************************************************************************** ****************************************************].

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(iii)          Royalties shall be paid in respect of all sales of Licensed Products in the Territory for the entire Term of this Agreement and the Supply Agreement, including extensions or renewals thereof.

(iv)          For the avoidance of doubt, GALDERMA shall only be obligated to make the payments under this Section 6.1(c) with respect to Licensed Products supplied by ANIKA or any of its sublicensees pursuant to the terms of the Supply Agreement.

6.2.          Line Extensions.  At the time of approval of any Line Extension, the Steering Committee shall also in good faith establish the Per Unit Price and the pricing under Section 6.1(c) for such Line Extension.  Upon each such approval, the Parties will amend this Agreement and the Supply Agreement to reflect such agreed upon Per Unit Price and pricing.

6.3.          Payment Methods.  All payments under this Agreement shall be paid in Dollars.  Each Party will make all payments to the other under this Agreement without deduction or withholding for taxes except to the extent that any such deduction or withholding is required by law in effect at the time of payment.

6.4.          Payment Terms.  Any past due amounts for any overdue payment under any provision of this Agreement will be subject to a late fee of one percent (1%) per month, or the highest rate allowed by the law governing this Agreement, whichever is less, with such interest accrual commencing on the thirtieth (30th) day after the due date.  All costs of enforcing or collecting payment hereunder, including attorneys’ fees and court costs, shall be paid by the non-prevailing Party.  Breach for non-payment commences on the forty-sixth (46th) day following the due date.

6.5.          Reports and Records.

(a)           During the Term and commencing with the Date of First Sale of a Licensed Product, GALDERMA shall furnish, or cause to be furnished to ANIKA, written reports within fifteen (15) days following the end of each month, showing:

(i)            the Net Sales of each Licensed Product sold during such month and the total for all months of the current calendar year, itemized by each country in the Territory and by each GALDERMA Seller; and

(ii)           the Units of each Licensed Product sold by each of GALDERMA Seller in each country of the Territory, during such month and the total for all months of the current calendar year.

(b)           In the case of sales outside the United States, such sales shall be reported in both local currency as well as Dollars, and for the purposes of this Article VI, shall be converted to Dollars using GALDERMA’s standard, corporate currency conversion methodology and policies.

(c)           GALDERMA shall maintain complete and accurate records, in accordance with IFRS (International Financial Reporting Standards) practices, which are relevant to costs, expenses and payments under this Agreement and such records shall be open during reasonable

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business hours for a period of five (5) years from creation of individual records for reasonable examination at ANIKA’s expense, but not more often than once each year, by a certified public accountant or other representative selected by ANIKA and acceptable to GALDERMA for the sole purpose of verifying the correctness of calculations or such costs, expenses or payments made under this Agreement (the “Audit”).  If GALDERMA disagrees with the calculation of the Audit, the Parties will try to resolve the disagreement in good faith.  In the absence of material discrepancies (in excess of five percent (5%) of the disputed amount) in any request for reimbursement resulting from such Audit, the accounting expense shall be paid by ANIKA.  If material discrepancies do result, GALDERMA shall bear the portion of the reasonable audit expense allocable to such material discrepancies.  Any records or accounting information received from GALDERMA shall be Confidential Information for purposes of Article VII.

(d)           GALDERMA shall provide ANIKA with a preliminary and unaudited report containing the Net Sales for each Calendar Quarter, which shall be divided into aggregate Net Sales in North America and aggregate Net Sales in the rest of the countries in the Territory, within five (5) Business Days following the end of each Calendar Quarter.  These preliminary and unaudited reports will be superseded by the reports furnished under Section 6.5(e).

(e)           GALDERMA shall provide ANIKA with a final report containing the Net Sales country by country for each Calendar Quarter within thirty (30) days following the end of each Calendar Quarter.  Such final reports will be the basis for GALDERMA’s payments to ANIKA under Section 6.1(c).

ARTICLE VII - PUBLICATIONS; TRANSFER OF DATA;
CONFIDENTIALITY; COOPERATION

7.1.          Confidentiality; Exceptions.  The Parties acknowledge that discussions between ANIKA and GALDERMA will necessarily require the exchange of information (including detailed financial and product information) that is considered confidential and proprietary by the disclosing Party.  The Parties agree for themselves and their direct and indirect subsidiaries that any information relating to the business of the disclosing Party which such Party discloses to the other Party pursuant to this Agreement or the Supply Agreement shall be considered “Confidential Information” and shall include, without limitation, (i) the ANIKA Know-How; (ii) earnings, costs, and other financial information; (iii) drawings, formulations, samples, technical data, photographs, specifications, manufacturing methods, testing procedures; (iv) marketing, sales and customer information relating to the disclosing Party’s business; (v) all clinical studies and data developed by either Party in connection with this Agreement or the Supply Agreement; and (vi) all other Information related to Licensed Products.  Except to the extent authorized by this Agreement, or the Supply Agreement or otherwise agreed in writing, the Parties agree that from the Effective Date, subject to and except as permitted by Section 7.4 of this Agreement, each Party shall keep confidential (and shall cause the directors, officers, employees and agents of such Party or its Affiliates and sublicensees to keep confidential) and shall not publish or otherwise disclose or use for any purpose, other than as provided for in this Agreement or the Supply Agreement, the Confidential Information, except to the extent the receiving Party’s (and their Affiliates and sublicensees) employees and/or agents (including consultants) need to know such Confidential Information in order to discharge such Party’s

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obligations and exercise its rights hereunder or thereunder and provided, that in the event any Party uses such Confidential Information for any purpose other than as provided for in this Agreement or the Supply Agreement such use shall constitute a breach of this Agreement or the Supply Agreement, as the case may be.  Each Party will protect the other Party’s Confidential Information from unauthorized use, access or disclosure in the same manner that it protects it own similar Confidential Information.  Confidential Information shall not include information which:

(i)            was in the lawful knowledge and possession of the receiving Party prior to the time it was disclosed to, or learned by, the receiving Party, or was otherwise developed independently by the receiving Party, as evidenced by written records kept in the ordinary course of business, or other documentary proof of actual use by the receiving Party;

(ii)           was available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

(iii)          became available to the public or otherwise part of the public domain after its disclosure other than through any act or omission of the receiving Party in breach of this Agreement;

(iv)          was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information to others; or

(v)           was or is requested by a governmental authority or required to be disclosed as a result of a judicial order or decree or applicable law or regulation; provided, however, that the Party whose Confidential Information is the subject of such request or judicial order or decree is given the opportunity (to the extent not violative of applicable law) to contest the request or judicial order or decree prior to any disclosure.

Each Party will be responsible and liable for all breaches of the confidentiality provisions of this Agreement by its directors, officers, employees, agents, sublicensees and Affiliates.

7.2.          Authorized Disclosure; Protective Measures.  Except as provided otherwise in this Agreement or the Supply Agreement, each Party may disclose Confidential Information to Third Parties (including without limitation investors and potential investors, Affiliates, sublicensees, distributors and suppliers) under appropriate terms and conditions that include confidentiality provisions substantially equivalent to those in this Agreement as is necessary to exercise the rights granted, and perform the obligations contained, herein and in the Supply Agreement.  Notwithstanding anything contained herein or in the Supply Agreement to the contrary, each Party agrees and acknowledges that, in fulfilling its obligations under this Agreement or the Supply Agreement, the other Party shall be permitted to take reasonable precautions to preserve the confidentiality of trade secrets or commercially sensitive information of such other Party or Third Parties, including without limitation redacting from any such correspondence or documents information that does not pertain to a Licensed Product.

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7.3.          Publications.  Notwithstanding any other provision of this Agreement, including, but not limited to the provisions of Section 7.4, ANIKA may publish the results of any Product Development activities relating to Licensed Products, with the approval of the Steering Committee.

7.4.          Public Announcements.

(a)           Neither Party shall originate any written publicity, press release or written public announcements whether to the public or press, relating to this Agreement or the Supply Agreement, their existence, the subject matter to which they relate or to any amendment hereto or thereto without the prior written consent of the other Party (not to be unreasonably withheld, conditioned or delayed), save only such announcements that are required by or advisable to be made under Applicable Law or the rules of any securities exchange or Nasdaq, in which case the other Party shall at least be provided with a copy of such announcement prior to its release.  Notwithstanding the foregoing prior written consent requirement, each Party is hereby granted the right to issue a press release (i) with respect to this Agreement and the Supply Agreement without the prior written consent of the other Party in connection with statements in quarterly or annual press releases reporting the Party’s quarterly or yearly financial or operating results to the extent they relate to such financial or operating results, and (ii) upon the happening of the following events:  execution of this Agreement and the Supply Agreement, the filing of any Regulatory Approval Applications, the receipt of any Regulatory Approvals, any significant clinical trial development (including initiation and/or completion of a clinical trial) and Commercialization in any country or region, provided that in the case of clause (ii) the content of such release is reasonably satisfactory to the other Party.

(b)           In the event of such publication, press release or public announcement described in Section 7.4(a) for which the prior written consent of the other Party is required or the content of which must be reasonably satisfactory to the other Party, the Party making the announcement will give the other Party at least reasonable advance notice of the text of the announcement so that the other Party will have an opportunity to comment upon the announcement.  Notwithstanding the foregoing, however, where urgent, unusual and rare circumstances require immediate disclosure upon the advice of the Party’s counsel, a Party will, unless impossible or inadvisable because of legal reasons, provide at least one (1) Business Day’s advance written notice of such disclosure to the other Party.  Notwithstanding anything contained in this Agreement to the contrary, GALDERMA acknowledges that ANIKA is permitted to file this Agreement and the Supply Agreement with the Securities and Exchange Commission and to disclose the terms of this Agreement and the Supply Agreement in ANIKA’s reports or registration statements filed with or furnished to the Securities and Exchange Commission, provided that ANIKA shall use its commercially reasonable efforts to obtain confidential treatment with respect to the commercially sensitive terms contained herein; provided, further, that ANIKA’s ongoing financial reporting of the transactions contemplated by this Agreement or the Supply Agreement in its reports or registration statements filed with or furnished to the Securities and Exchange Commission will be consistent with ANIKA’s past financial reporting practices as may be modified from time to time by the requirements of applicable law, regulation or accounting principles generally accepted in the United States.

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7.5.          Cooperation.  Each Party agrees to provide the other Party, upon reasonable advance request, access to documentation related to the Product Development and commercialization activities being conducted pursuant to this Agreement or the Supply Agreement, including without limitation, protocols, data and stat plans of non-clinical and clinical trials, analytical test methods, Regulatory Applications, proposed labeling for Licensed Products, Third-Party contracts for related services, marketing plans and proposed advertising, marketing and promotional materials; provided, however, that to the extent any such documentation is Confidential Information, the receiving Party shall comply with the provisions of Section 7.1 with respect thereto.  Each of the Parties agrees to provide the other Party, by means of communication through the Steering Committee, with updates as to the Product Development and Commercialization of the Licensed Products via telephonic or in-person meetings, it being the intent of the Parties that such meetings occur on a regular basis.  ANIKA, at its election and upon reasonable notice to GALDERMA, shall have the right to accompany GALDERMA, its Affiliates or any of their representatives to any and all meetings concerning any Licensed Products between GALDERMA or any of its Affiliates or their representatives, on the one hand, and any third party payer, governmental authority, reimbursement agency or carrier, on the other hand.  GALDERMA shall provide ANIKA sufficient prior notice of all such meetings.

ARTICLE VIII - PATENT RIGHTS

8.1.          Title.  Title to all Patent Rights claiming inventions (i) based on ANIKA’s existing intellectual property, (ii) based on any intellectual property created or discovered by ANIKA outside the scope of this Agreement or (iii) created or discovered by any employee of ANIKA or GALDERMA (but with respect to GALDERMA employees, only to the extent such creation or discovery is based on ANIKA’s intellectual property) while performing Product Development of Licensed Products, shall be the sole and exclusive property of ANIKA, with the exception of the Joint Patent Holder’s rights to the Joint Patents.  Title to any inventions and other intellectual property otherwise created or discovered by any employee of GALDERMA and to all Patent Rights claiming such inventions shall be the sole and exclusive property of GALDERMA.

8.2.          Cooperation.

(a)           The Party controlling the filing, prosecution, maintenance, litigation, settlement discussion or negotiation related to any of the patents or patent applications contemplated by this Article VIII shall regularly consult with the other Party and shall keep it fully informed on the progress and status thereof.  The Parties shall in good faith assist one another and cooperate in any such filing, prosecution, maintenance, litigation, settlement discussion or negotiation at the other’s request and at the reasonable expense of the requesting Party, unless otherwise provided in this Article VIII.

(b)           Neither Party shall take any action or enter into any settlement, consent judgment, or any other voluntary final disposition that may materially adversely affect the scope, validity and/or enforceability of ANIKA’s Patents, ANIKA Patent Applications or Additional ANIKA Patent Applications without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed.

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8.3.          Patent Filings.

(a)           ANIKA shall (i) use its commercially reasonable efforts to ensure that the ANIKA Patent Applications issue into patents, (ii) provide GALDERMA with copies of filings and significant unprivileged correspondence with respect to such applications, (iii) use commercially reasonable efforts to maintain and, in its reasonable discretion, defend the ANIKA Patents against any actions and/or proceedings initiated at a patent office (e.g., reexaminations, oppositions and nullity actions) by Third-Parties during the Term, and (iv) file and prosecute the Additional ANIKA Patent Applications.

(b)           The Parties agree to cooperate with each other and with the Steering Committee to determine in which additional countries it may be necessary or advisable to file, prosecute and maintain one or more of the ANIKA Patents under this Agreement.  The Steering Committee will make such determination with sufficient advance notice so as to permit the filing of a patent application prior to the commercialization of a Licensed Product in the applicable country or countries.  GALDERMA shall use commercially reasonable efforts to ensure that such additional patent applications issue into patents, unless ANIKA elects to prosecute such additional patent applications pursuant to the third sentence of Section 8.3(c) below, in which case ANIKA shall, at its sole cost and expense, use commercially reasonable efforts to ensure that such additional patent applications issue into patents.

(c)           The Patent Costs incurred during the Term with respect to any country listed in Exhibit D (including Patent Costs incurred in connection with PCT patent application [********************], but excluding any Patent Costs incurred in connection with such patent application in respect of local filings in countries not listed on Exhibit D) shall be the sole responsibility of ANIKA.  All Patent Costs incurred with respect to any other jurisdiction shall be the sole responsibility of GALDERMA.  ANIKA retains the right to prepare, file, prosecute and maintain any ANIKA Patent, ANIKA Patent Application or Additional ANIKA Patent Application, including any patent and patent applications relating to an invention developed in any jurisdiction, at ANIKA’s sole cost and expense.

8.4.          Infringement by Third Parties.

(a)           If any Third Party is reasonably believed to infringe any ANIKA Patent covering a Licensed Product in connection with the manufacture, use, sale, offer for sale promotion, distribution or importation of a Licensed Product in any country, the Party first having knowledge of such potential infringement shall promptly notify the other in writing.  The notice shall set forth the known facts of that infringement in reasonable detail.

(b)           ANIKA shall have the right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to infringement of any ANIKA Patent in any country by counsel of its own choice and at its own expense; provided, however, that ANIKA shall reasonably pursue any Third-Party infringement that occurs in a country listed in Exhibit D that materially interferes with GALDERMA’s ability to sell the Licensed Products in such country.  If ANIKA fails to bring an action or proceeding with respect to a Third-Party infringement that occurs in a country listed in Exhibit D within ninety (90) days after a written request by GALDERMA to do so (or, after bringing such an action or proceeding, fails to

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diligently prosecute the same), GALDERMA shall have the right, but not the obligation, to bring and control any such action by counsel of its own choice and at its own expense.  In the event any monetary recovery in connection with an infringement action is obtained, such recovery shall be applied in the following priority: first, to reimburse ANIKA and GALDERMA, as applicable, by the proportion and up to the extent of their out-of-pocket expenses (including reasonable attorneys’ fees and expenses) in prosecuting such infringement; second, 10% of the balance, if any, shall be paid to the Party prosecuting such enforcement action; and third, the remaining balance, if any, to be shared one-half by ANIKA and one-half by GALDERMA.

(c)           If any such Third-Party infringement materially interferes with GALDERMA’s ability to sell the Licensed Product in a jurisdiction for a period of more than ninety (90) days, then GALDERMA shall have the right to elect either (i) to be relieved of its obligations under Section 12.1(j) of this Agreement and Article V of the Supply Agreement solely for such jurisdiction or (ii) to terminate all of GALDERMA’s rights and obligations under this Agreement and the Supply Agreement with respect to such jurisdiction so that thereafter the definition of Territory shall not include such jurisdiction for all purposes under this Agreement and the Supply Agreement.  If such interference has a material adverse effect on aggregate Net Sales of the Licensed Products in the Sales Territory (taken as a whole), GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to such Sales Territory so that thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the Supply Agreement.  The Parties agree that the remedies provided under this Section 8.4(c) are GALDERMA’s sole and exclusive remedies for ANIKA’s failure to bring an action or proceeding pursuant to Section 8.4(b) after a written request by GALDERMA to do so.

(d)           In the event that ANIKA elects not to exercise its rights set forth in the first sentence of Section 8.4(b) (or, after bringing an action or proceeding, fails to diligently prosecute the same), GALDERMA shall have the right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to any infringement of the ANIKA Patents, by counsel of its own choice and at its own expense, in any country not listed on Exhibit D.

8.5.          Validity Challenge Claims.

(a)           In the event that any Person shall assert any claim in a legal proceeding that any ANIKA Patent is invalid or unenforceable in any country, or seeks to limit the scope of enforcement thereof (each a “Validity Challenge Claim”), whether in defense against an enforcement action brought by a Party under Section 8.4, by a separate action for declaratory judgment, or in any other legal proceeding, the Party receiving notice of such claim shall promptly notify the other Party.  In response to a Validity Challenge Claim, the Parties and their respective counsel shall cooperate in good faith and shall use commercially reasonable efforts to prepare and co-ordinate their defenses and responses to such Validity Challenge Claim so as to maximize the ability of both Parties to avail themselves of the rights and benefits each has with respect to the ANIKA Patents.

(b)           ANIKA shall have the right, but not the obligation, to defend at its cost any action or legal proceeding with respect to any Validity Challenge Claim relating to any ANIKA Patent; provided, however, that ANIKA shall reasonably defend in any country listed in Exhibit D any

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such Validity Challenge Claim that materially interferes with GALDERMA’s ability to sell the Licensed Products in such country.  If ANIKA fails to commence such a defense with respect to a Validity Challenge Claim in any country listed in Exhibit D within ninety (90) days after a written request by GALDERMA to do so (or, after commencing such a defense, fails to diligently defend the same), GALDERMA shall have the right, but not the obligation, to defend and control any such action by counsel of its own choice and at its own expense.

(c)           If any such Validity Challenge Claim materially interferes with GALDERMA’s ability to sell the Licensed Product in a jurisdiction for a period of more than ninety (90) days, then GALDERMA shall have the right to elect either (i) to be relieved of its obligations under Section 12.1(j) of this Agreement and Article V of the Supply Agreement solely for such jurisdiction or (ii) to terminate all of GALDERMA’s rights and obligations under this Agreement and the Supply Agreement with respect to such jurisdiction so that thereafter the definition of Territory shall not include such jurisdiction for all purposes under this Agreement and the Supply Agreement.  If such interference has a material adverse effect on aggregate Net Sales of the Licensed Products in the Sales Territory (taken as a whole), GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to such Sales Territory so that thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the Supply Agreement.  The Parties agree that the remedies provided under this Section 8.5(c) are GALDERMA’s sole and exclusive remedies for ANIKA’s failure to defend a Validity Challenge Claim pursuant to Section 8.5(b) after a written request by GALDERMA to do so.

(d)           In the event that ANIKA elects not to exercise its rights set forth in the first sentence of Section 8.5(b) (or, after bringing an action or proceeding, fails to diligently prosecute the same), GALDERMA shall have the right, but not the obligation, to defend and control any action or proceeding with respect to any Validity Challenge Claim, by counsel of its own choice and at its own expense, in any country not listed on Exhibit D.

8.6.          Defense and Settlement of Third Party Claims.

(a)           If a Third Party asserts that a patent owned or licensed by it is infringed by the use, sale, offer for sale, importation, exportation or manufacture of Licensed Product, the Party receiving such notice shall promptly notify the other Party.  Upon initial receipt of such notice, the Parties shall within five (5) Business Days meet to discuss their options for proceeding, which may include, for example, redesigning the Licensed Product(s) at issue, taking a license under the asserted patent as described in Section 8.7, or defending against the alleged infringement as described in this Section 8.6.

(b)           If a Third Party asserts that a United States patent right owned or licensed by it is infringed by the manufacture, use, offer for sale, importation, exportation or sale of a Licensed Product in any country listed in Exhibit D, GALDERMA, upon the reasonable written request of ANIKA, shall as soon as commercially practicable cease the use or sale of such Licensed Product in such country solely during the pendency of such assertion of infringement, and each Party shall have the right, but not the obligation, to defend any action or proceeding with respect to such alleged infringement of such patent by counsel of its own choice and at its own expense; provided, however, that ANIKA shall use reasonable care, with both Parties’ interests in mind, in

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determining whether or not to defend any such action if such action materially interferes with GALDERMA’s ability to sell the Licensed Products in such country.  If ANIKA elects or is required to defend any such action or proceeding, then it shall bear the cost of any settlement, damages or other monetary relief that is awarded, including all attorneys’ fees and expenses.  If ANIKA does not defend and GALDERMA elects to defend any such action or proceeding, then it shall bear the cost of any settlement, damages or other monetary relief that is awarded, including all attorneys’ fees and expenses.  If the Parties elect to jointly defend any such action or proceeding, then they shall share equally in the cost of any settlement, damages or other monetary relief that is awarded, including all attorneys’ fees and expenses.  If neither Party elects to defend any such action or proceeding, ANIKA shall bear all costs related thereto, including without limitation the costs of any default judgment entered against either Party or any of their Affiliates.  The Party bearing the costs of such action or proceeding shall receive the benefit of any recovery of fees, it being understood that if both Parties share in the costs of such action or proceeding, each shall share in such recovery in proportion to its costs.  Neither Party shall settle any such charge of infringement without the advance written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed.

(c)           If any such Third-Party claim materially interferes with GALDERMA’s ability to sell the Licensed Product in a jurisdiction for a period of more than ninety (90) days, then GALDERMA shall have the right to elect either (i) to be relieved of its obligations under Section 12.1(j) of this Agreement and Article V of the Supply Agreement solely for such jurisdiction or (ii) to terminate all of GALDERMA’s rights and obligations under this Agreement and the Supply Agreement with respect to such jurisdiction so that thereafter the definition of Territory shall not include such jurisdiction for all purposes under this Agreement and the Supply Agreement.  If such interference has a material adverse effect on aggregate Net Sales of the Licensed Products in the Sales Territory (taken as a whole), GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to such Sales Territory so that thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the Supply Agreement.  The Parties agree that the remedies provided under this Section 8.6(c) are GALDERMA’s sole and exclusive remedies for ANIKA’s failure to use reasonable care in accordance with Section 8.6(b) in determining whether or not to defend a Third-Party assertion that a patent right owned or licensed by it is infringed by the manufacture, use or sale of Licensed Product.

(d)           GALDERMA shall have the right, but not the obligation, to defend an action or proceeding pertaining to a Third-Party assertion that a patent right owned by ANIKA is infringed by the manufacture, use, offer for sale, importation, exportation or sale of Licensed Product, by counsel of its own choice and at its own expense, in any country not listed on Exhibit D.

(e)           Notwithstanding the foregoing, if an action has not been brought or proceeding commenced but an assertion has been made that a patent right owned by a Third Party is infringed by the use or sale and manufacture of any Licensed Product or if the settlement of any action or legal proceeding to which this Section 8.6 applies involves a license, then the provisions of Section 8.7 shall apply.

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8.7.          Third Party Patents.

(a)           If Patent Rights of a Third Party should be in force in any country listed in Exhibit D during the Term covering the manufacture, use or sale of any Licensed Product, and if after receiving a notice from such Third Party it should prove, in GALDERMA’s reasonable judgment after consultation with ANIKA, impractical or impossible for GALDERMA or any GALDERMA sublicensee to continue performing the activities licensed hereunder without obtaining a license from such Third Party under such Patent Rights in said country, then GALDERMA shall promptly notify ANIKA in writing.  If ANIKA agrees in its reasonable discretion that such a license is required (or it is determined pursuant to the procedures below that such a license is required), GALDERMA, upon the reasonable written request of ANIKA, shall as soon as commercially practicable cease the use or sale of Licensed Product in such country until a license is procured from such Third Party, and ANIKA shall use commercially reasonable efforts to procure, at its cost, such license on commercially reasonable terms from the Third Party.  If ANIKA disagrees that such a license is required, but GALDERMA then delivers to ANIKA a legal opinion of an independent patent attorney reasonably satisfactory to ANIKA opining that such a license is more likely than not required, such license shall be deemed to be required, and ANIKA will use commercially reasonable efforts to either procure such license or commence and reasonably prosecute an action or legal proceeding pursuant to Section 8.6 to permit GALDERMA to continue performing the activities licensed hereunder in such country without the need to obtain such license, in each case with ANIKA bearing the cost thereof.  The cost of such patent attorney shall be borne by ANIKA.  If after electing to procure a license and using commercially reasonable efforts to do so, ANIKA is unable to secure an appropriate license, then the Parties shall discuss how to proceed, including whether to redesign the Licensed Product(s) at issue to avoid infringement or to defend the infringement action.

(b)           If any such Third-Party Patent Right materially interferes with GALDERMA’s ability to sell the Licensed Product in a jurisdiction for a period of more than ninety (90) days,  then GALDERMA shall have the right to elect either (i) to be relieved of its obligations under Section 12.1(j) of this Agreement and Article V of the Supply Agreement solely for such jurisdiction or (ii) to terminate all of GALDERMA’s rights and obligations under this Agreement and the Supply Agreement with respect to such jurisdiction so that thereafter the definition of Territory shall not include such jurisdiction for all purposes under this Agreement and the Supply Agreement.  If such interference has a material adverse effect on aggregate Net Sales of the Licensed Products in the Sales Territory (taken as a whole), GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to such Sales Territory so that thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the Supply Agreement.  The Parties agree that the remedies provided under this Section 8.7(b) are GALDERMA’s sole and exclusive remedies for ANIKA’s failure to comply with the terms of Section 8.7(a).

(c)           GALDERMA shall have the right, but not the obligation, to enter into licensing or other arrangements with any Third Party with respect to Patent Rights in force in any country not listed in Exhibit D, at GALDERMA’s sole cost and expense.

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8.8.          Joint Patent Competitive Product.  If any Third Party launches a product in the United States manufactured under a license from the Joint Patent Holder to any of the Joint Patents that is competitive with any Licensed Product, then GALDERMA shall be relieved of its obligations under Section 12.1(j) hereof and Article V of the Supply Agreement solely with respect to the United States, provided that such competitive product materially interferes with GALDERMA’s ability to sell the Licensed Products in the United States and such interference is not eliminated within ninety (90) days.  If such competitive product has a material adverse effect on aggregate Net Sales of the Licensed Products in North America (taken as a whole) and such effect is not eliminated within ninety (90) days, GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to North America so that thereafter the definition of Territory shall not include North America for all purposes under this Agreement and the Supply Agreement.  The Parties agree that this Section 8.8 is GALDERMA’s sole and exclusive remedy if a Third Party launches a product in the United States manufactured under a license from the Joint Patent Holder to the Joint Patents.

8.9.          [***********************************************************************************
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ARTICLE IX - - CREATION, REGISTRATION, MAINTENANCE AND
PROTECTION OF TRADEMARK PORTFOLIO

9.1.          Responsibility for Trademarks.

(a)           GALDERMA shall be solely responsible for and shall have full control over the Trademark Creation Process, the Trademark Clearance Process, the Trademark Registration Process and the maintenance and protection of the Trademark Portfolio.  GALDERMA shall use its commercially reasonable efforts to register or otherwise obtain control over (i) the Main Trademark in the Territory, and (ii) to the extent such trademark is not available in a country in the Territory, one (1) Back-up Trademark for such country.  On or before [********************], (i) GALDERMA shall have identified from among the Main Trademark and the Back-up Trademarks the trademark(s) that GALDERMA shall use for the Commercialization of the Licensed Products in the United States and in the countries in Europe that are in the Initial Marketing Territory and successfully completed the Trademark Creation Process, the Trademark Clearance Process and the Trademark Registration Process in such jurisdictions; and (ii) shall have notified ANIKA in writing of such trademark(s) and the successful completion of such processes.

(b)           During the Term, GALDERMA shall take the following actions in the Initial Marketing Territory and in any country approved for Product Development by the Steering Committee, at its cost:

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(i)            apply to register any Back-up Trademark (as needed);

(ii)           file and prosecute applications to register the Main Trademark and/or Back-up Trademarks (as needed); and

(iii)          maintain the applications and registrations for the Main Trademark and the Back-up Trademarks.

9.2.          Trademark Ownership.  The Parties hereby agree that, except as set forth in this Agreement or the Supply Agreement, GALDERMA shall be the exclusive owner of all of the rights, title and interest in and to the Main Trademark and any Back-up Trademark.  Any trademarks listed on Exhibit B that GALDERMA determines not to use shall be reassigned to ANIKA at no cost and shall be the exclusive property of ANIKA.

9.3.          Trademark Litigation.  During the Term, GALDERMA shall, at its own cost, use its commercially reasonable efforts to defend the rights in the Main Trademark and the Back-up Trademarks, including prosecuting, defending and conducting all proceedings with respect to any Third Party infringing or having infringed any rights in such trademarks in the Initial Marketing Territory and in any country approved for Product Development by the Steering Committee.  GALDERMA shall determine in its sole discretion whether to take any action in a given case.

9.4.          Cooperation.  At GALDERMA’s reasonable request and expense, ANIKA shall assist GALDERMA in defending rights in the Main Trademark or the Back-up Trademarks, including without limitation registration and maintenance.

ARTICLE X - - REPRESENTATIONS AND WARRANTIES.

10.1.        Representations and Warranties of ANIKA.  ANIKA hereby represents and warrants to GALDERMA as follows as of the Effective Date:

(a)           ANIKA is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has all requisite corporate power and lawful authority to own, lease and operate its assets and to carry on its business as heretofore conducted.  ANIKA has the full legal right, corporate power and authority to execute and deliver this Agreement and the Supply Agreement and the other agreements contemplated hereby and thereby and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and the Supply Agreement and the performance by ANIKA of its obligations hereunder and thereunder have been duly authorized by its board of directors, and no further corporate action or approval is required.  The execution and delivery of this Agreement and the Supply Agreement and the performance by ANIKA of its obligations hereunder and thereunder do not and will not violate any material provision of Applicable Law or any provision of the Articles of Organization or By-Laws of ANIKA and do not and will not conflict with or result in any breach of any condition or provision of, or constitute a default under, any contract, mortgage, lien, lease, agreement, indenture, instrument, judgment or decree to which ANIKA is a party.

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(b)           This Agreement and the Supply Agreement have been duly executed and delivered by ANIKA and constitute the valid and binding obligation of ANIKA, enforceable against ANIKA in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally or by general equitable principles.  No action, approval, consent or authorization, including but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau or instrumentality, is necessary as to ANIKA in connection with the execution and delivery of this Agreement or the Supply Agreement and the performance by ANIKA of its obligations hereunder or thereunder, other than obtaining Regulatory Approvals.

(c)           (i) ANIKA owns all right, title and interest in and to the ANIKA IP (subject to the Joint Patent Holder’s rights therein), free and clear of any options, guarantees, liens, either written, oral, or implied, or any other encumbrances, including any claim of current or former employees or contractors of ANIKA or of any of its Affiliates, and to the extent that any such employees or contractors have developed any ANIKA IP, such parties have validly and irrevocably assigned, or are under an on-going obligation to so assign, to ANIKA all of their rights therein, including intellectual property rights; (ii) ANIKA owns an undivided half-interest in the Joint Patents; (iii) ANIKA has no agreement with any third party with respect to the use of the ANIKA Patents or ANIKA Patent Applications in the Field that currently has any force or effect, (iv) the various studies and clinical trials pertaining to the Current Licensed Product or any predecessor product in the Field were performed in accordance with applicable rules and good clinical practices when they were performed, and (v) except as previously disclosed in writing to GALDERMA, ANIKA has no knowledge of any specific facts or circumstances that would reasonably be expected to lead health authorities in the United States or Europe to require additional human clinical trials prior to Regulatory Approval of the Current Licensed Product.

(d)           Except for rights that have been terminated in writing prior to the Effective Date and no longer have any force or effect, ANIKA has not granted a right to develop, market, sell, promote, or distribute the Current Licensed Product in the Field in the Territory to any Third Party.

(e)           To the knowledge of ANIKA, (i) the ANIKA IP used in the Field does not infringe the rights of any third party and is not the subject of any notice or claim regarding any infringement of any such rights, and (ii) no third party is infringing any ANIKA IP used in the Field.

(f)            (i) Except as previously disclosed in writing to GALDERMA, ANIKA has no knowledge of any facts or circumstances that may affect the validity of any registered ANIKA Patents or concerning whether any third party has a valid claim against ANIKA with respect to any ANIKA IP; (ii) there are no pending or, to ANIKA’s knowledge, threatened claims with respect to any ANIKA IP; and (iii) ANIKA has not asserted or brought any material claim or action against a third party pertaining to any ANIKA IP.

(g)           Except as previously disclosed in writing to GALDERMA, ANIKA has made all necessary and material filings in connection with the ANIKA Patents, ANIKA Patent Applications and Trademark Applications with the United States Patent and Trademark Office to

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permit such patents and trademarks to issue; provided, however, that, notwithstanding any other provision of this Agreement or the Supply Agreement, GALDERMA shall have no recourse against ANIKA for breach of this representation if (i) such breach is capable of being cured, (ii) ANIKA cures any such breach within a reasonable period of time after receiving written notice from GALDERMA of such breach, and (iii) GALDERMA suffers no material loss as a result of such breach.

(h)           Neither this Agreement nor the transactions contemplated hereby shall result in (i) except as set forth herein or in the Supply Agreement, ANIKA granting to any Third Party any right with respect to any ANIKA IP relating to the Field, or (ii) ANIKA being bound by, or subject to, any non-compete or other restriction on the use of the ANIKA IP relating to the Field.

(i)            ANIKA has received no notice from any governmental authority to the effect that it has not materially complied with or is not now in material compliance with material Applicable Laws and regulations relating to the manufacture of the Licensed Products.

(j)            There are no claims, actions, suits or other proceedings pending, or to the knowledge of ANIKA, threatened which, would reasonably be expected to materially and adversely affect the ability of ANIKA to perform its obligations hereunder or under the Supply Agreement.

(k)           ANIKA has not filed for bankruptcy, is not insolvent, has not proposed a compromise or arrangement to its creditors generally, has not had any petition or a receiving order in bankruptcy filed against it, has not made a voluntary assignment in bankruptcy, has not taken any proceeding with respect to a compromise of arrangement with its creditors, has not taken any proceeding to have it declared either bankrupt or liquidated, has not taken any proceeding to have a receiver appointed for any part of its assets, and has not had any execution, charging order, levy or distress warrant become enforceable or become levied upon any of its assets.

10.2.        Representations and Warrantees of GALDERMA.  GALDERMA hereby represents and warrants to ANIKA as follows as of the Effective Date:

(a)           GALDERMA is a corporation duly organized, validly existing and in good standing under the laws of Switzerland and has all requisite corporate power and lawful authority to own, lease and operate its assets and to carry on its business as heretofore conducted.  GALDERMA has the full legal right, corporate power and authority to execute and deliver this Agreement and the Supply Agreement and the other agreements contemplated hereby and thereby and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and the Supply Agreement and the performance by GALDERMA of its obligations hereunder and thereunder have been duly authorized by its board of directors, and no further corporate action or approval is required.  The execution and delivery of this Agreement and the Supply Agreement and the performance by GALDERMA of its obligations hereunder and thereunder do not and will not violate any material provision of Applicable Law or of any provision of the Status of Incorporation of GALDERMA and do not and will not conflict with or result in any breach of any condition or provision of, or constitute a default under, any

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Confidential Treatment Requested

contract, mortgage, lien, lease, agreement, indenture, instrument, judgment or decree to which GALDERMA is a party.

(b)           This Agreement and the Supply Agreement have been duly executed and delivered by GALDERMA and constitute the valid and binding obligation of GALDERMA, enforceable against GALDERMA in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally or by general equitable principles.  No action, approval, consent or authorization, including but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau or instrumentality, is necessary as to GALDERMA in connection with the execution and delivery of this Agreement or the Supply Agreement and the performance by GALDERMA of its obligations hereunder or thereunder, other than obtaining Regulatory Approval.

(c)           There are no claims, actions, suits or other proceedings pending, or to the knowledge of GALDERMA, threatened which, would reasonably be expected to materially and adversely affect the ability of GALDERMA to perform its obligations hereunder or under the Supply Agreement.

(d)           GALDERMA has not filed for bankruptcy, is not insolvent, has not proposed a compromise or arrangement to its creditors generally, has not had any petition or a receiving order in bankruptcy filed against it, has not made a voluntary assignment in bankruptcy, has not taken any proceeding with respect to a compromise of arrangement with its creditors, has not taken any proceeding to have it declared either bankrupt or liquidated, has not taken any proceeding to have a receiver appointed for any part of its assets, and has not had any execution, charging order, levy or distress warrant become enforceable or become levied upon any of its assets.

(e)           GALDERMA is not currently developing any HA Product and has not entered into any agreements concerning any HA Product.

10.3.        NO IMPLIED WARRANTIES.  EXCEPT AS PROVIDED HEREIN, NEITHER PARTY MAKES ANY WARRANTIES, EXPRESSED, IMPLIED, WRITTEN OR ORAL.  ALL OTHER WARRANTIES, EXPRESS, IMPLIED, WRITTEN OR ORAL, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT, TITLE, FITNESS FOR A PARTICULAR PURPOSE AND ANY IMPLIED WARRANTY ARISING OUT OF A COURSE OF DEALING, CUSTOMER USAGE OR TRADE ARE HEREBY DISCLAIMED.

ARTICLE XI - - ANIKA’S GENERAL OBLIGATIONS AND COVENANTS

11.1.        During the Term, ANIKA shall, and shall cause its direct and indirect subsidiaries to:

(a)           Provide to GALDERMA reasonable technical, scientific, sales and marketing support with respect to the Licensed Product, to the extent GALDERMA makes available opportunities to provide such support.

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Confidential Treatment Requested

(b)           Maintain ownership of the Regulatory Approvals for Licensed Products, to the extent consistent with Applicable Law, ANIKA Patents and ANIKA Patent Applications, including without limitation making all filings in connection with such Regulatory Approvals, patents and patent applications.

(c)           Except as contemplated by this Agreement (including without limitation Section 2.3(a) with respect to Next Generation Products) or the Supply Agreement, refrain from (i) soliciting orders for any Competing Product in the Field in the Territory, (ii) selling any Competing Product to any Person (other than GALDERMA Sellers) in the Field in the Territory and (iii) otherwise promoting or distributing any Competing Product in the Field in the Territory.

(d)           Maintain good and unencumbered title to the Licensed Products manufactured and delivered to GALDERMA pursuant to the terms of the Supply Agreement.

(e)           Take security measures that are customary and reasonable in the industry in which ANIKA operates to protect the confidentiality and secrecy of all of the confidential or secret ANIKA IP.

(f)            Timely notify GALDERMA in writing of any suit, claim or complaint known to ANIKA resulting from the manufacture or use of any Licensed Product.

ARTICLE XII - GALDERMA’S GENERAL OBLIGATIONS AND COVENANTS

12.1.        During the Term, GALDERMA shall, and shall cause its direct and indirect subsidiaries to:

(a)           Store and distribute Licensed Product in accordance with direction for storage and use as indicated in the applicable Regulatory Approvals which are in effect at the time of such storage and use;

(b)           Market and sell Licensed Product in accordance with approved labeling for Licensed Product at the time of such distribution, marketing or sales;

(c)           Be responsible for the entire cost of selling, marketing, advertising, promoting and distributing Licensed Product in the Territory except as explicitly set forth herein;

(d)           Supply ANIKA with any information in GALDERMA’s possession or reasonably obtainable, as required under Applicable Law by the FDA or other governmental agencies for U.S. and international regulatory filings related to the sale of the Licensed Product in the Territory;

(e)           Timely notify ANIKA in writing of any suit, claim or complaint known to GALDERMA resulting from the distribution or use of any Licensed Product;

(f)            Timely notify ANIKA in writing of any and all meetings concerning any Licensed Products between GALDERMA or any of its Affiliates or representatives, on the one hand, and

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Confidential Treatment Requested

any regulatory authorities or any governmental or reimbursement agency or carrier, on the other hand;

(g)           Invoice Third Parties (and use its commercially reasonable efforts to ensure any sublicensees invoice) Third Parties appropriately, consistently and on a timely basis with respect to sales of any and all Licensed Products;

(h)           Distribute, market and sell (and use its commercially reasonable efforts to cause other GALDERMA Sellers to distribute, market and sell) the Licensed Products in accordance in all material respects with all Applicable Laws, including without limitation, laws relating to the commercialization, sale, offering for sale, advertising, marketing and/or promotion of the Licensed Products and other applicable drug and medical device laws.

(i)            To the extent required by Applicable Law, keep (and use its commercially reasonable efforts to cause other GALDERMA Sellers to keep) detailed distribution records for each lot number detailing the quantity shipped and the first location where the lot was shipped by GALDERMA;

(j)            Except as contemplated by this Agreement (including without limitation Section 2.3(a) with respect to Next Generation Products) or the Supply Agreement, neither acquire, market, distribute or commercialize any products [****************************] for use in the Field in the Territory (a “Competing Product”), it being understood and agreed that GALDERMA may, without violating this Section 12.1(j), acquire all or substantially all of the equity interests or assets of a Person, have all or substantially all of its equity interests or assets acquired by a Person, or be merged or otherwise combined with a Person  (such Person, in each case, the “Acquisition Entity”), that owns or licenses a Competing Product, provided that GALDERMA determines promptly after the consummation of any such transaction whether to market the Licensed Product or the Competing Product and promptly notifies ANIKA in writing of such determination.  In the event GALDERMA chooses to continue marketing the Licensed Product, GALDERMA shall, or shall cause the Acquisition Entity to, as the case may be, cease marketing the Competing Product as promptly as practicable.  In the event GALDERMA chooses to market the Competing Product, GALDERMA shall promptly provide an irrevocable written notice of termination to ANIKA pursuant to Section 13.3(a), shall market both the Licensed Product and the Competing Product with substantially equivalent marketing efforts during the period pending termination of this Agreement and the Supply Agreement, which ANIKA may accelerate at its option (provided that in no event may ANIKA terminate this Agreement before GALDERMA consummates the proposed transaction with the Acquisition Entity), and shall pay upon such termination the amount required under Section 13.3(a).  Notwithstanding the preceding sentence, if any governmental authority prohibits the marketing of both such products in any jurisdiction, GALDERMA shall be permitted to terminate this Agreement and the Supply Agreement with respect to only such jurisdiction, such termination to be effective upon the consummation of the proposed transaction with the Acquisition Entity;

(k)           Refrain from distributing, soliciting orders for or selling Licensed Products to any Person for sales which GALDERMA knows or believes are intended to be distributed to users outside the Territory; and

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Confidential Treatment Requested

(l)            Furnish to ANIKA (i) all advertising, marketing and promotional materials that contain product claims related to Licensed Products and are principally intended for use in the United States, including, without limitation, any content to be displayed on any website, for ANIKA’s review and approval (which approval shall not be unreasonably withheld, delayed or conditioned and shall be deemed granted if ANIKA does not deliver an objection in writing to GALDERMA concerning any such furnished material within five (5) Business Days of ANIKA’s actual receipt of such furnished material), and (ii) on a quarterly basis after initial use, all advertising, marketing and promotional materials that contain product claims and are intended for use in any jurisdiction other than the United States for ANIKA’s review.

ARTICLE XIII - TERM AND TERMINATION

13.1.        Term.

(a)           This Agreement and the Supply Agreement shall commence on the Effective Date and shall remain in effect for ten (10) years (“Initial Term”), subject to the termination and extension provisions set forth herein.

(b)           After the Initial Term, this Agreement and the Supply Agreement shall automatically renew for one (1) additional three (3)-year period (together with the Initial Term, the “Term”), [**************************************, *****************************************************************************], unless GALDERMA provides written notice to ANIKA at least twelve (12) months prior to the expiration of the Term that it does not wish to renew this Agreement and the Supply Agreement, or unless terminated earlier in accordance with the provisions of this Agreement.

13.2.        Termination by Either Party.  Notwithstanding any of the foregoing, this Agreement and the Supply Agreement may be terminated, but only if both agreements are simultaneously terminated, by a Party upon written notice to the other Party of its intent to terminate under this Section 13.2 upon the occurrence of any of the following:

(a)           a material breach of any term or condition of this Agreement or the Supply Agreement by the other Party which is amenable to cure, and the breaching Party shall have failed to cure such breach within ninety (90) days from the receipt by it of written notice thereof from the other Party; it being understood and agreed that with respect to ANIKA’s obligations under Section 4.2 of the Supply Agreement, the failure by ANIKA to supply GALDERMA with at least [********************] of the monthly quantities of Licensed Product included in GALDERMA’s Purchase Orders (as defined in the Supply Agreement) and binding on ANIKA in accordance with Specifications for [********************] consecutive months shall constitute a material breach; provided, however, that ANIKA may cure such material breach by fulfilling its supply obligation shortfall from the previous [********************] in the succeeding [********************]; provided, further, that ANIKA may not avail itself of such cure right more often than once in any consecutive [********************] period;

(b)           the other Party commits a material breach of this Agreement or the Supply Agreement which is not amenable to cure;

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Confidential Treatment Requested

(c)           the other Party shall commence any case, proceeding or other action (A) under any applicable law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, provided, however, this subclause shall not apply to any Affiliate of such other Party, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets;

(d)           there shall be commenced against the other Party any such case, proceeding or other action referred to in clause (c) of this Section 13.2 which results in the entry of an order for relief;

(e)           the other Party taking any action authorizing, or in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth above in clauses (c) or (d) of this Section 13.2;

(f)            the other Party admitting in writing its inability to pay its debts as they become due;

(g)           if by reason of force majeure, as described in Section 17.11, the obligations imposed hereunder or thereunder cannot be discharged by the other Party for a period of more than three (3) consecutive months, provided that if at the end of such three (3) month period ANIKA and GALDERMA agree that such force majeure will not exist for an additional three (3) months, then this termination right shall not be exercisable until the expiration of such additional three-month period and shall be of no force or effect with respect to such force majeure event if such other Party resumes performance under this Agreement and the Supply Agreement by the end of such additional three (3) month period; or

(h)           if as a result of a requirement by health authorities in the United States or Europe that additional human clinical trials be conducted to obtain Regulatory Approval of the Current Licensed Product in the United States and Europe providing for a 12-month shelf life, it becomes apparent, by clear and convincing evidence and after consultation with the Steering Committee, that ANIKA will not be able to obtain Regulatory Approval of the Current Licensed Product in the United States and Europe [*****************************************], provided that a termination notice is delivered to the other Party within sixty (60) days of such requirement becoming known to the Parties, it being understood that the Party first receiving notice of such requirement shall promptly communicate the same in writing to the other Party; provided, however, that GALDERMA may not terminate this Agreement and the Supply Agreement under Sections 13.2(c)-(f), if ANIKA has not materially breached the Supply Agreement.

13.3.        Termination by GALDERMA.  GALDERMA may terminate this Agreement and the Supply Agreement, but only if both agreements are simultaneously terminated:

(a)           Without cause, at any time, upon [********************] advance written notice to ANIKA during the [********************] of the Term and upon [********************] advance written notice to ANIKA at all times thereafter, with such

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Confidential Treatment Requested

termination becoming effective at the end of the applicable notice period and subject to the payment of the amounts set forth in the immediately succeeding sentence.  Upon such termination, GALDERMA will pay to ANIKA the greater of:

(i)            [**********************************************************]

(ii)           [**********************************************************].

(b)           Upon thirty (30) days’ written notice to ANIKA in the event that GALDERMA’s sale of the Current Licensed Product in the United States and/or Europe is prohibited or materially restricted by executive, legislative or judicial order or by an order or action by the regulatory authorities (including the FDA, European Agency for the Evaluation of Medicinal Products, or National European Agencies) for a period that exceeds [********************], provided that if at the end of such [********************] period ANIKA and GALDERMA agree that such order or action will not prohibit or materially restrict such sales after an additional [********************], then this termination right shall not be exercisable until the expiration of such additional three-month period and shall be of no force or effect with respect to such order or action if such order or action is rescinded in full by the end of such additional three (3) month period; provided, however, that if this right of termination is exercised by GALDERMA in connection with a breach of any covenant, representation or warranty for which ANIKA is entitled to indemnification, then this right of termination shall in no way impact the ability of ANIKA to enforce its indemnification rights.

(c)           Upon thirty (30) days’ written notice to ANIKA, if any patent claim, action or proceeding contemplated by Sections 8.4, 8.5, 8.6 or 8.7 has a material adverse effect on aggregate Net Sales of Licensed Products in the Territory (taken as a whole).

(d)           Upon thirty (30) days’ written notice to ANIKA, if GALDERMA at any time prior to the first Date of First Sale in any country in the Initial Marketing Territory discovers or is notified of any legitimate and material safety issue concerning a Licensed Product that is not resolved within a period of six (6) months after written notice thereof to ANIKA.

(e)           [************************************************************].

(f)            [************************************************************].

13.4.        Milestone Payments.  GALDERMA shall not be required to make the payments contemplated by Sections 6.1(b)(i) and 6.1(b)(ii) during ANIKA’s cure period under Section 13.2(a) or any termination-notice period under Section 13.3 if such payments are earned by ANIKA within such periods; provided, however, that all such payments that become due during any such cure or termination-notice period shall be paid in full immediately upon cure of any breach or default in accordance with Section 13.2(a) or rescission of any termination notice.

13.5.        Termination by ANIKA.  ANIKA may terminate this Agreement and the Supply Agreement, but only if both agreements are simultaneously terminated:

(a)           At any time, upon nine (9) months advance written notice to GALDERMA during the first three (3) years of the Term and upon six (6) months advance written notice to

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Confidential Treatment Requested

GALDERMA at all times thereafter, with such termination becoming effective at the end of the applicable notice period and subject to the payment of the amounts set forth in the immediately succeeding sentence, but only if in any twelve (12)-month period commencing after the commencement of Commercialization in the United States and in any one of the countries in Europe that is in the Initial Marketing Territory GALDERMA’s Net Sales total is less than the Net Sales Threshold for such twelve (12)-month period.  Upon such termination, ANIKA will pay to GALDERMA the greater of:

(i)            [**********************************************************]

(ii)           [**********************************************************].

(b)           Upon written notice to GALDERMA delivered to GALDERMA on or before January 31, 2007, if GALDERMA does not meet its obligation set forth in the last sentence of Section 9.1(a).

13.6.        Results of Termination.

(a)           Upon expiration or termination of this Agreement and the Supply Agreement for any reason, all rights and licenses granted to GALDERMA pursuant to this Agreement and the Supply Agreement shall immediately terminate, and GALDERMA and all GALDERMA Sellers shall discontinue all marketing and distribution of the Licensed Products; provided, that GALDERMA shall be permitted to continue marketing and distributing the Licensed Products for a period of three (3) months if ANIKA has not repurchased all Licensed Products in GALDERMA’s possession pursuant to Section 13.6(f).

(b)           Upon expiration or termination of this Agreement and the Supply Agreement for any reason, each Party shall provide the other Party, at no cost to the other Party, copies of all relevant unprivileged communications and correspondence with and from regulatory agencies pertaining to the Licensed Products and copies of all relevant marketing and promotional materials, including without limitation customer lists.

(c)           Upon expiration or termination of this Agreement and the Supply Agreement for any reason, each Party shall promptly upon request return to the requesting Party all of the requesting Party’s relevant records, materials and Confidential Information relating to the Licensed Product in the possession or control of the other Party or its sublicensees.

(d)           Termination or expiration of this Agreement and the Supply Agreement for any reason shall not terminate GALDERMA’s obligation to pay ANIKA all payments earned, payable or accrued pursuant to this Agreement or the Supply Agreement, including without limitation for Licensed Product which has been shipped to GALDERMA; provided, in the case of a termination by ANIKA pursuant to Section 13.5(a) or by GALDERMA upon ANIKA’s breach of this Agreement or the Supply Agreement, that ANIKA shall repurchase all of GALDERMA’s or GALDERMA’s Sellers’ unsold inventory of Licensed Product in merchantable condition or having a remaining shelf life acceptable to ANIKA at the applicable Per Unit Price; provided that GALDERMA is unable in good faith to sell such inventory or any portion thereof to one or more Third Parties.

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Confidential Treatment Requested

(e)           Upon expiration or termination of this Agreement or the Supply Agreement for any reason, ANIKA shall retain all payments made by GALDERMA under this Agreement or the Supply Agreement; provided, however, that ANIKA shall refund to GALDERMA all Product Development costs and expenses paid by GALDERMA with respect to the Current Licensed Product pursuant to Article II and any milestone payments made pursuant to Section 6.1(b) if this Agreement and the Supply Agreement are terminated pursuant to Section 13.2(h), 13.3(b), 13.3(c), 13.3(d) or 13.3(f) at any time prior to September 30, 2007.

(f)            Upon expiration or termination of this Agreement and the Supply Agreement for any reason, ANIKA shall have the right to purchase all of GALDERMA’s or GALDERMA’s Sellers’ unsold inventory of Licensed Product in merchantable condition or having a remaining shelf life acceptable to ANIKA, at the applicable Per Unit Price.

(g)           Upon expiration or termination of this Agreement and the Supply Agreement for any reason, ANIKA may elect that GALDERMA assign and transfer all right, title and interest in and to the Trademark Portfolio and the associated goodwill to ANIKA in exchange for:

(i)            in the case ANIKA or any of its Affiliates distributes the Licensed Product directly, [************************************************************** ********************************************]

(ii)           in the case ANIKA licenses the distribution of the Licensed Product to a Third Party:

(A)          [****************************************************** ***************************************************************]

(B)           [****************************************************** ************************************************].

Such sales or re-licensing shall be at ANIKA’s sole discretion, and such payments shall be due to GALDERMA within thirty (30) days after receipt of such upfront, non-refundable payments or royalties from ANIKA’s new licensee, as the case may be.  ANIKA shall in good faith seek to structure any such new license and distribution arrangement so as not to deprive GALDERMA of the benefits of this Section 13.6(g)(ii).

(h)           From and after any termination of this Agreement and the Supply Agreement by ANIKA pursuant to Section 13.2(h) after notice in writing from GALDERMA to ANIKA stating that GALDERMA is willing to continue with the arrangements contemplated hereby and thereby without changing the terms or conditions of this Agreement or the Supply Agreement, ANIKA shall be prohibited, for a period of [********************], from promoting, soliciting orders for, selling or otherwise distributing any HA Products for use in the Territory, and from entering into any agreement with respect to any of the foregoing, in each case without first for a period of sixty (60) days offering GALDERMA the opportunity to license and distribute such HA Product on substantially the same or, from GALDERMA’s perspective, better terms as those contained herein; provided, however, that (i) GALDERMA shall not be obligated to accept any offer concerning such HA Product or be required to enter into any agreement and (ii) ANIKA shall not be obligated to accept any counteroffer by GALDERMA that is more favorable to GALDERMA

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Confidential Treatment Requested

than ANIKA’s original offer.  If such sixty (60) day period expires without the Parties reaching an agreement (for avoidance of doubt, it being understood that acceptance by GALDERMA of ANIKA’s offer shall constitute an agreement), ANIKA may pursue negotiations with Third Parties concerning commercial arrangements regarding the same HA Product and shall be free to enter into any agreements with Third Parties concerning such HA Product on any terms.

13.7.        Accrued Rights; Surviving Obligations.

(a)           Termination of this Agreement and the Supply Agreement for any reason shall be without prejudice to any Party’s obligations which shall have accrued prior to such termination, or to the remedy, in accordance with the terms herein or therein, of either Party in respect of any previous breach of any covenant contained herein or therein, as applicable.

(b)           Such termination shall not relieve either Party from obligations that are indicated to survive termination or expiration of this Agreement and the Supply Agreement.

(c)           Notwithstanding any provision to the contrary herein, the following provisions shall survive any termination or expiration of this Agreement and the Supply Agreement:

(i)            This Agreement:

(A)          Articles:  I (Definitions); VII (Publications; Transfer of Data; Confidentiality; Cooperation); X (Representations and Warranties); XIV (Indemnification); XVI (Dispute Resolution); and XVII (Miscellaneous); and

(B)           Sections:  13.6 (Results of Termination); 13.6(h) (Accrued Rights; Surviving Obligations); and 13.8 (Termination Not Sole Remedy).

(ii)           Supply Agreement:

(A)          Articles:  I (Definitions); VI (Manufacturing Transfer); and XIV (Coordination with License Agreement).

(d)           Each Party acknowledges and agrees that, following termination or expiration of this Agreement and the Supply Agreement, the terms and conditions of this Agreement and the Supply Agreement shall be treated as Confidential Information of the other Party and shall be subject to the confidentiality provisions hereof.

13.8.        Termination Not Sole Remedy.  Termination is not the sole remedy under this Agreement or the Supply Agreement and, whether or not termination is effected, all other remedies will remain available except as agreed to otherwise herein.

ARTICLE XIV - INDEMNIFICATION

14.1.        Indemnification by ANIKA.  ANIKA and its direct and indirect subsidiaries shall indemnify, defend and hold harmless GALDERMA, and any Affiliates of GALDERMA, together with their respective officers and directors, from and against any and all losses (except

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Confidential Treatment Requested

lost profits and consequential losses claimed directly by GALDERMA, as opposed to those claimed by a Third Party, and subject to Section 17.17), including compensatory losses for personal injury, damages, liabilities, costs and expenses, including without limitation reasonable attorneys’ fees and expenses, arising out of or in connection with:

(a)           the breach of any of ANIKA’s representations and warranties made hereunder or under the Supply Agreement;

(b)           the breach by ANIKA of any of its obligations, covenants or undertakings hereunder or under the Supply Agreement;

(c)           any grossly negligent act or omission of ANIKA in connection with the design, Development, manufacture, packaging, testing, warehousing, handling or use of the Licensed Product;

(d)           any claim, action or proceeding initiated by the Joint Patent Holder against GALDERMA or ANIKA arising out of the Joint Patent Holder’s joint ownership of any Joint Patent or any agreement in respect thereof; or

(e)           any illness or personal injury, including death, or property damage relating to the Licensed Products, to the extent resulting from ANIKA’s negligence; provided, however, that, except as otherwise provided in Section 11.1(c) of the Supply Agreement, in circumstances in which this Agreement or the Supply Agreement provides to GALDERMA a sole and exclusive remedy, nothing in this Section 14.1 is intended, or shall be interpreted, to provide GALDERMA, its successors or permitted assigns with any additional remedy, benefit or recovery, unless any of ANIKA’s representations and warranties under Section 10.1 were untrue when made, in which case GALDERMA shall be entitled to indemnification pursuant to Section 14.1(a).

14.2.        Indemnification by GALDERMA.  GALDERMA and its direct and indirect subsidiaries shall indemnify, defend and hold harmless ANIKA and any Affiliates of ANIKA, together with their respective officers and directors, from and against any and all losses (except lost profits and consequential losses claimed directly by ANIKA, as opposed to those claimed by a Third Party, and subject to Section 17.17), including compensatory losses for personal injury, damages, liabilities, costs and expenses, including without limitation reasonable attorneys’ fees and expenses, arising out of or in connection with:

(a)           the breach of any of GALDERMA’s representations and warranties made hereunder or under the Supply Agreement;

(b)           the breach by GALDERMA of any of its obligations, covenants or undertakings hereunder or under the Supply Agreement;

(c)           any claim made by GALDERMA Sellers, as to the safety or effectiveness of the Licensed Product or the use to be made of the Licensed Product by any purchaser of Licensed Product, contained in any advertising or other promotional material created and disseminated by GALDERMA Sellers to the extent that such claim is not supported by the Licensed Product label

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and package insert as approved by the FDA in the PMA (or, in other countries, the appropriate governmental body having authority to approve the Licensed Product, label, and package insert for marketing in such country);

(d)           any other act or omission of the GALDERMA Sellers in connection with marketing, promotion, and sale of Licensed Product, including the storage, handling and distribution by GALDERMA Sellers of Licensed Product;

(e)           GALDERMA Sellers’ use, sale or disposition of Licensed Products where such Licensed Products incorporate changes made by GALDERMA Sellers to the applicable Specifications or packaging, or changes made by GALDERMA Sellers to any Regulatory Application with respect to Licensed Product which ANIKA has not approved;

(f)            any claim of trademark infringement with regard to a Licensed Product sold by or manufactured for a GALDERMA Seller;

(g)           any use, sale or disposition of a Licensed Product in any country in the Territory in which Regulatory Approval for such product was not obtained at or prior to, or effective as of, the time of such use, sale or disposition; or

(h)           any illness or personal injury, including death, or property damage relating to the Licensed Products, to the extent resulting from GALDERMA’s negligence.

14.3.        Shared Responsibility.  The Parties agree that in the event of any and all losses (except lost profits and consequential losses claimed directly by either Party, as opposed to those claimed by a Third Party, and subject to Section 17.17), including compensatory losses, damages, liabilities, costs and expenses, including without limitation reasonable attorneys’ fees and expenses, arising out of or in connection with any illness or personal injury, including death, or property damage relating to the Licensed Products, to the extent resulting from neither ANIKA’s negligence nor GALDERMA’s negligence, such losses shall be borne equally by the Parties.

14.4.        Exculpation of ANIKA.  Notwithstanding anything contained in this Agreement to the contrary, the Parties agree that ANIKA shall have no liability to GALDERMA under this Article XIV for claims, losses, or liability of any kind based upon or related to:

(a)           changes made by GALDERMA Sellers to the Specifications or packaging, or changes made by GALDERMA Sellers to any Regulatory Application with respect to Licensed Product;

(b)           sale or disposition of Licensed Products by GALDERMA Sellers for any use other than the uses specified by the accompanying package inserts;

(c)           use, sale or disposition of Licensed Products by GALDERMA Sellers in combination with devices or Licensed Products not licensed hereunder, where such combined sale or disposition is the sole cause of an infringement claim and whereas such Licensed Products would not themselves be infringing;

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(d)           sale or disposition of Licensed Products by GALDERMA Sellers in or for an application or environment for which such Licensed Products were not approved by the FDA or other applicable governmental or regulatory agency; or

(e)           modifications of Licensed Products by GALDERMA Sellers;

in each case to the extent such changes, uses, sales, dispositions or modifications give rise to the claim, loss or liability and have not been approved by ANIKA or the Steering Committee.

14.5.        Exculpation of GALDERMA.  Notwithstanding anything contained in this Agreement to the contrary, the Parties agree that GALDERMA shall have no liability to ANIKA under this Article XIV for claims, losses or liability of any kind based upon or related to:

(a)           the design, manufacturing, packaging, sterilization, testing, warehousing or handling of the Product by ANIKA;

(b)           ANIKA’s use, sale or disposition of Licensed Products where such Licensed Products incorporate changes made by ANIKA to the Specifications;

(c)           sale or disposition of Licensed Products by ANIKA in or for an application or environment for which such Licensed Products were not approved by the FDA or other applicable governmental or regulatory agency; or

(d)           modification of Licensed Products by ANIKA;

in each case to the extent such changes, uses, sales, dispositions or modifications give rise to the claim, loss or liability and have not been approved by GALDERMA or the Steering Committee.

14.6.        Indemnification Procedures.  If GALDERMA or ANIKA intends to claim indemnification under this Article XIV as a result of a Third Party claim or suit, such Party (the “Claiming Party”) shall (i) promptly notify the other Party in writing of any claim or loss for which it intends to claim such indemnification, (ii) use its commercially reasonable efforts to cooperate with the other Party and its legal representatives in the investigation of any claim or loss covered by this Article XIV, and (iii) allow the other Party to control the defense and/or disposition of such suit or claim; provided that the Claiming Party shall have the right to participate at its own expense through counsel of its own choosing.  Neither Party shall have any indemnification obligations hereunder to the extent that such Party’s ability to defend such suit or redress such loss is materially prejudiced by the Claiming Party’s failure to perform the obligations under subclause (ii) of the preceding sentence.  No claim shall be settled for which any Indemnifying Party shall be liable without the advance written consent of both the indemnifying Party and the Claiming Party, which consent shall not be unreasonably withheld.

14.7.        Cooperation.  GALDERMA and ANIKA hereby agree to reasonably cooperate in the defense of any Third-Party claim.  Each Party further agrees to make available to the other such of its employees, documents and expertise as are reasonably required in the mutual defense of such Third-Party claim.

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14.8.        Mitigation of Damages.  Each Party shall (and shall cause its Affiliates to) use reasonable commercial efforts to pursue all legal rights and remedies available in order to minimize the losses for which indemnification is provided to it under this Article XIV.

14.9.        Exclusive Remedy.  Except as otherwise provided herein or in the Supply Agreement (including, without limitation, Article VI thereof) and except with respect to claims for fraud or for equitable relief (including specific performance), the rights of the indemnified Parties under this Article XIV shall be the sole and exclusive remedies of the indemnified Parties and their respective Affiliates with respect to claims covered by this Article XIV.  Without limiting the generality of the foregoing, in no event shall any Party, its successors or permitted assigns be entitled to claim or seek rescission of the transactions consummated by this Agreement or the Supply Agreement.

ARTICLE XV - - STEERING COMMITTEE

15.1.        Steering Committee Structure and Members. ANIKA and GALDERMA shall create, within ten (10) days after the Effective Date (or such later time as may be mutually agreed to by the Parties), a committee (the “Steering Committee”) to coordinate the Product Development and commercialization of Licensed Products.  The Steering Committee shall have two (2) members from each Party who shall be named at the time of the formation of the Steering Committee.  Each Party may change its representatives upon notice to the other Party.  Members of the Steering Committee shall serve on such terms and conditions as shall be determined by the Party selecting such person for membership on the Steering Committee.  The chairmanship of the Steering Committee shall initially be held by a representative of ANIKA until the first anniversary of the Effective Date and thereafter alternate on an annual basis between the representatives of GALDERMA, on one hand, and the representatives of ANIKA, on the other hand.

15.2.        Steering Committee Meetings. The Steering Committee:  (a) shall hold meetings at such times and places as shall be determined by a majority of the entire membership of the Steering Committee, but in no event shall such meetings be held less frequently than three (3) times per year; (b) may conduct meetings in person or by telephone conference; and (c) shall keep minutes reflecting actions taken at meetings signed by one of the members of the Steering Committee from each of the Parties.  Each Party may invite to the meetings those people whom it believes may be necessary to discuss issues to be discussed at such meeting.

15.3.        Steering Committee Action by Agreement of the Parties Only.  Actions to be taken by the Steering Committee pursuant to the terms of this Agreement shall be taken only following the affirmative vote of all the members of the Steering Committee representing each Party; provided, however, that any expenditures by the Parties not otherwise required by this Agreement shall be confirmed in writing by the most senior officer of GALDERMA and ANIKA, respectively.  If the Steering Committee is unable to reach a decision with regards to any action after consideration of such action at a meeting of the Steering Committee, such decision shall be referred to and be made jointly by such senior officer of GALDERMA and such senior officer of ANIKA pursuant to Section 16.1.

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15.4.        Responsibilities of the Steering Committee.  Subject to Section 15.3, the duties and responsibilities of the Steering Committee shall include to: (i) review, comment and approve any Product Development of Licensed Products being conducted pursuant to Article II of this Agreement, including approval of associated budgets, provided, however, that any modification to a Product Development plan that is requested by a Regulatory Authority shall be deemed to have been agreed to by the Steering Committee and both Parties, provided, further, however, that any modification to a Product Development plan that is not requested by a Regulatory Authority shall need to be agreed in writing by both Parties; (ii) amend the Specifications for Licensed Products, as appropriate; provided, however, that any modification to the Specification that is not requested by a Regulatory Authority shall need to be agreed in writing by both Parties; (iii) review and approve launch plans and annual sales and marketing plans of Licensed Products prior to the implementation thereof; (iv) make determinations concerning whether to Commercialize and/or launch Licensed Products (including good faith consideration of any proposed initial, expedited launches of Licensed Product) in any country in the Territory, including review and approval of associated plans and budgets; (v) review and approve any packaging and marketing strategy; (vii) establish the Per Unit Price and the pricing under Section 6.1(c) for each Line Extension pursuant to Section 6.2; (vii) approve the publication of the results of any Product Development activities relating to Licensed Products pursuant to Section 7.3; and (viii) determine in which additional countries to file, prosecute and maintain one or more of the ANIKA Patents pursuant to Section 8.3.  In connection with any meeting of the Steering Committee, the Parties will endeavor to provide to the other Party all materials in connection with this Section 15.4 at least five (5) Business Days in advance of such meeting.  Notwithstanding anything to the contrary contained herein, ANIKA shall be responsible for the preparation of any Development plans and associated budgets for any Line Extension contemplated by Section 2.2.

ARTICLE XVI - DISPUTE RESOLUTION

16.1.        Dispute Resolution.

(a)           In the case of any claim, dispute or controversy between the Parties arising out of or in connection with or relating to this Agreement (including, without limitation, disputes with respect to the rights and obligations of the Parties following termination), and in case this Agreement does not provide a solution for how to resolve such disputes, the Parties shall endeavor to discuss and negotiate in good faith towards a solution acceptable to both Parties and in the spirit of this Agreement.  If the Parties fail to reach agreement within thirty (30) days, then for a further thirty (30) day period a senior officer of ANIKA and a senior officer of GALDERMA shall discuss in good faith an appropriate resolution to the dispute.

(b)           Notwithstanding the foregoing, if the Parties dispute any Licensed Product recall, withdrawal or corrective action under Article XII of the Supply Agreement, the Parties shall use commercially reasonable efforts to resolve such dispute on an expedited basis, but in no event later than five (5) days after such dispute arises.

(c)           Prior to commencement of arbitration pursuant to Section 16.2, the Parties must attempt to mediate their dispute using a professional mediator from the CPR Institute for Dispute

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Resolution.  Within a period of forty-five (45) days after the request for mediation, the Parties agree to convene with the mediator, with business representatives present, for at least one session to attempt to resolve the matter.  In no event will mediation delay commencement of the arbitration for more than forty-five (45) days absent agreement of the Parties or interfere with the availability of emergency relief.  Any disputes concerning the propriety of the commencement of the arbitration shall be finally settled by arbitration pursuant hereto.

16.2.        Arbitration.  Any claim, dispute or controversy arising out of or in connection with or relating to this Agreement, (including, without limitation, disputes with respect to the rights and obligations of the Parties following termination) not settled by the procedures set forth in Section 16.1 above shall be adjudicated by arbitration in accordance with the arbitration proceedings as set forth in Exhibit E attached hereto.

16.3.        Injunctive Relief.  Each Party hereby acknowledges that, in the event it violates, or threatens to violate, any of the covenants herein, the other Party will be, subject to Section 16.2, entitled to seek from any court of competent jurisdiction, without the posting of any bond or other security, injunctive relief, which rights will be cumulative and in addition to any other rights or remedies in law or equity to which it may be entitled.

ARTICLE XVII - MISCELLANEOUS

17.1.        Relationship of Parties.  For the purposes of this Agreement and the Supply Agreement, each Party is an independent contractor and not an agent or employee of the other Party.  Neither Party shall have authority to make any statements, representations, or commitments of any kind, or to take any action which shall be binding on the other Party, except as may be explicitly provided for herein or therein or authorized in writing.

17.2.        Counterparts.  This Agreement and the Supply Agreement may be executed in two or more counterparts, including facsimile counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

17.3.        Headings.  All headings in this Agreement and the Supply Agreement are for convenience only and shall not affect the meaning of any provision hereof.

17.4.        Binding Effect.  This Agreement and the Supply Agreement shall inure to the benefit of and be binding upon the Parties and their respective lawful successors and assigns.

17.5.        Assignment.  Neither Party may assign or transfer this Agreement or the Supply Agreement or its rights and obligations under this Agreement or the Supply Agreement without the prior written consent of the other Party, which consent may not be unreasonably withheld, and any such assignment or transfer shall be null and void and entitle the non-assigning party to terminate this Agreement or the Supply Agreement, as the case may be, forthwith.  Notwithstanding the foregoing, either Party may assign this Agreement or the Supply Agreement without the consent of the other Party in connection with the sale of all or substantially all of its assets (whether by merger, consolidation or otherwise); provided, however, that in no event shall any such assignment release either Party from its responsibilities under this Agreement or the Supply Agreement unless the assignee has agreed in writing to assume all of the obligations of

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assignor hereunder or under the Supply Agreement or thereunder, as the case may be.  In the event the Supply Agreement is assigned by GALDERMA to a Third Party in accordance with this Section 17.5, the guaranty provided by GALDERMA PHARMA S.A. under Section 15.1 of the Supply Agreement shall have no further force or effect.

17.6.        Amendment and Waiver.  This Agreement and the Supply Agreement may be amended, supplemented, or otherwise modified at any time, but only by means of a written instrument signed by both Parties.  Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar.

17.7.        Governing Law.  This Agreement, the Supply Agreement and the legal relations between the Parties shall be governed by and construed in accordance with the laws of the State of New York, USA, irrespective of any choice of laws or conflict-of-law principles.

17.8.        Severability.  In the event that any provision of this Agreement or the Supply Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof or thereof, and this Agreement and the Supply Agreement shall be construed as if such invalid or unenforceable provision had not been included herein or therein.

17.9.        Entire Agreement.  This Agreement and the Supply Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof and thereof and supersede any and all prior or contemporaneous oral and prior written agreements and understandings.

17.10.      Advice of Counsel.  GALDERMA and ANIKA have each consulted counsel of their choice regarding this Agreement and the Supply Agreement, and each acknowledges and agrees that this Agreement and the Supply Agreement shall not be deemed to have been drafted by one party or another and will be construed accordingly.

17.11.      Force Majeure.  Neither Party shall lose any rights hereunder or under the Supply Agreement or be liable to the other Party for damages or losses on account of failure or delay of performance by the defaulting Party if the failure or delay is occasioned by (i) any fire, explosion, unusually severe weather, natural disaster or Act of God; (ii) epidemic, any nuclear, biological, chemical, or similar attack; any other public health or safety emergency; any act of terrorism; and any action reasonably taken in response to any of the foregoing; (iii) any act of declared or undeclared war or of a public enemy, or any riot or insurrection; (iv) any disruption in transportation, communications, electric power or other utilities, or other vital infrastructure; or any means of disrupting or damaging internet or other computer networks or facilities; (v) any strike, lockout or other labor dispute or action; (vi) any action taken in response to any of the foregoing events by any civil or military authority; or (vii) any other event beyond such Party’s control, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall a Party be required to settle any labor dispute or disturbance.  The Party claiming force majeure shall (a) notify in writing the other Party of such disability as soon as practicable and (b) use its commercially reasonable efforts to remove such disability within thirty (30) days of such notice.

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17.12.      Further Actions.  Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement and the Supply Agreement.

17.13.      No Trademark Rights.  Except as otherwise explicitly provided herein or therein, no right, express or implied, is granted by this Agreement or the Supply Agreement to use in any manner the name “ANIKA” or “GALDERMA,” or any other trade name or trademark of the other Party or its Affiliates in connection with the performance of the Agreement or the Supply Agreement.

17.14.      Notices.  All notices hereunder or under the Supply Agreement shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), email (receipt acknowledged), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, to the Parties at the following address (or at such other address for a Party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof).

If to ANIKA,

addressed to:

ANIKA THERAPEUTICS INC.
160 New Boston Street
Woburn, MA 01801
Attention:  Chief Executive Officer
Facsimile:  (781) 932-3360
Email: csherwood@anikatherapeutics.com

With a copy to:

Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Attention:  H. David Henken, P.C.
Facsimile:  (617) 523-1231
Email: dhenken@goodwinprocter.com

and

Attention:  Antonio G. Gomes
Facsimile:  (617) 523-1231
Email: agomes@goodwinprocter.com

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If to GALDERMA:

addressed to:

GALDERMA PHARMA S.A.
Zugerstrasse 8
Cham CH-6330
Switzerland
Attn:  Finance & Administration Manager
Fax: +41-21-641-1161

With a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, NY  10022
Attention:  David H. Bernstein, Esq.
Facsimile:  (212) 909-6836
Email: dhbernstein@debevoise.com

17.15.      Waiver.  Except as specifically provided for herein or therein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement or the Supply Agreement.

17.16.      Bankruptcy.  All rights and licenses granted under or pursuant to this Agreement and the Supply Agreement by ANIKA are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, U.S. code (the “Bankruptcy Code”), licenses of rights to “intellectual property” as defined under Section 101(60) of the Bankruptcy Code.  The Parties agree that GALDERMA shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code.  ANIKA agrees, during the Term, to create and maintain current copies or, if not amenable to copying, detailed descriptions or other appropriate embodiments, of all such intellectual property; provided, however, that such descriptions or other appropriate embodiments are held and used by ANIKA in the ordinary course of business, it being understood that ANIKA is not subject to any obligation to develop any additional descriptions or other embodiments of such intellectual property.  The Parties further agree that in the event of the commencement of a bankruptcy proceeding by or against ANIKA under the Bankruptcy Code, GALDERMA shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property, and all embodiments of such intellectual property, and same, if not already in its possession, shall promptly be delivered to GALDERMA (a) upon such commencement of a bankruptcy proceeding upon written request therefore by GALDERMA, unless ANIKA elects to continue to perform all of its obligations under this Agreement, or (b) if not delivered under (a) above, upon the rejection of this Agreement or the Supply Agreement by or on behalf of ANIKA upon written request therefore by GALDERMA.

17.17.      Damages.  EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR THE SUPPLY AGREEMENT, NEITHER PARTY SHALL IN ANY

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EVENT BE LIABLE TO THE OTHER FOR LOST PROFITS, PUNITIVE, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE SUPPLY AGREEMENT, PROVIDED, THAT THIS LIMITATION SHALL NOT LIMIT THE INDEMNIFICATION OBLIGATION OF SUCH PARTY UNDER THE PROVISIONS OF ARTICLE XIV FOR SUCH DAMAGES CLAIMED BY A THIRD PARTY.

17.18.      Agreement Expenses; Reimbursement.  Except as specifically provided herein, GALDERMA and ANIKA shall each bear their own attorneys’ and accounting fees and other expenses in connection with this Agreement and the Supply Agreement and any related transaction.  Except as otherwise provided herein or in the Supply Agreement, either Party shall invoice the other Party within thirty (30) days of the end of each Calendar Quarter for all costs which are the responsibility of the reimbursing Party under this Agreement or the Supply Agreement.  The reimbursing Party shall reimburse the reimbursed Party for such costs within thirty (30) days of receipt of such invoice.  Such invoice shall itemize such costs in reasonable detail.  If the reimbursing Party does not indicate in writing to the reimbursed Party the basis for any dispute of an invoice within thirty (30) days of receipt of such invoice, the validity of the underlying amounts shall be deemed automatically accepted by the reimbursing Party.  If the reimbursing Party disputes the validity of any invoice provided by the reimbursed Party hereunder, the Parties shall endeavor to resolve the dispute in good faith.  If the Parties are unable to resolve such dispute, the dispute shall be resolved pursuant to the provisions of Article XVI.

17.19.      Schedules and Exhibits.  All Schedules and Exhibits referred to in this Agreement and the Supply Agreement are attached hereto and thereto and incorporated herein or therein by reference.

17.20.      Beneficiaries.  Except as provided in Article XIV, nothing in this Agreement or the Supply Agreement shall confer any rights upon any Person other than the Parties and their respective Affiliates, successors and permitted assigns.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written.

GALDERMA PHARMA S.A.		ANIKA THERAPEUTICS, INC.
By:	/s/ Humberto C. Antunes	By:	/s/ Charles H. Sherwood
	Name: Humberto C. Antunes		Name: Charles H. Sherwood, Ph.D
	Title: President and CEO		Title: President and CEO

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EXHIBIT A

ANIKA PATENTS AND ANIKA PATENT APPLICATIONS

Joint Patents

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ANIKA Patent Applications

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A-1

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EXHIBIT B

TRADEMARK APPLICATIONS

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B-1

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B-2

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EXHIBIT C

SPECIFICATIONS

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* [************************************************************************]
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C-1

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EXHIBIT D

COUNTRIES FOR ADDITIONAL ANIKA PATENT APPLICATIONS

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D-1

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EXHIBIT E

ARBITRATION

Any controversy or claim arising out of or relating to this Agreement shall be resolved by arbitration before a single arbitrator in accordance with the Commercial Rules of Arbitration of the International Chamber of Commerce (the “ICC”) then pertaining (available at http://www.iccwbo.org/court/english/arbitration/pdf_documents/rules_/arb_english.pdf , except where those rules conflict with this provision, in which case this provision controls.  Any application to enforce this clause and enter judgment on any award shall be brought only in the federal or state courts located in the County of New York in the State of New York (the “Courts”).  The arbitration shall be conducted in English, provided that either Party may submit testimony or documentary evidence in any language if it furnishes, upon the request of the other Party, a translation into English of any such testimony or documentary evidence.

The arbitrator shall be selected within twenty (20) Business Days from commencement of the arbitration pursuant to agreement of the Parties or through selection procedures administered by the ICC.  The arbitrator shall not be a citizen of the United States, France or Switzerland.  Within forty-five (45) days of initiation of arbitration, the Parties shall reach agreement upon and thereafter follow procedures, including limits on discovery, assuring that the arbitration will be concluded and the award rendered within no more than six months from selection of the arbitrator or, failing agreement, procedures meeting such time limits will be implemented by the arbitrator after submissions by the Parties and adhered to by the Parties.  In connection with the arbitration proceeding, the arbitrator shall order the prompt exchange of relevant documents by each Party; each Party may take up to two depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving Party; however, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission.  In connection with any arbitration, each Party shall provide to the other, no later than fourteen (14) days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a Party’s witness or expert.

The arbitration shall be held in the County of New York in the State of New York, U.S.A. and the arbitrator shall apply the substantive law of New York, except that the interpretation and enforcement of this arbitration provision shall be governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), 9 U.S.C.A. § 201.  From the date of initiation of arbitration and until such time as any matter has been finally settled by arbitration, the running of the time periods contained in Article XIV as to which Party must cure a breach of this Agreement shall be suspended as to the subject matter of the dispute.  Prior to appointment of an arbitrator, emergency relief may be sought only from the Courts to avoid irreparable harm.  The arbitrator may take all measures necessary for the protection of trade secrets and confidential information, including awarding interim equitable relief.  All proceedings and any award shall be confidential, and the Parties agree not to disclose any information obtained from the other Party in connection with the Arbitration except to the extent required by law or regulation, or to a party’s accountants, attorneys or agents or to enforce any award, or to the extent the information has been lawfully obtained from third parties or is publicly available through other sources.

E-1

EX-10.2

Exhibit 10.2

REDACTED COPY
Confidential Treatment Requested(1)

SUPPLY AGREEMENT

among

GALDERMA S.A.

GALDERMA PHARMA S.A.

and

ANIKA THERAPEUTICS, INC.

(1) Redacted portions have been marked with brackets containing asterisks ([***]).  The redacted portions are subject to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

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TABLE OF CONTENTS

	Page
ARTICLE I - DEFINITIONS	1
ARTICLE II - MANUFACTURE AND SALE	2
ARTICLE III - PRICING AND PAYMENT TERMS	4
ARTICLE IV - FORECASTS; ORDERS	4
ARTICLE V - PURCHASE COMMITMENTS	6
ARTICLE VI - SECOND SOURCE OF SUPPLY	7
ARTICLE VII - SPECIFICATIONS; IMPROVEMENTS	8
ARTICLE VIII - PACKAGING	9
ARTICLE IX - DELIVERY	10
ARTICLE X - MANUFACTURING INSPECTIONS	10
ARTICLE XI - PRODUCT INSPECTION; NON-CONFORMING PRODUCT	12
ARTICLE XII - CORRECTIVE ACTION	13
ARTICLE XIII - INSURANCE	14
ARTICLE XIV - COORDINATION WITH LICENSE AGREEMENT	15
ARTICLE XV - GUARANTY	15

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SUPPLY AGREEMENT

THIS SUPPLY AGREEMENT (this “Agreement”) is made effective as of June 30, 2006 (“Effective Date”) by and among GALDERMA S.A., a Swiss corporation having its place of business at Zugerstrasse 8, Cham CH-6330, Switzerland (“GALDERMA”), GALDERMA PHARMA S.A., a Swiss corporation having its place of business at Zugerstrasse 8, Cham CH-6330, Switzerland (“PARENT”), for purposes of Article XV only, and ANIKA THERAPEUTICS, INC., a Massachusetts corporation, having its place of business at 160 New Boston Street, Woburn, Massachusetts 01801 (“ANIKA”).  ANIKA and GALDERMA are each referred to by name or as a “Party” or collectively as the “Parties.”

RECITALS

1.             ANIKA develops, manufactures and packages therapeutic products.

2.             GALDERMA distributes and markets therapeutic products.

3.             The Parties are entering into a License and Development Agreement (the “License Agreement”) concurrently herewith, providing for, among other things, an exclusive (except as set forth in Article IV of the License Agreement) license from ANIKA to GALDERMA under the ANIKA Patents to use, promote, sell, offer to sell, and distribute the Licensed Products in the Field in the Territory.

4.             This Agreement will be coterminous with the License Agreement.

5.             GALDERMA desires to have ANIKA manufacture and supply the Licensed Products for GALDERMA pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I - DEFINITIONS

1.1.          Each term not otherwise defined herein shall have the meaning assigned to such term in the License Agreement.

1.2.          For the purpose of this Agreement, the following terms shall have the meanings set forth below:

“Additional Amount” shall have the meaning set forth in Section 5.3.

“Agreement” shall have the meaning set forth in the preamble.

“ANIKA” shall have the meaning set forth in the preamble.

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“Annual Minimum Purchase Commitment” shall have the meaning set forth in Section 5.1.

“Facility” means ANIKA’s manufacturing facility located at 236 West Cummings Park, Woburn, MA  01801, or any other manufacturing facility certified under Applicable Law for the manufacture of the Licensed Products and selected by ANIKA from time to time.

“Forecast” shall have the meaning set forth in Section 4.1.

“GALDERMA” shall have the meaning set forth in the preamble.

“License Agreement” shall have the meaning set forth in the recitals.

“PARENT” shall have the meaning set forth in the preamble.

“Party” or “Parties” shall have the meaning set forth in the preamble.

“Purchase Orders” shall have the meaning set forth in Section 4.2.

“Obligations” shall have the meaning set forth in Section 15.1.

“Recall” shall have the meaning set forth in Section 12.4(a).

“Retained Sample” shall have the meaning set forth in Section 11.1(c).

“Sales Territory” means each of North America, South America and the rest of the countries in the Territory.

“Second Source Supplier” shall have the meaning set forth in Section 6.1.

“Shipping Point” shall have the meaning set forth in Section 9.1(b).

ARTICLE II - MANUFACTURE AND SALE

2.1.          Supply of Licensed Products.  Subject to the provisions of this Agreement and the License Agreement, during the Term, ANIKA and its Affiliates shall manufacture and supply GALDERMA in the Territory on an exclusive (except as set forth in the License Agreement or this Agreement) basis with those quantities of the Licensed Products as ordered by GALDERMA pursuant to and in accordance with the terms of this Agreement, and GALDERMA and its Affiliates shall purchase exclusively (except as set forth in the License Agreement or this Agreement) from ANIKA (which includes permitted sublicensees of ANIKA pursuant to Section 2.2) 100% of GALDERMA’s requirements for the Licensed Products to be sold subject to the ordering procedures set forth in Article IV.  ANIKA’s associated responsibilities shall include:

(a)           reception, control and storage of raw materials and work-in process inventory;

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(b)           manufacturing, packaging and storage of the Licensed Products until delivery pursuant to Article IX;

(c)           control and testing of the finished Licensed Products to the extent required by Applicable Law or pursuant to the terms of this Agreement or the License Agreement;

(d)           decision to release batches of the Licensed Products for delivery;

(e)           delivery of the Licensed Products in accordance with Article IX;

(f)            storage of batch records and retention samples to the extent required by Applicable Law or pursuant to the terms of this Agreement or the License Agreement; and

(g)           file maintenance to the extent required by Applicable Law or pursuant to the terms of this Agreement or the License Agreement.

2.2.          Permitted Sublicensees.  Notwithstanding any provision in this Agreement or the License Agreement, ANIKA shall be permitted to sublicense or outsource to Affiliates or Third Parties the manufacturing and supply of the Licensed Products; provided, however, that ANIKA shall be responsible for the compliance by such sublicensees with all applicable terms of this Agreement and the License Agreement and bear all the related costs that ANIKA is obligated to bear under this Agreement and the License Agreement.  ANIKA shall consult with the Steering Committee with respect to the selection by ANIKA of any such Third Party sublicensees, provided that ANIKA’s sole obligation with respect to any comments or observations made by the Steering Committee is to consider such comments or observations in good faith.

2.3.          Compliance with Applicable Law.  ANIKA shall comply in all material respects with all Applicable Laws relating to the manufacture and supply of the Licensed Products being provided hereunder, including, without limitation, those enforced by the United States Food and Drug Administration (including compliance with cGMP) and International Standards Organization Rules 9000 et seq., it being understood by the Parties that, upon delivery of the Licensed Products to the Shipping Point in accordance with Article IX, responsibility for compliance with all Applicable Laws with respect to such delivered Units of Licensed Products shall shift to GALDERMA, and thereafter GALDERMA shall comply in all material respects with all Applicable Laws relating to the storage and distribution of the Licensed Products.

2.4.          ANIKA Marketing Support; Samples.  ANIKA agrees to assist GALDERMA’s commercialization effort by providing Samples at the Price Per Sample set forth on Exhibit A and in such quantities as GALDERMA shall reasonably request and order pursuant to the ordering procedures set forth in Article IV and pay for pursuant to the payment terms provided for in Article III; provided, however, that (i) such quantity of Samples of the Current Licensed Product shall not in the aggregate exceed [****************]; (ii) such quantity of Samples of the Current Licensed Product for each calendar year thereafter shall not exceed the greater of (A) the number of Units in a sampling plan prepared annually by GALDERMA and approved by the Steering Committee or (B) [****************] of the number of Units of Current Licensed Product sold worldwide during such calendar year calculated on a quarterly basis by

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extrapolating the actual number of Units of Current Licensed Product sold worldwide year to date in order to reasonably estimate the number of Units of Current Licensed Product expected to be sold worldwide during such calendar year (taking into account expected sales trends); and (iii) ANIKA is not required to provide Samples with respect to any Sales Territory until at least one Regulatory Approval has been received in one country in such Sales Territory.  GALDERMA agrees that the Samples shall be used solely for marketing purposes in accordance with Applicable Law, and GALDERMA shall not sell, or offer for sale, or otherwise permit its Affiliates or distributors to sell or offer for sale, the Samples.

ARTICLE III - PRICING AND PAYMENT TERMS

3.1.          Pricing.  GALDERMA shall pay ANIKA for the Licensed Products in accordance with the prices set forth in Exhibit A hereto.

3.2.          Payment Terms.

(a)           The Per Unit Price payments shall become due and payable by GALDERMA no later than thirty (30) days after GALDERMA has received an invoice for any Licensed Product.  GALDERMA agrees that receipt of an invoice by facsimile transmission shall be treated as receipt of an original invoice for purposes of this Agreement.  GALDERMA shall make the Per Unit Price payments hereunder to ANIKA within the above referenced thirty (30) day period in accordance with written instructions delivered to GALDERMA by ANIKA from time to time.

(b)           GALDERMA shall keep accurate records in sufficient detail to enable the Per Unit Price payments payable hereunder to be determined.  GALDERMA shall be responsible for all such payments and late payments that are due to ANIKA pursuant to the terms of this Agreement.  Any past due amounts for any overdue payment to either Party pursuant to any provision of this Agreement will be subject to a late fee of one percent (1%) per month, or the highest rate allowed by law, whichever is less, with such interest accrual commencing on the thirtieth (30th) day after the applicable due date.  All costs of enforcing or collecting payment hereunder, including attorneys’ fees and expenses and court costs, shall be paid by the non-prevailing Party.  Breach for non-payment commences on the forty-sixth (46th) day following the due date assuming the invoice is materially accurate; provided, however, that GALDERMA shall promptly notify ANIKA of any material inaccuracies in any ANIKA invoice received by GALDERMA.

ARTICLE IV - FORECASTS; ORDERS

4.1.          No later than ninety (90) days prior to the anticipated date of first delivery of the first Licensed Product, GALDERMA shall provide ANIKA with its initial written forecast of GALDERMA’s anticipated requirements for such Licensed Product by SKU for each of the first twelve (12) months following such date of first delivery (such initial forecast and all future forecasts herein referred to as a “Forecast” or the “Forecasts”); provided, however, that such

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initial Forecast shall not provide for delivery of more than [****************] Units of such Licensed Product per month in the first [****************] of such Forecast without ANIKA’s written consent.  From and after the delivery of the initial Forecast, no later than fifteen (15) days prior to the commencement of each calendar month during the Term, GALDERMA shall provide ANIKA with a revised Forecast by SKU covering each of the following twelve (12) months.  With respect to all Forecasts issued to ANIKA by GALDERMA pursuant to the terms hereof, (i) [****************] of the first and second months, (ii) [****************] of the third and fourth months, and (iii) [****************] of the fifth and sixth months, in each case shall become binding on the Parties on a rolling basis and constitute a firm order for Licensed Products, regardless of receipt by ANIKA of GALDERMA’s actual Purchase Orders, it being understood and agreed that each Forecast shall reflect at least the quantities that are binding on the Parties pursuant to the foregoing thresholds and no more than the maximum quantities contemplated by the first sentence of Section 4.2 below.  For example, if the first Forecast provides for a quantity of [********] Units in the third month of such Forecast, no subsequent Forecast shall provide for a quantity with respect to such month of less than [*****] Units or more than [******] Units.  Each Forecast will indicate the delivery dates for the Licensed Products, and the delivery dates for the first [*******************] will be binding on the Parties as indicated in such Forecast; provided, however, that such delivery dates for the number of Units of Licensed Product forecasted for a month in the then current Forecast must fall within such month, unless the Parties otherwise agree in writing to alternative delivery dates.

4.2.          Subject to the binding commitment incurred pursuant to each Forecast pursuant to Section 4.1, GALDERMA shall place specific binding orders for Licensed Product by the issuance of separate purchase orders to ANIKA, which may be in written or electronic form or by any other means agreed to by the Parties and shall be binding on ANIKA to the extent that such purchase orders [*******************] by SKU by month of the applicable Forecast with respect to the first and second months of such Forecast, [************] by SKU by month of such Forecast with respect to the third and fourth months, and [**********] by SKU by month of such Forecast with respect to the fifth and sixth months (the “Purchase Orders”).  If GALDERMA requests a quantity of Licensed Product that exceeds the binding portion of a given Forecast, the Parties agree in good faith to negotiate additional quantities and associated delivery dates.  The Purchase Orders shall designate the desired SKU’s and quantities of Licensed Products (subject to the requirements of this Section 4.2), delivery dates (subject to the last sentence of Section 4.1) and destinations.  The minimum Purchase Order quantity by SKU shall be [*************] Units.  GALDERMA shall issue written Purchase Orders for Licensed Products to ANIKA at least sixty (60) days prior to the requested delivery dates.

4.3.          In the event that GALDERMA shall fail to place sufficient Purchase Orders to satisfy the binding order commitment incurred pursuant to any Forecast, such Purchase Orders shall be deemed to have been submitted by GALDERMA, and ANIKA shall deliver such Licensed Products to GALDERMA.

4.4.          To the extent of any conflict or inconsistency between this Agreement and any Purchase Order, purchase order release, confirmation, acceptance or any similar document, the terms of this Agreement shall govern.

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ARTICLE V - PURCHASE COMMITMENTS

5.1.          Exclusive of any Samples and notwithstanding any other provision in this Agreement, but subject to the satisfaction of the Condition Precedent to Commercial Sale in the United States and in at least one or more of the countries in Europe within the Initial Marketing Territory, GALDERMA irrevocably hereby [***************************************
***************************] after the first Date of First Sale, pursuant to the terms of this Agreement and the License Agreement.

5.2.          In each calendar year during the Term commencing with [****************], GALDERMA annually shall purchase the minimum number of Units of Licensed Products that is equal to [****************] of GALDERMA’s annual corporate sales budget for the Licensed Products (which budget shall be prepared on a Sales Territory by Sales Territory basis and in good faith by GALDERMA, is the same budget that GALDERMA will use for internal reporting purposes and has been delivered to ANIKA no later than [****************] of the prior year) for each Sales Territory in which GALDERMA has begun Commercialization by [****************] of such prior year (as to any such Sales Territory, the “Annual Minimum Purchase Commitment”).

5.3.          Upon sixty (60) days’ written notice to GALDERMA, ANIKA shall have the right to terminate all of GALDERMA’s rights and obligations under this Agreement and the License Agreement with respect to any Sales Territory in which GALDERMA fails to meet its calendar year Annual Minimum Purchase Commitment and such failure shall not have been cured in accordance with the provisions of this Section 5.3, and thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the License Agreement.

(a)           Notwithstanding the foregoing sentence, ANIKA shall not exercise such termination right with respect to any Sales Territory if:

(i)            prior to the expiration of such sixty (60)-day notice period, GALDERMA indicates in writing its commitment to purchase during the calendar year following the calendar year in which the default occurred, an amount, in addition to the amounts required to be purchased by GALDERMA during such following calendar year pursuant to Article IV, equal to one hundred percent (100%) of the difference in such prior period between the amount necessary to have been purchased for such Sales Territory and the amount actually purchased for such Sales Territory (the “Additional Amount”); provided, however, that if the Additional Amount is not in fact purchased from ANIKA during such calendar year, then ANIKA shall have the full power and authority under this Agreement to exercise the termination right set forth in this Section 5.3 as of the end of such calendar year, upon sixty (60) days’ written notice; provided, further, however, that if within such calendar year, ANIKA cannot manufacture and deliver an additional number of Units of Licensed Product equal to the Additional Amount, then ANIKA shall extend such period by an additional period of time as is

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necessary to permit ANIKA to produce and deliver such number of additional Units of Licensed Product; and

(ii)           the Annual Minimum Purchase Commitment for the Sales Territory at issue for the year following the calendar year in which the default occurred shall be no less than the Annual Minimum Purchase Commitment for such Sales Territory for the prior calendar year; provided, however, that if the market for the Licensed Products in the Sales Territory (taken as a whole) in which GALDERMA failed to meet its calendar year Annual Minimum Purchase Commitment has been adversely impacted by events not primarily caused by GALDERMA or any of its Affiliates (e.g., through the introduction of generic alternatives to the Licensed Products) and such events are materially interfering with the ability of GALDERMA or its Affiliates to sell the Licensed Products in such Sales Territory, then the Annual Minimum Purchase Commitment for the Sales Territory at issue for the year following the calendar year in which such default occurred shall be set by the Steering Committee.

(b)           Without the prior written consent of ANIKA, GALDERMA shall avail itself of the relief provided in Section 5.3(a) only twice per Sales Territory during the Term, but in no event shall such relief be available for consecutive calendar years.

5.4.          The Parties acknowledge and agree that to the extent this Agreement or the License Agreement contemplates relief of GALDERMA’s obligations under this Article V with respect to a given country, such relief shall be granted by means of a proportionate reduction in the Annual Minimum Purchase Commitment with respect to the applicable Sales Territory based on the Net Sales in such country relative to the Net Sales in all other countries in such Sales Territory, in each case during the preceding twelve (12) calendar months.

ARTICLE VI - SECOND SOURCE OF SUPPLY

6.1.          Second Source of Supply.  Upon GALDERMA’s request but provided that worldwide Net Sales for the twelve (12) month period immediately preceding such request exceed [****************], ANIKA within nine (9) months of such request shall develop a plan and budget for a qualified second source of supply capable of supplying Licensed Products (the “Second Source Supplier”) and shall submit such plan and budget to the Steering Committee for its approval.  Such Second Source Supplier shall be under the control of ANIKA and may be an alternative Facility owned by ANIKA or consist of one or more sub contractor relationships with Third Parties established by ANIKA.  If such Second Source Supplier involves a Third Party, ANIKA’s obligation to establish a second source relationship with such Third Party will be subject to such Third Party agreeing in writing to be bound by the terms of a confidentiality and non-disclosure agreement satisfactory to ANIKA.  Upon approval by the Steering Committee of the plan and budget for a Second Source Supplier, GALDERMA shall be responsible for all reasonable and reasonably documented costs and expenses incurred by ANIKA in establishing and maintaining such Second Source Supplier.  If such costs exceed the budget approved by the Steering Committee, then such excess shall be borne by

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(i) GALDERMA, if such excess resulted from a change in the agreed plan requested by GALDERMA or the Steering Committee or requested by ANIKA and agreed to by GALDERMA or (ii) ANIKA, if such excess resulted from any mismanagement of the agreed upon budget.

6.2.          Preparedness for Force Majeure Events.  By [****************], ANIKA will use commercially reasonable efforts to prepare and present to GALDERMA for its review a force majeure preparedness and business continuity plan, the goal of which will be to reduce, to the extent reasonably practicable, disruptions in the supply of Licensed Products by ANIKA to GALDERMA.  ANIKA’s sole obligation with respect to any comments or observations made by GALDERMA pursuant to its review of such plan is to consider such comments and observations in good faith.

ARTICLE VII - SPECIFICATIONS; IMPROVEMENTS

7.1.          Specifications.  ANIKA agrees that it shall manufacture the Licensed Products in accordance with the Specifications.

7.2.          Change in Specifications.

(a)           Either Party shall have the right to request a change to the Specifications during the Term.  In such event, the Party wishing to request a change shall notify the other Party of its request in writing.  If the receiving Party agrees to such request, the Parties shall cooperate with each other to have such change to such Specifications or packaging of the Licensed Product approved by the FDA or other regulatory agency (if necessary).  ANIKA shall not be obligated to make any changes to such Specifications of the Licensed Products requested by GALDERMA, unless such changes are approved by the Steering Committee in accordance with the License Agreement.  In the case of any approved changes to Specifications of the Licensed Products requested by GALDERMA or required by the FDA or other regulatory agency, GALDERMA shall reimburse ANIKA for all ANIKA’s reasonable and reasonably documented costs related to such changes to Specifications, including without limitation costs associated with up to six (6) months (determined by reference to the Forecast then in effect for the Licensed Product at issue) of Licensed Product inventory rendered obsolete by the change in Specifications and any necessary Regulatory Approval costs.

(b)           Any disputes arising from a request for cost-sharing or reimbursement of expenses incurred in connection with a change in Specifications not resolved by the Parties within thirty (30) days shall be referred to the Steering Committee for resolution; and, if not resolved by the Steering Committee, the provisions of Article XVI of the License Agreement shall apply to such dispute.

7.3.          Records.

(a)           ANIKA shall keep complete, accurate and detailed original records pertaining to the manufacture, including quality control, of the Licensed Product.

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GALDERMA shall keep, and will use its reasonable efforts to the extent required by law to cause other GALDERMA Sellers to keep, complete, accurate and detailed original records pertaining to the use, storage, sale, distribution and other disposition of the Licensed Product, including for each lot number of Licensed Product, the quantity shipped and where the lot was shipped, so that, among other things, in the event of a recall, GALDERMA will be able to contact all physicians and/or end users of Licensed Products.  Each party shall keep its respective records for at least five (5) years or for such longer period if and as required by Applicable Law from the date of delivery or receipt, as applicable, of each batch of Licensed Product to which said records pertain.  For validation batches, each Party shall keep the documents throughout the commercial life of the relevant Licensed Products.

(b)           Each Party shall make available such records (including making copies thereof) to the other Party for such lawful purpose as such other Party may reasonably request in writing.

ARTICLE VIII - PACKAGING

8.1.          GALDERMA, with the approval of the Steering Committee, shall have the right to determine the appearance of any labeling and packaging consistent with the approved label used in connection with the Licensed Product in the Territory.

8.2.          GALDERMA shall pay all of the costs associated with the design of the labeling and packaging for the Licensed Product.  In determining the labeling for the Licensed Product, GALDERMA shall have the right to use its corporate and/or trade name(s) and its own trademark(s) and to determine the general design and appearance of said labeling.  ANIKA’s corporate name shall be displayed on Licensed Product packaging.  ANIKA shall be responsible for procurement of the packaging materials and ensuring that the appearance of any labeling and packaging meets the requirements of any approved specifications.

8.3.          Once the initial labeling and packaging has been decided upon and confirmed in writing, ANIKA shall not be required to make subsequent changes to such labeling, including any changes required by any applicable regulator, unless GALDERMA agrees to pay all additional costs associated with the implementing of changes and to pay ANIKA’s reasonable and reasonably documented costs related to such labeling or packaging changes, including without limitation costs associated with up to six (6) months (determined by reference to the Forecast then in effect for the Licensed Product at issue) of packaging inventory rendered obsolete by the change in labeling or packaging.  Notwithstanding the foregoing, if any changes are required to be made to the packaging or labeling as a result of changes requested by ANIKA, ANIKA shall bear the expenses thereof.

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ARTICLE IX - DELIVERY

9.1.          Shipment.

(a)           ANIKA shall deliver the Licensed Products to the Shipping Point and assist in shipping the Licensed Product to GALDERMA or to such other location as designated in writing by GALDERMA and acknowledged by ANIKA by such mode of transportation as GALDERMA shall direct and pursuant to the validated transportation specifications to ensure Licensed Products’ quality (including packaging and temperature).  At the time of such delivery, (i) [*************************************************************
************], and (ii) each Licensed Product with any other shelf life shall have at a minimum eighty percent (80%) of such shelf life remaining.  All charges for packing, handling, hauling, storage, bar coding and transportation to the Shipping Point are included in the Per Unit Price unless otherwise agreed to by the Parties in writing.

(b)           The risk of loss and damage with respect to Licensed Product shall remain with ANIKA through production until Licensed Product is picked-up by GALDERMA’s carrier at ANIKA’s Facility (the “Shipping Point”).  Shipping terms will be Ex Works (EXW) per INCOTERMS 2000.  ANIKA will pack all Licensed Product ordered hereunder in a manner suitable for shipment and sufficient to enable the Licensed Product to withstand the normal effects of shipping, including handling during loading and unloading.  GALDERMA shall be responsible for designating the carrier(s) and negotiating terms for shipment of Licensed Product with ANIKA’s insights and recommendations, and shall be responsible for payment of all transportation charges, shipping insurance, handling, storage, taxes, custom duties and fees and all other charges incident to the storage and movement of the Licensed Products in commerce subsequent to delivery by ANIKA to the Shipping Point.  ANIKA agrees not to direct the shipment of any Licensed Product to GALDERMA or any other location other than as directed by GALDERMA.  In the event any of said charges are paid by ANIKA, with the approval of GALDERMA, ANIKA shall invoice GALDERMA therefor, and GALDERMA shall remit said amount(s) to ANIKA not later than thirty (30) days after the date of invoice.

9.2.          Certificates of Analysis.  At the time of delivery, ANIKA shall provide GALDERMA with a certificate of analysis for each batch of the Licensed Product delivered confirming that each batch of Licensed Product complies with the applicable Specifications, and containing a statement of conformance confirming that each batch of product complies with the cGMP.

ARTICLE X - MANUFACTURING INSPECTIONS

10.1.        Inspection by GALDERMA.  During the Term, GALDERMA retains the right to perform independent quality assurance audits of the Facility where the Licensed Products are manufactured and of the procedures and capabilities relating to the manufacture of the Licensed Product.  Such audits shall include, without limitation, inspection of manufacturing, laboratory and storage facilities, any materials stored for GALDERMA, all equipment and machinery and

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all records relating to such manufacturing.  Such audits shall not unreasonably disrupt the normal operations of ANIKA.  Such audits shall be conducted during normal business hours upon at least twenty (20) Business Days prior written notice and shall be limited to not more than one(1)  visit per year, except in the event of a Recall of the Licensed Product not caused by GALDERMA or governmental action involving the Licensed Product, in which case GALDERMA shall have the right to one (1) additional audit visit per such Recall or governmental action.  Observations and conclusions of such audits will be issued by GALDERMA and discussed with ANIKA, and the Parties may agree upon what, if any, corrective actions will be implemented by ANIKA in response to such observations and conclusions.  ANIKA shall implement any such agreed-to corrective actions as soon as practicable at its expense.  The cost of all such audits shall be borne by GALDERMA.

10.2.        Inspection by ANIKA.  ANIKA shall have the right to visit GALDERMA’s or GALDERMA’s Sellers’ facilities where the Licensed Product is stored or delivered from time to time during the Term to perform a quality audit of GALDERMA’s records concerning storage and distribution (including shipping and handling) of the Licensed Products.  Such audits shall include, without limitation, inspection of distribution and storage facilities, all equipment and machinery and all records relating to such storage and distribution.  Such audits shall not unreasonably disrupt the normal operations of GALDERMA.  Such audits shall be conducted during normal business hours upon at least twenty (20) Business Days prior written notice and shall be limited to not more than one (1) visit per year, except in the event of a Recall of the Licensed Product not caused by ANIKA or governmental action involving the Licensed Product, in which case ANIKA shall have the right to one (1) additional audit visit per such Recall.  Observations and conclusions of such audits will be issued by ANIKA and discussed with GALDERMA, and the Parties may agree upon what, if any, corrective actions will be implemented by GALDERMA in response to such observations and conclusions.  GALDERMA shall implement any such agreed-to corrective actions as soon as practicable at its expense.  The cost of all such audits shall be borne by ANIKA.

10.3.        Governmental Inspection.  ANIKA hereby agrees to notify GALDERMA promptly of any inspection of the Facility where the Licensed Products are manufactured or any manufacturing process or procedures relating to the Licensed Product by any relevant governmental authority to the extent that such inspection pertains to the Licensed Products and ANIKA has sufficient advance notice thereof.  ANIKA shall promptly, and in any event within ten (10) Business Days, provide GALDERMA with a copy of any correspondence or documents issued by the relevant governmental authority relating to the inspection promptly after such correspondence or documents have been received by ANIKA.  ANIKA agrees to implement reasonable compliance requests pertaining to the Licensed Products as directed by any governmental authority.

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ARTICLE XI - PRODUCT INSPECTION; NON-CONFORMING PRODUCT

11.1.        Licensed Product Inspection.

(a)           GALDERMA shall promptly upon receipt inspect all shipments of the Licensed Product.

(b)           In the event that GALDERMA reasonably believes that any portion of the Licensed Product delivered to GALDERMA by ANIKA fails to conform with any Specification, GALDERMA may reject all or a portion of the same by giving written notice to ANIKA within thirty (30) days of GALDERMA’s receipt of the Licensed Product and may not so reject after thirty (30) days from GALDERMA’s receipt of the Licensed Product.  Such notice shall evidence GALDERMA’s claims of nonconformity of the Licensed Product with an analysis of the allegedly nonconforming Licensed Product that shall have been prepared by GALDERMA or its agent.  Such report shall be accompanied with a copy of the records pertaining to such testing and a sample of the Licensed Product from the batch analyzed.  If the non-conformity is due to damage to the Licensed Product caused subsequent to ANIKA’s delivery to a common carrier at ANIKA’s Shipping Point, ANIKA shall have no liability to GALDERMA with respect thereto.

(c)           If, after its own analysis of a sample stored by ANIKA from such lot of the Licensed Product (which such sample ANIKA is required to retain) (the “Retained Sample”), ANIKA confirms such nonconformity, ANIKA shall, at GALDERMA’s election (which election shall be communicated in writing to ANIKA no later than ten (10) Business Days after GALDERMA’s rejection of such Licensed Product pursuant to Section 11.1(b)), either replace the nonconforming Licensed Product with a conforming Licensed Product as soon as reasonably practicable at ANIKA’s expense or refund to GALDERMA the entire Per Unit Price therefor; provided, however, that, if GALDERMA elects to have ANIKA replace such nonconforming Licensed Products, then upon all such occurrences ANIKA shall be obligated to use no more than commercially reasonable efforts to replace such nonconforming Licensed Products.  Except as set forth in Section 13.2(a) of the License Agreement, the foregoing, and the rights under this Article XI, shall be GALDERMA’s sole and exclusive remedy with respect to such nonconformity, unless this Agreement and the License Agreement are terminated pursuant to Section 13.2(a), in which case GALDERMA shall be entitled to all available remedies in respect of any breach of this Agreement or the License Agreement.  The nonconforming Licensed Product shall either be returned to ANIKA, at ANIKA’s request, or destroyed by GALDERMA, in each case at ANIKA’s expense.

(d)           If, after ANIKA’s own analysis, ANIKA does not confirm such non-conformance to the Specifications or whether the Retained Sample of the Licensed Product has such a defect, either Party may deliver the Licensed Product to an independent Third-Party laboratory, mutually and reasonably acceptable to both Parties, for analytical testing to confirm the Retained Sample of the Licensed Product’s conformance to the Specifications or the presence or absence of defects.  All costs

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associated with such Third-Party testing shall be at GALDERMA’s expense unless the tested Retained Sample of the Licensed Product is deemed by such Third-Party to be materially defective or not in compliance with the Specifications, in which case all such costs, including reimbursement of freight and disposition costs, shall be paid by ANIKA.

(e)           Except as provided in Section 11.1(b), no inspection or testing of or payment for Licensed Product by GALDERMA or any Third-Party agent of GALDERMA shall constitute acceptance by GALDERMA thereof, nor shall any such inspection or testing be in lieu or substitution of any obligation of ANIKA for testing, inspection and quality control as provided in the Specifications or under applicable local, state, or federal laws, rules, regulations, standards, codes or statutes.  In the event that any such shipment or batch thereof is ultimately agreed or found to meet the Specifications, GALDERMA shall retain such shipment or batch, and all the terms and conditions of this Agreement and the License Agreement shall continue to apply to such Licensed Product.

ARTICLE XII - CORRECTIVE ACTION

12.1.        Reportable Events.  ANIKA shall be responsible for notifying all applicable regulatory authorities of reportable events (including without limitation complaints) involving the Licensed Product for which ANIKA receives written notification, as required by Applicable Law.  GALDERMA shall notify ANIKA of potentially reportable events promptly but in no event later than twenty-four (24) hours after it receives notice of such event.  In addition, all such notices shall be consistent with the requirements of law in the applicable jurisdictions.

12.2.        Licensed Product Complaints.  The Parties shall determine which Party shall be responsible for complaint investigation by reference to their respective responsibilities under Applicable Law.  Each Party shall promptly communicate to the other Party by facsimile, telephone or email (and confirm any such telephone communication as instructed at the time) any complaint received in respect of the Licensed Product in the configuration supplied by the other Party.  To the extent applicable or known by the notifying Party, each notification of a complaint shall contain, but not be limited to, the lot number, dosage size, expiration date, indication for actual use, description of circumstances involved in the failure of the Unit(s) in question, and any other pertinent information available at that time to the Party that receives such complaint.  The Parties shall reasonably cooperate to address the complaint, including providing access to employees with knowledge of facts pertinent to such complaint and making available all relevant documentation.  For avoidance of doubt and notwithstanding the foregoing, nothing in this Section 12.2 is intended to shift between the Parties responsibilities under Applicable Law concerning complaints related to Licensed Products.

12.3.        Safety or Efficacy Concerns.  Each Party agrees to notify the other Party as soon as practicable of any information of which it becomes aware which relates to the safety or efficacy claims of the Licensed Product.  Upon receipt of any such information, the Parties shall consult with each other in an effort to arrive at a mutually agreeable course of action that is consistent with the obligations of the Parties under this Agreement and consistent with Applicable Laws.

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12.4.        Licensed Product Recalls.

(a)           If (x) the Licensed Product is subjected to a recall by any governmental agency or (y) either Party, after notification to, and good faith consultation in an emergency meeting of the Steering Committee with, the other Party (including, if requested by either Party, in one or more face-to-face meetings), elects to make a Licensed Product recall, withdrawal or corrective action (collectively, the “Recall”), the expense of such Recall shall be borne as follows:

(i)            If (i) it is established that the Licensed Product was nonconforming pursuant to Article XI upon delivery by ANIKA to a common carrier at ANIKA’s Shipping Point, or (ii) such Recall arises from any breach by ANIKA of the provisions of this Agreement, then ANIKA, subject to Article XIV of the License Agreement, shall hold GALDERMA harmless and shall bear all expenses related to the Recall, including the replacement of the recalled or withdrawn Licensed Product, which shall be replaced as soon as reasonably practicable.

(ii)           If such Recall arises as a result of actions or omissions on the part of GALDERMA Sellers, or from any breach by GALDERMA Sellers of the provisions of this Agreement, then GALDERMA, subject to Article XIV of the License Agreement, shall hold ANIKA harmless and shall bear all costs and expenses in connection with such Recall.

(b)           If either Party elects to make a Licensed Product Recall, the other Party shall reasonably cooperate in good faith with the electing Party to effect such Recall.  Upon any Recall due to safety concerns (unless such Recall arises under the circumstances described in Section 12.4(a)(ii)), GALDERMA shall be relieved of its obligations under Section 12.1(j) of the License Agreement and Article V hereof during the continuation of such Recall solely for the country in which such Recall was effected, provided such Recall materially interferes with GALDERMA’s ability to sell the Licensed Products in such country.  If such safety concern, which (for the avoidance of doubt) excludes concerns arising under the circumstances described in Section 12.4(a)(ii), has a material adverse effect on aggregate Net Sales of the Licensed Products in any Sales Territory (taken as a whole), GALDERMA shall have the further right to terminate all of its rights and obligations under this Agreement and the Supply Agreement with respect to such Sales Territory so that thereafter the definition of Territory shall not include such Sales Territory for all purposes under this Agreement and the Supply Agreement.

ARTICLE XIII - INSURANCE

13.1.        Each Party agrees to procure and maintain in full force and effect during the Term valid and collectible insurance policies in connection with its activities as contemplated hereby, which policies shall be in compliance with Exhibit B attached hereto, provided that GALDERMA  shall procure such insurance with respect to the United States as promptly as practicable (and in any event within two (2) months following the Effective Date).  Upon the

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Confidential Treatment Requested

other Party’s request, each Party shall provide the other with a certificate of coverage or other written evidence reasonably satisfactory to the requesting Party of such insurance coverage.

ARTICLE XIV - COORDINATION WITH LICENSE AGREEMENT

14.1.        Article VII (Publication; Transfer of Data; Confidentiality; Cooperation), Article X (Representations and Warranties), Article XIII (Term and Termination), Article XIV (Indemnification), Article XVI (Dispute Resolution) and Article XVII (Miscellaneous) of the License Agreement are incorporated into this Agreement by reference to such articles.  For avoidance of doubt, the incorporation of Article XIII (Term and Termination) of the License Agreement into this Agreement by reference means that this Agreement is coterminous with the License Agreement.

ARTICLE XV - GUARANTY

15.1.        PARENT irrevocably guarantees the full and timely performance by GALDERMA, and each of its successors and assigns that are Affiliates of PARENT, of all its obligations under this Agreement, as now or hereafter amended, restated, supplemented or otherwise modified from time to time, in favor of ANIKA and each of its successors and assigns, and hereby undertakes that if GALDERMA, or its successors or assigns, shall in any respect fail to perform and observe all of the terms, provisions, conditions and stipulations of this Agreement (the “Obligations”), PARENT shall perform or have performed all such Obligations as required by this Agreement without any requirement that ANIKA first proceed against GALDERMA or resort to any other means to collect or receive the benefit of the Obligations.  Claims hereunder may be made on one or more occasion.  The obligations of PARENT under this Article XV shall be primary, absolute and unconditional obligations of PARENT and shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment, suspension, deferment, reduction or defense based upon any claim PARENT may have against GALDERMA.

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Confidential Treatment Requested

1.1.          IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written.

GALDERMA S.A.		ANIKA THERAPEUTICS, INC.
By:	/s/ Humberto C. Antunes	By:	Charles H. Sherwood
	Name: Humberto C. Antunes		Name: Charles H. Sherwood, Ph.D
	Title: President and CEO		Title: President and CEO
GALDERMA PHARMA S.A.
(with respect to Article 15 only)
By:	/s/ Humberto C. Antunes
	Name: Humberto C. Antunes
	Title: President and CEO

Confidential Treatment Requested

EXHIBIT A

[*************************************************************************************************** **************************************************************************************************** **************************************************************************************************** ***************************************************************************************************]

A-1

Confidential Treatment Requested

EXHIBIT B

Insurance Requirements

Each Party shall procure and maintain, at all times, and at its own expense, until final completion of the work covered by this Agreement, and during the time period following termination if either Party is required to return or perform additional work, for any reason whatsoever, the types of insurance(s) specified below.

A.            Commercial General Liability

Coverage on a Commercial General Liability Occurrence Coverage Form (or equivalent) with limits of not less than $1,000,000 for each occurrence, $5,000,000 products/completed operations aggregate, $1,000,000 personal injury/advertising injury aggregate and $2,000,000 general aggregate.  Each Party will endeavor to inform the other Party of any exclusions or amendments to the policy form which would result in direct impact to such other Party.  Each Party’s policy shall be specifically endorsed to include the other Party, its subsidiaries, and its directors, officers and employees, as an Additional Insured, as respects negligence caused by the first Party as a result of this Agreement.  Each Party shall supply the other Party with proof of the above insurance and a copy of the policy(ies) as promptly as practicable after the signing of this Agreement, but a Party’s failure to demand such proof or forms shall not waive such Party’s rights to such coverage as specified herein.

B.            Excess Liability

Umbrella Liability coverage with a limit of liability no less than $5,000,000 each occurrence, $5,000,000 aggregate.

B-1

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Charles H. Sherwood, certify that:

1.I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2006 of Anika Therapeutics, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2006

/s/ CHARLES H. SHERWOOD

Charles H. Sherwood, Ph.D.

Chief Executive Officer

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kevin W. Quinlan, certify that:

1.I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2006 of Anika Therapeutics, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2006

/s/ KEVIN W. QUINLAN

Kevin W. Quinlan

Chief Financial Officer

Principal Financial Officer

EX-32.1

Exhibit 32.1

Section 906 Certification

The undersigned officers of Anika Therapeutics, Inc. (the “Company”) hereby certify to their knowledge and in their respective capacities that the Company’s quarterly report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2006	/s/ CHARLES H. SHERWOOD
	Charles H. Sherwood, Ph.D.
	Chief Executive Officer
	/s/ KEVIN W. QUINLAN
	Kevin W. Quinlan
	Chief Financial Officer

This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by reference into any filing, under the Securities Act of 1933 or the Exchange Act.