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"Our Medical Products sales results continued their growth trend in the third quarter, with solid improvement as compared to the same period in 2007," said Dr. William Hunter, President and CEO of Angiotech. "Sales of our Promoted Brand product portfolio, including Quill(TM) SRS and the newly launched HemoStream(TM) chronic dialysis catheter, continue to show differential growth, and the cost reduction initiatives we announced have started to take hold, with reduced reported expenses across all operating categories in the current quarter as compared to the second quarter of 2008. We are exceptionally proud of our dedicated people, who have worked hard to deliver these results in what has been a challenging operating environment for our company."
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Significant Recent Developments
On July 7, 2008, we announced our Board of Directors had authorized a transaction to create a new subsidiary, Angiotech Pharmaceutical Interventions, Inc. ("API"), and that we would contribute certain business assets and intellectual property to API, which were to include primarily business assets of Angiotech other than the intellectual property and royalty revenue related to our partnership with Boston Scientific Corporation ("BSC") and BSC's sales of TAXUS(R) paclitaxel-eluting coronary stent systems. Concurrently, we entered into a Note Purchase Agreement with Ares and New Leaf, under which the investors would purchase between $200 and $300 million, at our option, of convertible notes issued by API that would be convertible into a significant minority equity interest in API. The net proceeds from the issuance of the convertible notes were to be used to refinance existing Angiotech debt through the consummation of a tender offer. The transaction was subject to shareholder approval.
On September 22, 2008, we announced that we would postpone the planned shareholder vote regarding the proposed transaction with Ares and New Leaf. As of that date, we advised Ares and New Leaf that, given the time required to complete more extended discussions with certain of our shareholders and bondholders and to therefore complete the transaction, and given various other factors impacting our business and cash position (including lower expected royalty revenues derived from sales of TAXUS by our partner BSC), that we did not believe we would be able to satisfy the condition in the Note Purchase Agreement with respect to the minimum level of cash and cash equivalents required to be held at the time of the transaction's close.
As a result of the uncertainty regarding our proposed transaction with Ares and New Leaf, we also announced on September 22, 2008 that management and the Board of Directors would continue to explore and pursue financial and strategic alternatives in order to address our balance sheet and current capital structure, including but not limited to whether we could consummate the previously announced transaction or other potential transaction alternatives with Ares and New Leaf. On September 23, 2008, we announced the termination of our previously announced cash tender offer for our outstanding Senior Floating Rate Notes due 2013 and our outstanding 7.75% Senior Subordinated Notes due 2014.
On September 22, 2008 we also announced that we would pursue various initiatives to reduce operating costs and further focus our business efforts. Our remaining resources subsequent to these reorganization and cost reduction initiatives will be focused primarily on our existing medical device products business, with particular emphasis on our portfolio of Promoted Brands and on selected new products that have recently launched or are expected to be launched in the near future, including Quill(TM) SRS, the HemoStream(TM) Chronic Dialysis Catheter, the Option(TM) Inferior Vena Cava Filter and the Bio-Seal(TM) Lung Biopsy System.
Due to numerous factors that may impact our future cash position, working capital and liquidity as discussed below, and the significant cash that will be necessary to continue to service our current level of debt obligations, there can be no assurance that we will have adequate liquidity and capital resources to satisfy our financial obligations in 2009 and beyond.
Our cash inflows and the amounts of expenditures that will be necessary to execute our business plan are subject to numerous uncertainties, including but not limited to: changes in drug-eluting coronary stent markets, including the impact of new competitive entrants into such markets, and the sales achieved in such markets by our partner BSC, the timing and success of product sales and marketing initiatives and new product launches, the timing and success of our research, product development and clinical trial activities, the timing of completing certain operational initiatives including facility closures, our ability to effect reductions in certain aspects of our budgets in an efficient and timely manner, and changes in interest rates. These and other uncertainties may adversely affect our liquidity and capital resources to a significant extent and may force us to further reduce our expenditures on research and development or on our various new product and sales and marketing initiatives in order for us to continue to service our debt obligations. Such further reductions in our budgeted expenditures may have an adverse effect on our new product development and sales growth initiatives and reduce our ability to achieve the revenue growth targets, product launch or new product development timelines in our current operating plan. There can also be no assurance that such reductions in expenditures will be adequate to provide enough cash flow to continue to service our current level of debt obligations.
In particular, should our royalties received from BSC decline more significantly than we expect in future periods as a result of new competitive entrants into the U.S. drug-eluting stent market from Abbott Laboratories, Inc. and Medtronic, Inc., our liquidity may be adversely affected, and we may be forced to explore alternative funding sources through debt, equity or other public or private securities offerings, or to pursue certain reorganization, restructuring or other strategic alternatives. There can be no assurance that if we pursue such financing activities that alternative sources of funding would be available to us on attractive terms, if at all. In addition, we may not be able to complete any restructuring, reorganization or strategic activities on terms that would be favourable for the Company or our shareholders. Capital markets conditions have deteriorated significantly during the third quarter of 2008, including a significant and material decline in the level of corporate lending activity, combined with a significant increase in the cost of any such lending. Current market conditions may have a material impact on our ability to secure any alternative source of funding, our ability to secure interim financing or to complete any of the activities as described on favourable terms, if at all.
Our management and Board of Directors continue to believe a transaction alternative of significant size and scope is necessary to meaningfully address the working capital needs for our business initiatives and provide the financial and operating flexibility necessary for us to achieve our operating and revenue growth goals.
This press release contains the condensed financial statements derived from the unaudited consolidated interim financial statements for the three and nine-month periods ended September 30, 2008 and 2007. Full unaudited consolidated interim financial statements and Management's Discussion and Analysis for the three and nine-month periods ended September 30, 2008, will be filed with the relevant regulatory agencies, as well as posted on our website at www.angiotech.com.
Amounts, unless specified otherwise, are expressed in U.S. dollars. Financial results are reported under U.S. GAAP unless otherwise noted. All per share amounts are stated on a diluted basis unless otherwise noted.
Certain financial results presented in this press release include non-GAAP measures that exclude certain items. Adjusted net loss from continuing operations, adjusted net loss per share from continuing operations and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") exclude certain non-cash and non-recurring items such as, goodwill and financing cost write downs, acquisition related amortization charges, acquired in-process research and development relating to license agreements and acquisitions, stock-based compensation expense, foreign exchange gains or losses relating to translation of foreign denominated items and other non-recurring items. Adjusted net loss from continuing operations, adjusted net loss per share from continuing operations and Adjusted EBITDA also exclude litigation expenses related to defending intellectual property claims. Revenue, as adjusted, excludes non-recurring, non-operating revenue derived from license agreements and other license revenue, net of license fees due to licensors and excludes amounts accrued for costs incurred. Adjusted net loss from continuing operations, adjusted net loss per share from continuing operations, revenue, as adjusted, and Adjusted EBITDA do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Management uses these non-GAAP or adjusted operating measures to establish operational goals and believes that these measures may assist investors in evaluating the results of the business and analyzing the underlying trends in our business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to, financial reporting measures prepared in accordance with GAAP. We have provided a reconciliation of these measures to GAAP in the attached tables.
Statements contained in this press release that are not based on historical fact, including without limitation statements containing the words "believes," "may," "plans," "will," "estimate," "continue," "anticipates," "intends," "expects" and similar expressions, constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and constitute "forward-looking information" within the meaning of applicable Canadian securities laws. All such statements are made pursuant to the "safe harbor" provisions of applicable securities legislation. Forward looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for the second half of 2008 and beyond, and our strategies or future actions, our targets, expectations for our financial condition and the results of, or outlook for, our operations, research development and product and drug development. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward looking statements. Many such risks, uncertainties and other factors are taken into account as part of our assumptions underlying these forward-looking statements and include, among others, the following: general economic and business conditions, both nationally and in the regions in which we operate; market demand; technological changes that could impact our existing products or our ability to develop and commercialize future products; competition; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; adverse results or unexpected delays in pre-clinical and clinical product development processes; adverse findings related to the safety and/or efficacy of our products or products sold by our partners; decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our technology and products; the requirement for substantial funding to conduct research and development, to expand manufacturing and commercialization activities or consummate acquisitions; and any other factors that may affect performance. In addition, our business is subject to certain operating risks that may cause the actual results expressed or implied by the forward looking statements in this press release to differ materially from our actual results. These operating risks include: our ability to attract and retain qualified personnel; our ability to successfully complete preclinical and clinical development of our products; changes in business strategy or development plans; our failure to obtain patent protection for discoveries; loss of patent protection resulting from third party challenges to our patents; commercialization limitations imposed by patents owned or controlled by third parties; our ability to obtain rights to technology from licensors; liability for patent claims and other claims asserted against us; our ability to obtain and enforce timely patent and other intellectual property protection for our technology and products; the ability to enter into, and to maintain, corporate alliances relating to the development and commercialization of our technology and products; market acceptance of our technology and products; our ability to successfully manufacture, market and sell our products; the continued availability of capital to finance our activities; our ability to continue to service our debt obligations; and any other factors referenced in our annual information form and other filings with the applicable Canadian securities regulatory authorities or the Securities and Exchange Commission. Given these uncertainties, assumptions and risk factors, readers are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this press release to reflect future results, events or developments.
About Angiotech Pharmaceuticals
Angiotech Pharmaceuticals, Inc. is a global specialty pharmaceutical and medical device company with over 1,500 dedicated employees. Angiotech discovers, develops and markets innovative treatment solutions for diseases or complications associated with medical device implants, surgical interventions and acute injury. To find out more about Angiotech (NASDAQ: ANPI, TSX: ANP) please visit our website at www.angiotech.com.
Third Quarter Financial Highlights - Total revenue was $68.4 million. - Net product sales were $46.5 million. - Royalty revenue was $21.4 million. - Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted to exclude certain non-cash and non-recurring items) was $11.5 million. - Research and development expenses were $10.7 million, and as adjusted to exclude non-cash stock-based compensation expenses and non- recurring termination related costs were $8.8 million. These results compare to $18.6 million and $17.2 million (as adjusted), respectively, in the second quarter of 2008, reflecting a reduction in expenses of 49% on an adjusted basis in one quarterly period. - Selling, general and administrative expenses were $23.4 million, and as adjusted to exclude non-cash stock-based compensation expenses, non-recurring termination related costs and intellectual property litigation costs, were $20.5 million. These results compare to $25.8 million and $23.6 million (as adjusted), respectively, in the second quarter of 2008 and to $24.7 million and $21.5 million (as adjusted), respectively, in the third quarter of 2007. Importantly, we were able to achieve higher sales during the current period on lower absolute levels of selling, general and administrative expenses as compared to the same period of 2007. - GAAP net loss and net loss per share from continuing operations for the quarter were $622.4 million and $7.31, respectively. These reported net losses reflect a substantial non-cash item; specifically a write down of goodwill and other items totalling $612.9 million. Primarily as a result of our acquisition of American Medical Instruments Holdings, Inc. in March of 2006, we have recorded a significant amount of goodwill in our non-current assets, representing a substantial portion of the acquisition consideration amounts that were above the fair value of assets acquired. According to GAAP, circumstances that could trigger a "goodwill impairment" include significant declines in a company's share price, adverse changes or outcomes in legal or regulatory matters, technological advances that may significantly impact a company's competitive position, decreases in anticipated demand for a company's or a partner's products or services, or unanticipated competition. As a result of the significant and sustained decline in our public share price and our announcement on September 22, 2008 that we may not be able to meet the closing conditions of the proposed transaction with Ares Management ("Ares") and New Leaf Venture Partners ("New Leaf"), we performed an interim impairment test of goodwill and acquired intangible assets. Upon the conclusion of such testing, we recorded an impairment charge to goodwill, which is a non-cash accounting item, of $599.4 million in the third quarter of 2008. In addition, as a result of the uncertainty regarding our proposed transaction with Ares and New Leaf, in the third quarter of 2008 we recognized costs and potential costs totalling $13.5 million related to our exploration of proposed financing and strategic alternatives, as described further below under "Significant Recent Developments", of which $3.1 million had been capitalized to other assets on our balance sheet at the end of the second quarter of 2008. - Adjusted net loss from continuing operations and adjusted net loss per share from continuing operations (GAAP net loss as adjusted to exclude certain non-cash and non-recurring items) were $4.3 million and $0.05, respectively. - As of September 30, 2008, cash and short and long-term investments were $72.5 million and net debt was $509.1 million.
SOURCE Angiotech Pharmaceuticals, Inc.
