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Angiotech Pharmaceuticals, Inc. (ANPI) Announces Financial Results for the Third Quarter Ended September 30, 2012


11/15/2012 8:19:50 AM

VANCOUVER, Nov. 14, 2012 /PRNewswire/ - Angiotech Pharmaceuticals, Inc. ("Angiotech") announced that it released its financial results for the third quarter ended September 30, 2012.

Angiotech will host a conference call discussing its first quarter financial results on November 15, 2012 at 1:00 PM ET (10:00 AM PT). Details regarding the conference call can be found on Angiotech's website at www.angiotech.com.

"Our business performance in the third quarter continued to reflect exceptional efforts by our staff to turn our business around in 2012 and move it forward on a renewed path," said Thomas Bailey, President and CEO of Angiotech. "Consistent with the first half of the year, we were able to continue our revenue growth, and our gross margins and profitability continued to show improvement in the quarter, with our various operational initiatives delivering material bottom line results."

Selected recent developments and highlights include:

  • Refinancing of $225 million of Senior Floating Rate Notes. In July 2012, Angiotech launched an offer to exchange up to a maximum of $225 million in aggregate principal amount of its $325 million outstanding Senior Floating Rates Notes due on December 1, 2013 for new 9% Senior Notes due December 1, 2016. On August 13, 2012, the maximum $225 million of Senior Floating Rate Notes were irrevocably extinguished and exchanged, on a pro rata basis, for $229.4 million of new 9% Senior Notes. This refinancing transaction, which was significantly oversubscribed, substantially remediates our near term refinancing risk due to the three-year extension of the maturity date for the New Notes. In addition, by re-domiciling the New Notes in the U.S., the after-tax cash cost of the New Notes is expected to be substantially similar to the Existing Notes.

  • Redemption of $40 million of Senior Floating Rate Notes. On September 17, 2012, pursuant to a Notice of Partial Redemption Option, Angiotech exercised its option to call for the partial redemption of $40 million in aggregate principal amount of its $100 million of outstanding Senior Floating Rate Notes. These Existing Notes were redeemed on October 17, 2012 at 100% of the principal amount, together with accrued interest of $0.2 million. Pro forma for this partial redemption, Angiotech reduced its total long-term debt to $289.4 million, and total long-term debt maturing in 2013 to $60 million.  Angiotech anticipates that it will be able to continue to reduce its debt or meet its remaining debt obligations at or prior to their maturity through a combination of cash generated from operations, cash received from dispositions of assets or other strategic transactions, or through the pursuit of debt, equity or other similar financing transactions.

  • Revenue. During the quarter ended September 30, 2012, revenue from our Medical Device Products segment was $52.7 million, representing an increase of 2% as compared to $51.9 million recorded during the same period in 2011. Excluding the impact of foreign currency fluctuations, sales growth would have been 3%. Sales growth, as adjusted for foreign currency fluctuations, was more modest in the third quarter as compared to the first two quarters of 2012, as our third quarter results were impacted by order patterns within certain of our larger distributors, as well as certain other less significant factors. Given sales results observed subsequent to the end of the third quarter, we presently expect sales growth in our Medical Device Products segment in the fourth quarter of 2012 consistent with the growth observed in the first two periods of the year. Improved sales growth in our Medical Device Products segment is primarily the result of the following factors: (i) improved commercial and operational focus on our most significant and competitive product lines; (ii) continued growth of our proprietary Quill product line; and (iii) stabilization and growth of our medical device component manufacturing business, with growth observed in both existing and new medical device component customers.

  • Adjusted EBITDA. For the three months ended September 30, 2012, we reported Adjusted EBITDA of $16.3 million, which represents a 31.5% increase over Adjusted EBITDA of $12.4 million reported during the same period in 2011. Adjusted EBITDA associated with our Medical Device Products segment was $13.5 million during the three months ended September 30, 2012, representing a 104.5% increase as compared to $6.6 million recorded in the same period in 2011.

  • Operating Cash Flow and Liquidity. During the three months ended September 30, 2012, we reported positive cash flows from operations of $3.7 million. As at September 30, 2012, our cash and cash equivalents and short term investments totaled $60.3 million, and our available borrowing capacity under our revolving credit facility was $23.7 million, providing for total liquidity of $84.0 million. We expect further improvements in our liquidity and capital resources in upcoming quarters, due to the improved profitability and cash flow of our business as compared to prior periods. In addition, in October 2012 we received an additional $22 million milestone payment from Ethicon, Inc. ("Ethicon") relating to our transaction with Ethicon as announced in April 2012, due to the successful completion of certain product development activities. This payment comprises the receipt of the second of the three milestone payments contemplated in the agreements with Ethicon. The final remaining payment of $15 million is expected to be received in mid-2013, should we successfully conclude the remaining product development activities as contemplated in the transaction agreements.

  • Net Debt Reduction and Credit Statistics.  As at September 30, 2012, we had no borrowings outstanding under our revolving credit facility. Our ratio of Net Debt to last 12 months Adjusted EBITDA decreased from 6.1 as at December 31, 2011 to 3.9 as at September 30 2012. Furthermore, based on annualizing our nine months ended September 30, 2012 Adjusted EBITDA results; and including the impact of the $40 million redemption of Floating Rate Notes and the $22 million milestone payment received from Ethicon in October 2012, our ratio of Net Debt to Adjusted EBITDA would be 3.4.

  • Business Strategy and Cost RealignmentDuring the quarter ended December 31, 2011, we implemented various initiatives to better align our expense levels with our business model and capital structure. Through these changes, we achieved cost savings of $3.2 million (70% decrease) and $7.3 million (56% decrease) in our research and development expenses during the three and nine months ended September 30, 2012, respectively, as compared to the same periods in 2011. Similarly, we achieved cost savings of $6.6 million (29% decrease) and $8.8 million (15% decrease) in our selling, general and administrative expenses during the three and nine months ended September 30, 2012, respectively, as compared to the same periods in 2011. We expect to pursue additional projects that may improve our business profitability and cost structure in future periods. Most significantly, in May 2012 we announced plans to conclude manufacturing activities at our facility in Denmark, and to move operations to selected other, lower cost locations in the U.S. to ensure certain of our interventional oncology product lines can remain competitive. This project is currently in process, and we expect to conclude such activities in early 2013, subsequent to which we expect to begin realizing reductions in production costs, in particular for our Skater drainage catheter product line, which is one of our largest single product lines.

  • Transaction with Ethicon, Inc. for proprietary Quill technology. As previously announced on April 4, 2012, we and certain of our subsidiaries recently entered into agreements with Ethicon, a unit of Johnson & Johnson, Inc., which concluded the sale of certain intellectual property to Ethicon related to our proprietary Quill technology. We also entered into a Manufacturing and Supply Agreement ("MSA"), pursuant to which we will exclusively manufacture knotless wound closure products that utilize the Quill technology for Ethicon for an undisclosed term. Under the terms of this arrangement, Ethicon has granted us a worldwide, royalty free license to all Quill intellectual property they acquired, thereby enabling us to continue manufacturing, marketing and selling Quill in any manner or market of our choice. The following consideration has been received to date from Ethicon: $20 million was received in April 2012 related to the acquisition of certain Quill related intellectual property, $5.0 million was received in August 2012 related to the transfer of certain product know-how to Ethicon, and in October 2012 we received $22 million related to the achievement of certain product development milestones associated with the development of an initial set of product codes.

Financial Information

This press release contains financial data derived from the unaudited consolidated financial statements for the three and nine months ended September 30, 2012, the three months ended September 30, 2011, the five months ended September 30, 2011 and the four months ended April 30, 2011. This press release should, therefore, be read in conjunction with our full unaudited interim consolidated financial statements and Management's Discussion and Analysis for three and nine months ended September 30, 2012, which were filed on Form 10-Q on November 14, 2012 with the United States (U.S.) Securities and Exchange Commission ("SEC") and posted on the Investor section of our website at www.angiotech.com.

Amounts, unless specified otherwise, are expressed in U.S. dollars. Financial results are reported in accordance with U.S. GAAP unless otherwise noted.

Non-GAAP Financial Information

Certain financial measures in this press release are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). In addition, we have presented adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), which is a non-GAAP financial metric that excludes certain non-cash and non-recurring items. Management uses Adjusted EBITDA to establish operational goals, and believes that this metric may assist investors in evaluating the results of our business and analyzing the underlying trends over time. In addition, our creditors may monitor this metric to measure compliance with certain financial covenants in our lending agreements, or assess the operating and cash flow performance of our business. Investors should consider our non-GAAP Adjusted EBITDA in addition to, and not as a substitute for, or as superior to, financial metrics prepared in accordance with GAAP. A reconciliation of our non-GAAP Adjusted EBITDA to our GAAP-based net income or loss has been included in the appendix to this press release. We have also included explanations about our use of Adjusted EBITDA and a detailed description of the adjustments made.

Fresh Start Accounting

On May 12, 2011 we implemented a recapitalization transaction which, among other things, eliminated our $250 million 7.75% Senior Subordinated Notes due in 2014 and $16 million of related interest obligations in exchange for new common shares in Angiotech (the "Recapitalization Transaction"). In connection with this Recapitalization Transaction, we were required to adopt fresh start accounting in accordance with ASC # 852Reorganization on April 30, 2011 (the "Convenience Date"). The adoption of fresh start accounting resulted in a new entity for financial reporting purposes. Angiotech is therefore referred to as the "Predecessor Company" for all periods preceding the Convenience Date and the "Successor Company" for all periods subsequent to the Convenience Date. However, we believe that the comparison of results from the three and nine months ended September 30, 2012 and 2011 still provides the best comparison and analysis of our operating results.

Upon implementation of fresh start accounting, the estimated reorganization value was allocated to our assets based on their estimated fair values; the deficit, additional paid-in-capital and other comprehensive income balances were eliminated; and debt and equity balances were revalued at their estimated fair values. Our estimated reorganization value was determined in collaboration with an independent financial advisor specifically for the purposes of fresh start accounting. As our estimated reorganization value is inherently subject to significant uncertainties, there is no assurance that the estimates and assumptions used in these valuations will be realized and actual results may differ materially. After the estimated reorganization value was assigned to tangible assets and identifiable intangible assets, the excess of the estimated reorganization value over and above the identifiable net asset values was recorded as goodwill.

For further discussion of fresh start accounting and its impact on historical operating results, please refer to our audited consolidated financial statements and Management, Discussion and Analysis for the eight months ended December 31, 2011 filed on Form 10-K with the SEC on March 29, 2012.

ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts expressed in thousands of U.S. dollars, except share and per share data)
(Unaudited)
                     
        Successor Company  
          Three months ended       Three months ended  
          September 30,       September 30,  
          2012       2011  
REVENUE                    
Product sales, net       $ 52,661     $ 51,899  
Royalty revenue         3,912       5,497  
License fees         64        
          56,637       57,396  
                     
EXPENSES                    
Cost of products sold         24,072       38,796  
License and royalty fees         98       50  
Research and development         1,399       4,614  
Selling, general and administration         16,010       22,613  
Depreciation and amortization         8,445       9,246  
Write-down of property, plant and equipment               143  
          50,024       75,462  
Operating income (loss)         6,613       (18,066)  
                     
Other income (expenses)                    
Foreign exchange (loss) gain         (953)       1,136  
Other income         207       221  
Interest expense         (5,548)       (4,584)  
Impairments and realized losses on investments         82        
Debt extinguishment loss         (4,413)        
Total other expenses         (10,625)       (3,227)  
Loss before income taxes         (4,012)       (21,293)  
Income tax expense (recovery)         4,596       (2,609)  
                     
Net loss         (8,608)       (18,684)  
                     
Basic and diluted net loss per common share       $ (0.67) (1)   $ (1.47) (1)
                     
Basic and diluted weighted average number of common shares
outstanding (in thousands)
        12,818       12,721  
_________________________________                    
(1)    There is no dilutive effect on basic weighted average common shares outstanding for the three months ended September 30, 2012
and 2011, as Angiotech was in a net loss position during both periods.
     
     

ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts expressed in thousands of U.S. dollars, except share and per share data)
(Unaudited)
                               
    Successor Company       Predecessor Company       Combined
Read at BioSpace.com


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