Angiotech Pharmaceuticals, Inc. (ANPI) Q3 Loss More Than Doubles as Stent Sales Slow
11/9/2010 6:27:46 AM
VANCOUVER, Nov. 9 /PRNewswire-FirstCall/ - Angiotech Pharmaceuticals, Inc. (NASDAQ:ANPI - News) today announced that it had released its financial results for the third quarter ended September 30, 2010.
In addition, Angiotech also announced today that it had entered into an updated and amended credit facility and Forbearance Agreement with Wells Fargo Capital Finance, LLC ("Wells Fargo"). The updated and amended credit facility will provide us with up to $35 million of liquidity, with the applicable interest rate and other material terms being consistent with our current credit facility with Wells Fargo, except that the updated and amended credit facility is expected to increase our borrowing base, thereby assuring us immediate access to approximately $25 million under the facility, and provides for amended levels of material financial covenants. The Amended and Restated Forbearance Agreement provides for the credit facility to be available under the amended terms through the earlier of April 30, 2011 or the completion of our previously announced recapitalization transaction, subject to certain terms and conditions described in more detail below.
"We are pleased to report our highest ever third quarter product sales, driven primarily by continued growth in sales of our Proprietary Medical Products and continued stability and improvement across all segments of our Base Medical Products business," said Dr. William Hunter, President and CEO of Angiotech. "Our innovations, in particular our proprietary Quill™ Knotless Tissue-Closure Device franchise, combined with the tremendous efforts of our people, have continued to produce satisfying results, even as we continue to address the challenges posed by declining royalties received from our partner Boston Scientific."
Third Quarter Financial Highlights
* Total revenue was $59.0 million.
* Net product sales were $51.9 million. Sales of our Proprietary Medical Products were $17.3 million, or 33% of total product sales. Sales of our Base Medical Products were $34.6 million, or 67% of total product sales.
* Royalty revenue was $7.1 million.
* Research and development expenses were $6.2 million.
* Selling, general and administrative expenses were $22.5 million.
* Net loss and net loss per share were $18.5 million and $0.22, respectively.
* As of September 30, 2010, cash and short-term investments were $31.3 million and net debt was $543.7 million.
Selected Non-GAAP Financial Measures
* Certain financial measures in this press release are prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). In addition, certain financial measures presented below and in the appendix to this press release are non-GAAP, or adjusted, financial measures that exclude certain items. Management uses certain non-GAAP, or adjusted, financial measures to establish operational goals, and believes that these measures may assist investors in evaluating the results of our business and analyzing the underlying trends in our business over time. Investors should consider these non-GAAP adjusted financial measures in addition to, and not as a substitute for, or as superior to, financial measures prepared in accordance with GAAP. A reconciliation of the non-GAAP adjusted financial measures to the corresponding GAAP financial measures, and an explanation of our use of these non-GAAP adjusted financial measures and of the excluded items, are included in the appendix to this press release.
* Adjusted revenue was $58.9 million.
* Adjusted cost of goods sold was $25.6 million.
* Adjusted research and development expenses were $6.1 million.
* Adjusted selling, general and administrative expenses were $21.9 million.
* Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted to exclude certain non-cash and non-recurring items) was $5.1 million.
* Adjusted net loss and adjusted net loss per share for the quarter were $8.2 million and $0.10, respectively.
Proprietary Medical Products. Our Proprietary Medical Products include our Quill™ Knotless Tissue-Closure Device product line, Skater™ line of drainage catheters, Option™ inferior vena cava ("IVC") filter, HemoStream™ chronic dialysis catheter and BioPince™ full core biopsy device. Consistent with recent prior quarters, our Proprietary Medical Products continued to demonstrate higher revenue growth as compared to our overall product portfolio. Revenue for these products for the third quarter of 2010 increased by 18% compared to the third quarter of 2009 and foreign currency changes had minimal impact on revenue growth.
Base Medical Products. Our Base Medical Products represent more mature finished medical device product lines in the biopsy, ophthalmology and general surgery areas, as well as medical device components manufactured by us and sold to other third-party medical device manufacturers who assemble those components into finished medical devices. Revenue from our Base Medical Products for the third quarter of 2010 increased by 1% compared to the third quarter of 2009. Excluding the impact of foreign currency changes, revenue growth would have been 3%.
Royalty Revenue. We derive additional revenue from royalties paid to us by partners that develop, market and sell products incorporating certain of our proprietary technologies. Currently, the majority of our royalty revenues are derived from sales by Boston Scientific Corporation ("BSC") of TAXUS® coronary stent systems incorporating the drug paclitaxel.
Royalty revenue derived from sales of TAXUS stent systems by BSC for the third quarter of 2010 declined by 56% compared to the third quarter of 2009. The decline in royalty revenue is due to lower sales of TAXUS stent systems by BSC, which continue to be negatively impacted by competitive pressures in the drug-eluting coronary stent market. Royalty revenue for the quarter ended September 30, 2010 was based on BSC's net sales for the period April 1, 2010 to June 30, 2010 of $113 million, of which $66 million was in the U.S., compared to net sales of $226 million, of which $96 million was in the U.S., for the same period in the prior year. The average gross royalty rate earned in the three months ended September 30, 2010 on BSC's net sales was 6.0% for sales in the U.S. and 4.5% for sales in other countries, compared to an average rate of 6.2% for sales in the U.S. and 6.1% for sales in other countries for the same period in the prior year. The average gross royalty rates declined in the current period as a result of our tiered royalty rate structure for sales in certain territories including the U.S., E.U. and Japan, pursuant to which we receive lower royalty rates as end-user sales of paclitaxel-eluting stents decline in these territories.
Transaction Agreements with Senior Subordinated Noteholders and Senior Floating Rate Noteholders. On October 1, 2010 we announced that we had not made our $9.7 million interest payment due to the holders (the "Subordinated Noteholders") of our 7.75% Senior Subordinated Notes (the "Subordinated Notes") on October 1, 2010 and that we were in discussions with certain Subordinated Noteholders to potentially restructure and reduce existing debt levels. On October 29, 2010 we announced that we had entered into a Recapitalization Support Agreement (the "Support Agreement") with the holders of approximately 73% of the aggregate principal amount of our Subordinated Notes (the "Consenting Noteholders") to effectuate a recapitalization that would result in a significant reduction of our debt. Upon completion, the recapitalization transaction would eliminate $250 million in total indebtedness and provide significant improvements to our credit ratios, liquidity and financial flexibility. Under the Support Agreement, the Consenting Noteholders have agreed to exchange their Subordinated Notes for new common stock in Angiotech (the "Exchange Offer"). The Exchange Offer will be open to all qualifying holders of the Subordinated Notes (the "Noteholders") and Noteholders participating in the Exchange Offer would receive 90% of the new common stock of Angiotech issued and outstanding following the completion of the recapitalization transaction, subject to potential dilution. The Noteholders that agree to the terms of the Support Agreement by November 30, 2010 will be entitled to receive, as additional consideration, 3.5% of the new common stock of Angiotech (distributed on a pro rata basis) issued and outstanding at the completion of the recapitalization transaction, subject to potential dilution.
In addition, on October 29, 2010 we also entered into a support agreement (the "FRN Support Agreement") with holders of approximately 51% of the aggregate principal amount of our existing Senior Floating Rate Notes (the "Existing Floating Rate Notes") for the exchange of Existing Floating Rate Notes for new floating rate notes (the "New Floating Rate Notes"). The Exchange Offer will be open to all qualifying holders of the Existing Floating Rate Notes (the "FRN Noteholders"). The New Floating Rate Notes will be issued on substantially the same terms and conditions as the Existing Floating Rate Notes other than amendments to certain covenants related to the incurrence of additional indebtedness, and the definitions of permitted liens and change of control. The New Floating Rate Notes are also expected to be secured by a second lien over the property and assets of Angiotech and certain of its Subsidiaries, which currently secure the Company's revolving credit facility with Wells Fargo. Pursuant to the Support Agreement, the obligation of the Consenting Noteholders to complete the recapitalization transaction is conditional on the completion of the transactions contemplated under the FRN Support Agreement.
Updated and Amended Credit Facility and Forbearance Agreement with Wells Fargo. On September 30, 2010, we entered into a Forbearance Agreement with Wells Fargo to preserve our existing revolving credit facility while we completed negotiations and transaction agreements with the Consenting Noteholders as described above. Under the Forbearance Agreement, Wells Fargo agreed to not immediately exercise any rights or remedies it has related to our failure to make our interest payment on October 1, 2010.
Subsequently, on November 9, 2010, we announced that we had entered into an amendment and restatement to the Forbearance Agreement (the "Amended and Restated Forbearance Agreement") with Wells Fargo to continue to preserve our existing revolving credit facility during the period required to complete the proposed recapitalization transaction. Under the Amended and Restated Forbearance Agreement, Wells Fargo agreed to not immediately exercise any rights or remedies it has related to: (a) our failure to make our $9.7 million interest payment due to the Subordinated Noteholders on October 1, 2010; (b) our ongoing litigation with QSR Holdings, Inc.; or (c) any failure to deliver audited financial statements with an unqualified audit opinion with respect to the going concern assumption for the fiscal year ending December 31, 2010. The purpose of the credit facility amendment is to provide Angiotech with liquidity during the period required to complete the proposed recapitalization transaction and fulfill the liquidity requirement specified by the Support Agreement. We incurred amendment fees of $0.1 million to complete both the Forbearance Agreement and Amended and Restated Forbearance Agreement and $0.3 million to complete the amendment to the credit facility. We currently have no borrowings outstanding under the credit facility other than amounts specified under the letters of credit referred to below.
The amendment to our existing credit facility with Wells Fargo provides for, among other changes:
(i) an amendment of financial covenants pertaining to minimum EBITDA levels and fixed charge coverage ratios;
(ii) an increase to the borrowing base available to secure loans by including in such borrowing base the value of certain real property, securities and intellectual property owned by the Company and its subsidiaries, in addition to accounts receivable and inventory, in each case subject to reserves, eligibility standards and advance rate formulas. As a result of such amendment, the amount of financing available to us under our amended revolving credit facility will immediately increase to approximately $25 million, which is net of $2.8 million of outstanding secured letters of credit under the credit facility;
(iii) an amendment to the specified use of proceeds provisions to allow for certain secured and unsecured intercompany loans by our U.S. entities to our Canadian entities; and
(iv) an amendment to permit the sale of certain assets of the Company.
The Amended and Restated Forbearance Agreement will terminate on the earliest to occur of:
(i) the occurrence of another event constituting an Event of Default under the existing revolving credit facility;
(ii) the occurrence of a Material Adverse Change as defined under the existing revolving credit facility, subject to exclusions for changes relating to the recapitalization plan;
(iii) failure to attain certain intermediate milestones with respect to the recapitalization plan;
(iv) termination of the Support Agreement or the FRN Support Agreement;
(v) consummation of the recapitalization plan on terms and conditions not reasonably satisfactory to Wells Fargo under the existing revolving credit facility;
(vi) failure to remain within the applicable grace period with respect to the non-payment of the interest payment due to the Subordinated Note holders on October 1, 2010; and
(vii) April 30, 2011.
The Support Agreement requires that, upon implementation of the recapitalization transaction, the existing revolving credit facility be amended, refinanced or replaced to provide not less than $25 million and not more than $35 million in liquidity. As a result, further consent from Wells Fargo under the revolving credit facility will be required in connection with the consummation of the proposed recapitalization transaction. If such consent is not obtained, we would be required to replace the existing revolving credit facility with a new revolving credit facility.
QSR Holdings. On October 6, 2010, we announced that on October 4, 2010 we were notified that QSR Holdings, Inc. ("QSR"), as the representative for the former stockholders of Quill Medical, Inc. ("QMI"), made a formal demand to the American Arbitration Association naming us and our subsidiaries, QMI and Angiotech Pharmaceuticals (US), Inc. ("Angiotech US") as respondents. The arbitration demand alleges that we failed to satisfy certain obligations under the Agreement and Plan of Merger, dated May 25, 2006, by and among Angiotech, Angiotech US, Quaich Acquisition, Inc. and QMI (the "Merger Agreement"), and seeks either direct monetary damages or, in the alternative, extension for one calendar year of certain earn-out periods as more fully set forth in the Merger Agreement. In addition, on October 5, 2010, certain of the respondents were served with the Summons and Complaint in an action commenced in the United States District Court for the Middle District of North Carolina on October 1, 2010 by QSR, entitled QSR Holdings, Inc. v. Angiotech Pharmaceuticals, Inc., Angiotech Pharmaceuticals (US), Inc. and Quill Medical, Inc. (the "Federal Litigation"). The Complaint in the Federal Litigation alleges, among other items, that: (a) we breached certain contractual obligations under the Merger Agreement; (b) that certain misrepresentations or omissions were made by us during the initial negotiation of the Merger Agreement; and (c) tortious interference. QSR is seeking damages in an unstated amount together with punitive damages and/or attorneys fees to the extent allowed by law. Given the preliminary stages of these proceedings, it is not possible at this time to predict the outcome of the Federal Litigation or of any arbitration or other proceeding that may result from the Arbitration Demand. We intend to vigorously defend the Federal Litigation and any arbitration or other proceeding that may result from the Arbitration Demand.
TAXUS® Paclitaxel-eluting Coronary Stent Clinical Results. Our partner BSC announced several clinical updates relating to paclitaxel-eluting coronary stents at the recently held Cardiovascular Research Foundation's annual Transcatheter Cardiovascular Therapeutics ("TCT") scientific symposium in Washington, D.C. On September 25, 2010 we announced that our corporate partner, BSC, released three-year follow-up data from the HORIZONS-AMI trial. The trial is designed to determine the safety and efficacy of the TAXUS® Express2™ Paclitaxel-Eluting Coronary Stent System compared to bare-metal stenting in patients experiencing an acute myocardial infarction ("AMI"), more commonly referred to as a heart attack. With 3,006 patients enrolled worldwide, HORIZONS-AMI is the largest randomized trial to compare the use of drug-eluting stents to bare-metal stents for AMI patients. HORIZONS-AMI demonstrated that the TAXUS Express Stent significantly reduced clinical and angiographic restenosis compared to an otherwise identical bare-metal Express® control stent. After three years follow-up, the primary efficacy endpoint of ischemia-driven target lesion revascularization ("TLR") was 9.4 percent for patients treated with TAXUS Express vs. 15.1 percent for bare-metal Express (p0.001), a relative reduction of 40 percent. On September 22, 2010 we announced that our corporate partner, BSC, had released results from an analysis of 1,166 patients from its PERSEUS clinical program comparing the performance of the TAXUS® Element™ Paclitaxel-Eluting Coronary Stent System in diabetic versus non-diabetic patients. Results demonstrated that despite the known increased risk of restenosis for diabetics versus non-diabetics in patients undergoing coronary revascularization, the TAXUS Element Stent had comparable levels of TLR and late loss in both diabetic and non-diabetic patients. On September 22, 2010 we announced that BSC had released comprehensive data from the TAXUS ATLAS clinical program, a series of global, prospective, single-arm trials evaluating the TAXUS® Liberté® Paclitaxel-Eluting Stent System in a variety of lesions and patient groups. Five-year results from the TAXUS ATLAS trial and four-year results from the TAXUS ATLAS Small Vessel and Long Lesion trials continue to show significant advantages for the thin-strut TAXUS Liberté Stent when compared to the first-generation TAXUS® Express® Stent.
Zilver® PTX ® Clinical Results. On September 24, 2010 we announced that a summary of the final clinical trial results for the randomized study of Cook Medical, Inc.'s ("Cook") Zilver® PTX® Drug-Eluting Peripheral Stent ("Zilver PTX") for use in patients with peripheral arterial disease in the superficial femoral artery was presented at the TCT conference in Washington D.C. The study, which was the largest clinical trial to ever evaluate the performance of a drug-eluting stent in the treatment of peripheral vascular disease, met its 12-month primary endpoint showing non-inferior event-free survival and superior patency for the Zilver PTX as compared to balloon angioplasty. Cook Medical, a license holder of our proprietary paclitaxel technology, has developed Zilver-PTX, a self-expanding, highly durable nitinol stent that uses a proprietary technology to deliver a locally therapeutic dose of paclitaxel, a proven anti-restenotic drug, to the target lesion. We believe the data from this clinical trial supports Cook's Pre-Market Approval application submitted to the U.S. Food and Drug Administration earlier this year.
Athersys Inc. In July, 2010 we announced that Athersys had announced positive results from its phase I clinical trial of MultiStem®. The study results, which represented at least four months of post-treatment patient data, demonstrated that MultiStem was well tolerated at all dose levels and also suggested improvement in heart function in treated patients. On September 23, 2010 we, along with our partner Athersys, Inc. ("Athersys") announced updated results from the phase I clinical trial of MultiStem®, Athersys' allogeneic cell therapy product, administered to individuals following an AMI, more commonly referred to as a heart attack. The updated study results were presented at the TCT conference held in Washington, D.C. The updated study results, based on four months of post-treatment patient data, also demonstrate that MultiStem was well tolerated at all dose levels and also suggest improvement in heart function in treated patients.
This press release contains financial data derived from the unaudited consolidated financial statements for the quarter ended September 30, 2010 and 2009. Full unaudited consolidated interim financial statements and Management's Discussion and Analysis for the three months ended September 30, 2010 will be filed on Form 10-Q on November 9, 2010 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 in accordance with U.S. GAAP unless otherwise noted. All per share amounts are stated on a fully diluted basis unless otherwise noted.