VANCOUVER, May 15, 2012 /PRNewswire/ - Angiotech Pharmaceuticals, Inc. (“Angiotech”) announced that it released its financial results for the first quarter ended March 31, 2012.
Angiotech will host a conference call discussing its first quarter financial results on May 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.
Selected highlights from the first quarter ended March 31, 2012 include:
Revenue. During the quarter ended March 31, 2012, our Medical Device Products generated higher revenue than any of the previous four quarters. Excluding sales of certain products that were discontinued in early 2011, during the three months ended March 31, 2012 our Medical Device Products recorded sales growth of 11% as compared to the same period in 2011. Overall, we expect to observe continued sales growth in our Medical Device Products throughout the remainder of 2012 as compared to 2011. Improved sales growth in our Medical Device Products is primarily the result of the following factors: (i) improved commercial and operational focus on our most significant and competitive product lines subsequent to the conclusion of our balance sheet and corporate restructuring efforts, as most significantly reflected in improved growth of our interventional oncology 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 and Debt Reduction. For the three months ended March 31, 2012, we reported Adjusted EBITDA of $19.7 million, which represents a 60% increase over Adjusted EBITDA of $12.3 million reported during the same period in 2011. Adjusted EBITDA associated with our Medical Device Technologies segment was $14.7 million during the period, representing a 91% increase as compared to the same period in 2011. The remaining $5.0 million of Adjusted EBITDA recorded during the period was derived primarily from royalties received from our partners Boston Scientific Corporation and Cook Medical, Inc. relating to sales of TAXUS and Zilver PTX drug-eluting coronary stents, respectively. The significant improvement in our Adjusted EBITDA over the prior period was achieved through a combination of the growth in our Medical Device Technologies revenue as noted above, as well as savings that were achieved from certain of our cost reduction initiatives that were substantively concluded in December of 2011.
Net Debt Reduction and Credit Statistics. As at March 31, 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 5.1 as at March 31, 2012. Furthermore, based on annualizing our first quarter of 2012 Adjusted EBITDA results, and accounting for $20.4 million of additional cash received in early April relating to our recently announced transaction with Ethicon, Inc., our ratio of Net Debt to last 12 months Adjusted EBITDA would be 3.4.
Operating Cash Flow and Liquidity. During the three months ended March 31, 2012, we reported positive cash flows from our operations of $11.9 million. This was the third consecutive quarter in which we have generated positive operating cash flows. This improvement in operating cash flows has positively impacted our total liquidity and capital resources. As at March 31, 2012, our cash and cash equivalents and short term investments totaled $36.9 million and our available borrowing capacity under our revolving credit facility was $21.6 million, as compared to $25.4 million and $21.3 million as at December 31, 2011, respectively. On March 12, 2012, we also amended our revolving credit facility to further increase our borrowing capacity, among other items, and this amendment is expected to further improve our operating flexibility, liquidity and capital resources. In addition, Angiotech expects further significant improvements to its liquidity and capital resources in the upcoming quarter ending June 30, 2012 and thereafter as a result of the conclusion of the transaction with Ethicon Inc. on April 4, 2012 as described further below.
Business Strategy and Cost Realignment. As previously announced, during the quarter ended December 31, 2011, we implemented various restructuring initiatives to better align our expense levels with our business model and capital structure; including headcount and other cost reductions in certain areas where our investment levels were high relative to our current sales or profitability, and the elimination of certain research and development programs. Through these changes, we achieved cost savings of $2.5 million or a 56% drop in our research and development expenses during the three months ended March 31, 2012 as compared to the same period in 2011. Similarly, we achieved cost savings of $1.0 million or a 5% drop in our selling, general and administrative expenses during the three months ended March 31, 2012 as compared to the same period in 2011.
Quill Agreements. As previously announced, on April 4, 2012 we and certain of our subsidiaries entered into agreements with Ethicon LLC and/or Ethicon, Inc. (collectively “Ethicon”), a unit of Johnson & Johnson, Inc., which concluded the sale of certain intellectual property relating to Angiotech’s Quill technology to Ethicon. Ethicon and Angiotech also entered into a Manufacturing and Supply Agreement, pursuant to which Angiotech will exclusively manufacture knotless wound closure products that utilize the Quill technology for Ethicon for an undisclosed term. Under the terms of transaction, Ethicon made an initial payment of $20 million to Angiotech in respect of the acquisition of intellectual property, and Angiotech may earn up to an additional $42 million in contingent cash consideration from Ethicon, portions of which are to be paid upon (i) the transfer to Ethicon of certain know-how and (ii) upon achievement of certain product development and launch milestones. In addition, a worldwide, royalty free license to all Quill intellectual property sold to Ethicon has been granted to Angiotech, thereby allowing Angiotech to continue to manufacture, market and sell Quill in any manner or market Angiotech wishes to do so.
Financial Information
This press release contains financial data derived from the unaudited consolidated financial statements for the quarters ended March 31, 2012 and March 31, 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 months ended March 31, 2012, which were filed on Form 10-Q on May 15, 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 months ended March 31, 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.
