VANCOUVER, Aug. 14, 2012 /PRNewswire/ - Angiotech Pharmaceuticals, Inc. (“Angiotech”) announced that it released its financial results for the second quarter ended June 30, 2012.
Angiotech will host a conference call discussing its first quarter financial results on August 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.
“We are extremely pleased to announce our third consecutive quarter of significantly improved financial results. Our improved revenue growth, cash flows, liquidity and profitability are a culmination of the hard work and dedication of our team following the conclusion of our restructuring and business change initiatives last year,” said Thomas Bailey, Angiotech’s President and CEO.
“In addition, as a result of our improved business performance, we were recently able to complete an important transaction that extends the maturity date of much of our outstanding debt to December 2016. Our exchange offer transaction was strongly supported by our existing creditors and was substantially oversubscribed, and we look forward to using this transaction as a launch point for certain new strategic initiatives we are contemplating for 2013 and beyond,” said Mr. Bailey.
Selected important recent developments, and certain highlights from the second quarter ended June 30, 2012, include:
Refinancing of $225 million of Senior Floating Rate Notes. Angiotech recently concluded a transaction to exchange a portion of its outstanding Senior Floating Rate Notes due December 1, 2013 (the “Existing Notes”) for new 9% Senior Notes due December 1, 2016 (the “New Notes”).This refinancing transaction significantly alleviates 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. On July 3, 2012, Angiotech launched an offer to exchange up to a maximum of $200 million in aggregate principal amount of the outstanding Existing Notes (“Maximum Principal Exchange Amount”) for the New Notes issued by Angiotech Pharmaceuticals (US), Inc. pursuant to an Offering Memorandum and Consent Solicitation Statement (the “Exchange Offer”). On July 27, 2012, as a result of significant demand for New Notes by holders of our Existing Notes, we elected to amend the Exchange Offer to increase the Maximum Principal Exchange Amount to $225 million. On August 13, 2012, $225 million of the $255.5 million tendered Existing Notes were irrevocably extinguished and exchanged, on a pro rata basis, for approximately $230 million of New Notes. All Existing Notes that were tendered by the prescribed July 23, 2012 early tender date, which represented the substantial majority of Existing Notes tendered, received New Notes with a principal amount constituting a 2% premium (the “Early Tender Premium”) to the principal amount of the Existing Notes so exchanged. We expect that the remaining $100 million of Existing Notes may be repaid with excess cash generated from operations or potential contingent consideration to be received from the Quill transaction discussed below, or refinanced at or prior to their maturity.
Revenue. During the quarter ended June 30, 2012, our Medical Device Products segment generated higher revenue than any of the previous five quarters. During the three months ended June 30, 2012 our Medical Device Products recorded sales growth of 8% 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 segment 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; (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 June 30, 2012, we reported Adjusted EBITDA of $18.5 million, which represents a 79% increase over Adjusted EBITDA of $10.3 million reported during the same period in 2011. Adjusted EBITDA associated with our Medical Device Products segment was $14.5 million during the three months ended June 30, 2012, representing a 187% increase as compared to the same period in 2011. The remaining $4.0 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 Products revenue as noted above, as well as savings that have been achieved from certain of our cost reduction and business restructuring initiatives that were substantively concluded in December of 2011.
Operating Cash Flow and Liquidity. During the three months ended June 30, 2012, we reported positive cash flows from our operations of $23.4 million. This included $20.0 million received as a result of the transaction with Ethicon, Inc. (see below). This was the fourth 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 June 30, 2012, our cash and cash equivalents and short term investments totaled $58.6 million, and our available borrowing capacity under our revolving credit facility was $21.1 million, as compared to $25.4 million and $21.3 million as at December 31, 2011, respectively. We expect further significant improvements to our liquidity and capital resources in upcoming quarters, due to the improved profitability of our business as compared to prior periods, and as we continue to work with Ethicon to achieve the product development and launch milestones as described below.
Net Debt Reduction and Credit Statistics. As at June 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 4.1 as at June 30 2012. Furthermore, based on annualizing our six months ended June 30, 2012 Adjusted EBITDA results, our ratio of Net Debt to Adjusted EBITDA would be 3.3.
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 $1.6 million (39% decrease) and $4.1 million (48% decrease) in our research and development expenses during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. Similarly, we achieved cost savings of $1.3 million (7% decrease) and $2.2 million (6% decrease) in our selling, general and administrative expenses during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. We expect to continue various initiatives to 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 cost reduction project is currently in process, and we expect to conclude such activities in early 2013, subsequent to which we expect to begin realizing significant 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 LLC and/or Ethicon, Inc. (collectively “Ethicon”), a unit of Johnson & Johnson, Inc., which concluded the sale of certain intellectual property to Ethicon related to our 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. On April 4, 2012, we received an initial payment of $20 million from Ethicon related to the acquisition of this Quill related intellectual property. In addition, we may earn up to an additional $42 million in contingent cash consideration from Ethicon, which will be paid out in various installments subject to (i) our transfer of certain know-how to Ethicon and (ii) the 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 us, thereby enabling us to continue to manufacture, market and sell Quill in any manner or market at our discretion.
Financial Information
This press release contains financial data derived from the unaudited consolidated financial statements for the three and six months ended June 30, 2012, the two months ended June 30, 2011 and the one and 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 six months ended June 30, 2012, which were filed on Form 10-Q on August 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 six months ended June 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.
