VANCOUVER, Nov. 9 /PRNewswire-FirstCall/ - Angiotech Pharmaceuticals, Inc. today announced its financial results for the third quarter ended September 30, 2009.
“We were pleased to observe continued strong sales growth in our Proprietary Medical Products business during the quarter, driven primarily by increasing market adoption of our Quill(TM) SRS product line,” said Dr. William Hunter, President and CEO of Angiotech. “In addition, our solid early results from our recent commercial launch of the Option(TM) Inferior Vena Cava Filter and our preparations for a potential 2010 launch of our 5-FU anti-infective product candidates leave us increasingly optimistic about the opportunity to further accelerate growth in our Proprietary Medical Products business in 2010 and beyond.”
Third Quarter Financial Highlights
Selected Non-GAAP Financial Measures
Third Quarter Highlights
Proprietary Medical Products. Certain of our product lines, which we refer to as our Proprietary Medical Products, are marketed and sold by our two direct sales groups. We believe certain of these product lines may contain technology advantages and thereby may provide for more substantial revenue growth potential as compared to our overall product portfolio. Our significant currently marketed Proprietary Medical Products include (i) our Quill(TM) SRS wound closure product line, which is marketed and sold by our Surgical Products Sales Group, and (ii) our Option(TM) Inferior Vena Cava (“IVC”) Filter, HemoStream(TM) chronic dialysis catheter, Skater(TM) line of drainage catheters, BioPince(TM) full core biopsy device, EnSnare(TM) retrieval device and V+Pad(TM) hemostatic pad, which are marketed and sold by our Interventional Products Sales Group. Our Proprietary Medical Products continued to demonstrate higher revenue growth as compared to our overall product portfolio in the third quarter, consistent with recent prior quarters. Revenue for these products in the third quarter of 2009 increased by 33% as compared to the third quarter of 2008 and by 9% as compared to the second quarter of 2009. Excluding the impact of foreign currency changes between the respective periods, the revenue growth figures indicated above would have been 36% and 8%, respectively.
Base Medical Products. Certain of our product lines, which we refer to as our Base Medical Products, represent more mature finished goods product lines in the ophthalmology, biopsy and general surgery areas, or medical device components manufactured by us and sold to other third-party medical device manufacturers who assemble those components into finished medical devices. Sales of our Base Medical Products are supported by a small group of direct sales personnel, as well as a network of independent sales representatives and medical product distributors. Revenue from our Base Medical Products tends to exhibit greater volatility or slower relative growth, particularly our sales of components to third party medical device manufacturers, which may be impacted by customer concentration and business issues that certain of our large customers may face, as well as to a more limited extent by economic and credit market conditions.
Revenue from our Base Medical Products declined by 4% in the third quarter of 2009 as compared to the third quarter of 2008, and increased by 1% as compared to the second quarter of 2009. Excluding the impact of foreign currency changes, revenue would have declined by 3% as compared to the third quarter of 2008 and would have been flat as compared to the second quarter of 2009.
The decline in our Base Medical Products sales as compared to the third quarter of 2008 is due primarily to lower sales of medical device components to other third party medical device manufacturers, generally relating to certain customers that have postponed or cancelled orders, or implemented inventory reduction programs in response to changing economic and credit market conditions, and more particularly relating to cancelled orders for surgical needles by one of our largest customers. Manufacturing of surgical needles, as of November 2008, was fully transferred to our facility in Aguadilla, Puerto Rico from our facility in Syracuse, New York. We believe that the closure of our Syracuse production facility in November and the finalization of our move of surgical needle production to Aguadilla, combined with the difficult economic and credit market environment, may have continued to negatively impact our Base Medical Product sales during the third quarter of 2009 as compared to the third quarter of 2008. We currently expect that certain of our customers may increase their order levels later in 2009 or in 2010, however, there can be no assurance that we will record sales of surgical needles to these customers at levels observed in prior periods.
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 substantial majority of our royalty revenues are derived from sales by Boston Scientific Corporation (“BSC”) of TAXUS(R) coronary stent systems incorporating the drug paclitaxel. TAXUS stents have been evaluated by the industry’s most extensive randomized, controlled clinical trial program, with patient follow-up out to five years in some cases. BSC’s controlled clinical trial results have been supplemented by data on more than 35,000 patients enrolled in post-approval registries. To date, over 4.6 million TAXUS stents have been implanted globally.
Royalty revenue derived from sales of TAXUS stent systems by BSC for the third quarter of 2009 decreased by 29% as compared to the third quarter of 2008, and decreased by 14% as compared to the second quarter of 2009. The decrease in royalty revenues received from BSC is primarily due to the entry of new competitors into the drug-eluting coronary stent market during the second half of 2008 and the resulting shifts in market share among these competitors over the past four consecutive quarters.
Royalty revenue for the third quarter of 2009 was based on BSC’s net sales for the period April 1, 2009 to June 30, 2009 of $226 million, of which $96 million was in the United States, compared to BSC net sales of $298 million, of which $144 million was in the United States, for the same period in 2008, and compared to BSC net sales of $252 million, of which $119 million was in the United States, for the period January 1, 2009 to March 30, 2009 from which our second quarter royalty revenue was derived. The average gross royalty rate earned in the third quarter of 2009 on BSC’s net sales was 6.2% for sales in the United States and 6.1% for sales in other countries.
Option Inferior Vena Cava Filter. In June 2009, we announced that the United States Food and Drug Administration (“FDA”) had granted 510(k) clearance for the Option IVC Filter, for use in both permanent and retrievable indications. In August 2009, we announced the commercial launch of the Option IVC Filter in the United States. The Option IVC Filter was licensed in March 2008 from our partner Rex Medical L.P.
IVC filters are implanted in patients that are at high risk for developing pulmonary embolism, which can be a life threatening condition. IVC filters are implanted in the inferior vena cava and are designed to catch clot material to prevent it from reaching the lungs, while allowing blood to continue to flow normally. In 2008, there were approximately 220,000 IVC filters implanted in the United States.
We believe the Option IVC Filter may have a number of potential competitive benefits, which include a unique filter design that may reduce the potential for filter migration after implantation, thereby making the product safer for patients, insertion potential through either the femoral or jugular route, which may make the product easier for a physician to use, and the use of non-thrombogenic material, which may reduce the risk of blood clots occurring in the filter. We also believe the unique design of the Option IVC Filter may allow physicians to remove or retrieve the device from patients more easily, or after longer periods of time have passed, as compared to existing competitive IVC filters.
The Option IVC Filter was approved based upon the results of a United States multi-center prospective clinical trial. The purpose of the clinical trial was to evaluate the device’s safety and efficacy in preventing pulmonary emboli, and to assess the ability to retrieve the device from the body up to 175 days following implantation. The results, representing a total of 100 patients, were presented at the 2009 Society of Interventional Radiology in San Diego, CA on March 9, 2009. Successful filter implantation was achieved in 100% of the subjects and the retrieval success rate in the study was 92.3%. Clinical success, which was achieved in 88% of subjects, was defined as placement of the filter without subsequent pulmonary embolism, significant filter migration or embolization, symptomatic caval thrombosis or other complications requiring filter removal or invasive intervention.
Quill SRS. In August 2009, we announced the launch of a new series of our proprietary Quill SRS products specifically designed for laparoscopic, or minimally invasive, gynecology procedures, including hysterectomies and myomectomies.
In 2008, there were approximately 750,000 hysterectomies performed in the United States, of which approximately 130,000 were performed laparoscopically. In addition, there were approximately 72,000 myomectomies performed in the United States to remove uterine fibroid tumors. Angiotech’s proprietary Quill SRS technology may offer significant advantages in wound closure in certain laparoscopic surgical procedures, whether performed manually or through robotic assistance. We believe the primary potential advantage of Quill SRS in certain laparoscopic procedures is the ability to use Quill SRS to close a wound without having to tie knots. The exercise of tying knots can be particularly challenging and time-consuming when surgeons operate in a smaller surgical field, as is the case for most laparoscopic surgical procedures. A second potential advantage for Quill SRS in these procedures is minimizing or eliminating the need for a third hand to maintain tension on the suture, as may be required with a traditional suturing technique in order to deal with tissue recoil. A third potential advantage of Quill SRS in these procedures is the ability of Quill SRS to maintain the tension along the length of the wound, which may provide hemostatic benefits and thereby eliminate or minimize the need for standard hemostatic sutures. Patients may also benefit as a result of these potential advantages through reduced surgical times, and therefore reduced time under anesthesia, and health care facilities and payors may also benefit from the potential to reduce operating room time needed, or the total cost of material needed, to complete such surgical procedures.
Our new Quill SRS product codes for laparoscopic gynecology procedures are available in our polydioxanone (PDO) suture material in size -0- with 7 cm by 7 cm and 14 cm by 14 cm lengths, and include our newly designed 36 mm needles. The use of Quill SRS in laparoscopic gynecological surgery was first reported by James Greenberg, MD, and Jon Einarsson, MD, MPH, of the Centre for Women’s Surgery at Brigham & Women’s/Faulkner Hospitals and Harvard Medical School Boston, Massachusetts in the Journal of Minimally Invasive Gynecology, in November 2008. The results of this small feasibility study looked at the application of Quill SRS in myomectomy and total laparoscopic hysterectomy vaginal cuff closures. This publication was then followed by up by a podium presentation at the American Association of Gynecologic Laparoscopists (AAGL) annual meeting in the fall of 2008 confirming that there were no post operative issues or complications from the use of Quill SRS in a patient series that had grown to 150 patients as of that date.
ZILVER(R) PTX(R) - CE Mark Approval. In August 2009, we announced that our partner Cook Medical Inc. (“Cook”), had reported CE Mark approval and commercial launch of the ZILVER PTX paclitaxel-eluting peripheral vascular stent in Europe. The ZILVER PTX stent, which is under evaluation in clinical trials being conducted by Cook, is a specialized stent product incorporating our proprietary paclitaxel technology and is designed for placement in diseased arteries in the limbs to restore blood flow. Cook licenses the rights to use paclitaxel with peripheral stents and certain other non-coronary medical devices from us. Subject to the terms of our license agreement with Cook, we are entitled to receive royalty payments upon the commercial sale of paclitaxel-eluting peripheral vascular stent products, including the ZILVER PTX stent.
This press release contains financial data derived from the unaudited consolidated interim financial statements for the three and nine month periods ended September 30, 2009, and 2008. Full unaudited consolidated interim financial statements and Management’s Discussion and Analysis for the three and nine month periods ended September 30, 2009 and 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.
A conference call to discuss these financial results will be held today, Monday, November 9, 2009 at 8:00 AM PT (11:00 AM ET).
A live webcast will be available to all interested parties through the Investors section of Angiotech’s website: www.angiotech.com/investors
Statements contained in this press release that are not based on historical fact, including without limitation statements containing the words “believes,” “may,” “plans,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “expects” and similar expressions, constitute “forward-looking statements” within the meaning of the 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 remainder of 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition and the results of, or outlook for, our operations, research and 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 known 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 in the United States, Canada and the other 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; availability of financial reimbursement coverage from governmental and third-party payers for products and related treatments; 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; and any other factors that may affect our performance. In addition, our business is subject to certain operating risks that may cause any 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 pre-clinical and clinical development of our products; changes in our 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 availability of capital to finance our activities; our ability to restructure and to service our debt obligations; and any other factors referenced in our other filings with the applicable Canadian securities regulatory authorities or the Securities and Exchange Commission (“SEC”). For a more thorough discussion of the risks associated with our business, see the “Risk Factors” section in our annual report for the year ended December 31, 2008 filed with the SEC on Form 10-K, as amended, and our quarterly reports for the first and second quarters of 2009 filed with the SEC on Form 10-Q.
Given these uncertainties, assumptions and risk factors, investors 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.
(C)2009 Angiotech Pharmaceuticals, Inc. All Rights Reserved.
About Angiotech Pharmaceuticals
Angiotech Pharmaceuticals, Inc. is a global specialty pharmaceutical and medical device company. 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 , please visit our website at www.angiotech.com.
The financial results presented in this press release include the following non-GAAP, or adjusted, financial measures, which we believe provide important supplemental information to management and investors about the Company’s financial condition and results of operations: (1) adjusted earnings before interest expense, taxes, depreciation and amortization (“Adjusted EBITDA”), (2) adjusted net income (loss), (3) adjusted net income (loss) per share, (4) adjusted revenue, (5) adjusted research and development expense (“Adjusted R&D expense”), and (6) adjusted selling, general and administrative expense (“Adjusted SG&A expense”).
Our non-GAAP adjusted financial measures exclude certain non-cash, non-recurring and non-operating items, which may be unpredictable, volatile and not directly correlated to our operating performance. We believe exclusion of these items from our GAAP financial measures may provide the following advantages: (i) improved understanding of trends underlying our business and performance; (ii) improved consistency across periods when measuring and assessing our operating performance; (iii) improved understanding of the cash flow and cash earnings generated by our business in a given period and as compared to prior periods; and (iv) improved comparability of our operating results to those of similar companies in our industry.
Examples of these certain non-cash, non-recurring and non-operating items include: financing charges, asset write-downs, impairment charges, foreign exchange fluctuations, stock-based compensation expense, acquisition related amortization charges, integration and restructuring expenses, in-process research and development acquisition costs, retrospective adjustments driven by accounting policy changes, and certain extraordinary litigation expenses. A detailed discussion of the excluded items is provided below (see “Description of Adjustments” below).
Investors are cautioned that Adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per share, adjusted revenue, Adjusted R&D expense and Adjusted SG&A expense do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other issuers. Our non-GAAP financial measures are supplemental metrics and should not be viewed as a substitute for, or superior to, financial reporting measures prepared in accordance with GAAP. We have prepared a reconciliation of our non-GAAP adjusted financial measures to the comparable GAAP-based financial measures in the tables included in this Appendix. Management compensates for certain material limitations that may be relevant to our use of certain non-GAAP financial measures by reviewing our operating performance in accordance with GAAP concurrent with our review of our operating performance relative to certain adjusted financial measures during each relevant disclosure period.
Management uses Adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per share, Adjusted R&D expense and Adjusted SG&A expense when setting corporate and operational goals, and evaluating operating performance in connection with:
The adjustments used to compute our non-GAAP financial measures are consistent with those excluded from segmented operating results used by the Company’s chief operating decision makers to make operating decisions and assess performance. We have provided this information to enable investors to analyze our operating results in the same way that management uses this information to assess our business relative to other periods, our business objectives and similar companies in our industry.
In addition, our creditors frequently use financial measures such as Adjusted EBITDA as a critical metric to measure the Company’s ability to generate cash, service debt obligations and comply with financial covenants specified in our lending agreements. As at September 30, 2009 there were no significant differences between the definition of adjusted EBITDA as defined in our credit facility with Wells Fargo and the definition of Adjusted EBITDA used herein, except for certain litigation related charges, which may not be adjusted for in certain circumstances when reporting under our credit facility. Refer to our 8-K filed on March 5, 2009 for more details on the adjustments incorporated into the definition of adjusted EBITDA under our credit facility.
For an explanation of the adjustments used to derive our non-GAAP financial measures, please refer to the corresponding discussion in the “Description of Adjustments” section below.
For an explanation of the adjustments used to derive our non-GAAP financial measures, please refer to the corresponding discussion in the “Description of Adjustments” section below.
We also report certain product sales revenue growth rate figures excluding the impact of foreign exchange rate fluctuations on current period revenues. Significant foreign exchange rate fluctuations can distort revenue growth favorably or unfavorably, depending upon the strength of the U.S. dollar relative to the foreign currencies in which we generate revenues. We generate significant revenues in several foreign jurisdictions in multiple foreign currencies including Euros, British pounds, Swiss francs, Danish krone, Norwegian krone and Swedish krone. We believe this measure provides useful information to measure the success of our international sales offices in increasing product sales in their local currencies without regard to exchange rate fluctuations over which we have no control. The tables below provide additional information on the reported product sales figure including a reconciliation of the estimated impact of foreign currency on net sales.
The following is an explanation of each of the items that management has adjusted to derive its non-GAAP financial measures for the three and nine months ended September 30, 2009 and 2008.
(a) Non-Recurring Revenue
We may report adjusted revenue in a given period that excludes certain items from our reported GAAP revenue that are non-recurring or are not related to the day-to-day operating activities of our business, and are not reasonably expected to recur in the future. The adjusted revenue metric for the three and nine months ended September 30, 2009 reflects the elimination of certain one-time non-operating license revenue. The 2009 nine month adjusted revenue metric specifically reflects the subtraction of a $25.0 million one-time payment from Baxter Healthcare Corporation from our reported GAAP revenue figure, as this revenue is non-recurring in nature and was received in lieu of future royalty payments on licensed technology and non-recurring non-operating license revenue.
(b) Restructuring-Related Charges
We may report adjusted net income (loss) and adjusted net income (loss) per share in a given period that excludes certain expense amounts related to restructuring or corporate reorganization activities that we are pursuing, or have completed in prior periods. These amounts, which are typically expense amounts that we add back to our GAAP net income (loss) and net income (loss) per share in order to calculate the corresponding adjusted measures, primarily represent severance costs, asset write-offs, and other expenses associated with plant closures, transfers of production lines from one facility to another and plant head-count optimization initiatives that are not reasonably expected to recur in the future. The specific expenses excluded from our adjusted measures for the three and nine months ended September 30, 2009 of $0.9 million and $2.7 million respectively reflect costs associated with the closure of our manufacturing facility in Syracuse, New York and certain headcount reduction and other initiatives completed during the third quarter of 2008.
(c) Technology Acquisition-Related Charges
We may report adjusted net income (loss), adjusted net income (loss) per share and Adjusted R&D expense in a given period that exclude certain non-recurring, and in some instances also non-cash, expense amounts incurred related to the purchase of research stage technology that we have completed, or that we completed in a prior period. These amounts, which are typically expense amounts that we add back to our GAAP net income (loss), net income (loss) per share and research and development expense in order to calculate the corresponding adjusted measures, primarily represent the costs incurred to complete an acquisition of technology for which we are unable to reasonably determine the specific commercial use. Such purchases of early stage technology occur very infrequently, are highly variable and non-comparable in amount and are not part of our day-to-day operations. The 2009 nine month adjustment specifically includes $0.9 million of non-recurring costs related to our termination of collaboration agreements with Lipose Corporation and Spartan Medical Products LLC, as well as $0.4 million of amortization expense related to prepayments made to Haemacure Corporation for future services.
(d) Stock Based Compensation Expense
We report adjusted net income (loss), adjusted net income (loss) per share, Adjusted R&D expense and Adjusted SG&A expense that exclude amounts recorded for stock based compensation expense. These amounts, which are non-cash expenses that we add back to our GAAP net income (loss), net income (loss) per share, research and development expense and selling, general and administrative expense in order to calculate the corresponding adjusted measures, primarily represent estimated additional costs we are required to record in accordance with GAAP to issue stock options to management and employees as part of their compensation. Such compensation expense is a non-cash expense calculated in our case using a Black-Scholes model to derive the expected fair value of employee stock options. Fair value calculations are highly subjective, given that they are dictated by the specific assumptions and inputs used in the model, and opinions may significantly vary as to which inputs to said model are the most appropriate. Key assumptions and inputs may include our actual stock price on the day the calculation is completed, a measure of the historical volatility of our stock price, an estimate or measure of the risk free rate of return offered by the market and other factors, which are not directly correlated to our day-to-day operating performance and are difficult to predict or forecast. In these respects and others (including the methodology that may be used to calculate such expense), methods and data that may be used to complete the calculation of stock based compensation expense may vary widely from period to period or from company to company, making it difficult to compare our performance to that of similar companies in our industry, to compare our operating performance to established operating goals or to our performance in prior periods or to assess the cash flow generation of our operations. In addition, the impact of potential dilution related to employee stock options as of any given reporting date is also reflected in our reported fully diluted share count and thereby is already reflected in the related calculation of our GAAP and our adjusted net income (loss) per share, irrespective of such additional operating expense required to be incurred according to GAAP. The 2009 three month adjustments exclude $0.1 million and $0.3 million of stock based compensation expenses from our GAAP derived research and development and selling, general and administrative costs respectively, and the 2009 nine month adjustments exclude $0.4 million and $0.9 million of stock based compensation expenses from our GAAP derived research and development and selling, general and administrative costs respectively.
(e) Intangible Asset Amortization Expense
We report adjusted net income (loss) and adjusted net income (loss) per share that may exclude amounts recorded for certain intangible asset amortization expenses. These amounts, which are non-cash expenses that we add back to our GAAP net income (loss) and net income (loss) per share in order to calculate the corresponding adjusted measures, primarily represent expense incurred during a period to reduce the carrying value of acquired technology or intellectual property, based on the useful life of such assets as estimated and recorded by us at the time of an acquisition.
