Angiotech Pharmaceuticals Announces Results For The Quarter And Year Ended December 31, 2005

VANCOUVER, March 2 /PRNewswire-FirstCall/ - Angiotech Pharmaceuticals, Inc. today announced financial results for the quarter and year ended December 31, 2005. Amounts, unless specified otherwise, are expressed in U.S. dollars. Financial results are reported under United States generally accepted accounting principles ("U.S. GAAP") unless otherwise noted.

Certain financial results presented in this press release include non- GAAP measures that exclude certain items. Adjusted operating net income/loss and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") exclude stock based compensation expense, foreign exchange gains or losses relating to translation of foreign currency cash and investment balances, acquisition related amortization charges, acquired in-process research and development relating to license agreements and acquisitions and other non-recurring items. Adjusted EBITDA also does not include certain litigation expenses related to defending intellectual property. Adjusted operating net income/loss and adjusted EBITDA do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Management uses non-GAAP or adjusted operating measures to establish operational goals, and believes that these measures may assist investors in analyzing the underlying trends in our business over time. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to, financial reporting measures prepared in accordance with GAAP. We have provided a reconciliation of adjusted operating net income to net income according to GAAP, and have provided a definition and calculation of adjusted EBITDA, in the attached tables.

The following discussion and analysis of results from our operations excludes the financial results from our Dutch subsidiaries (MCTec Holdings BV and MCTec BV) and NeuColl, Inc. which are reported as discontinued operations. All discussions and analyses pertain to continuing operations only, unless otherwise noted.

CONDENSED FINANCIAL RESULTS Fourth quarter results

Adjusted operating net income for the quarter ended December 31, 2005 was $11.6 million ($0.14 basic income per common share), compared to adjusted operating net income of $26.4 million ($0.32 basic income per common share) for the same period in the prior year. The decrease in net income for the quarter ended December 31, 2005 compared to the same period in the prior year was primarily a result of an increase in income tax expense as the Company became fully taxable in 2005, an increase in certain litigation expenditures and a decrease in royalty revenue derived from the sale of paclitaxel-eluting coronary stent systems by our partner Boston Scientific Corporation ("BSC"). Excluding certain litigation expenses, adjusted basic operating net income per common share for the quarter would have been $0.17.

Under U.S. GAAP, we recorded a net loss from continuing operations of $42.7 million ($0.51 basic loss per common share) for the quarter ended December 31, 2005 compared to net income from continuing operations of $41.9 million ($0.50 basic income per common share) for the same period in the prior year. This decrease was primarily the result of incurring in-process research and development expenses of $54.0 million, an investment write-down of $6.0 million, an increase in income tax expense, increases in certain litigation expenditures and a decrease in royalty revenue derived from the sale of paclitaxel-eluting coronary stent systems.

Cash provided by operating activities for the quarter ended December 31, 2005 was $8.2 million and adjusted EBITDA for the quarter was $20.4 million.

Revenue of $43.8 million for the quarter ended December 31, 2005 included royalty revenue of $39.0 million derived from sales of paclitaxel-eluting coronary stent systems by our partner BSC and other royalty, product and license-related revenue of $4.8 million.

Paclitaxel-eluting coronary stent system related royalties of $39.0 million received during the quarter were derived from $532 million of worldwide paclitaxel-eluting coronary stent net sales, as reported to us by BSC for their third quarter ended September 30, 2005. BSC's publicly reported worldwide paclitaxel-eluting stent system sales of $601 million included sales of the balloon component of the system for which we do not receive any royalty revenue. The royalty rate earned in the quarter on net stent sales was 7.9% for sales in the U.S. and 6.2% for sales in other countries.

For the quarter ended December 31, 2005, BSC publicly reported worldwide revenue from sales of paclitaxel-eluting coronary stent systems of $606 million, including the balloon component of the system, of which $398 million was revenue realized from sales of systems in the U.S. We expect to realize royalties related to BSC's fourth quarter sales during our first quarter ended March 31, 2006.

Research and development expenditures for the quarter totaled $9.1 million, an increase of $0.4 million as compared to the same quarter in the prior year. This increase was primarily due to higher external clinical trial costs and costs associated with our new clinical and regulatory office in Virginia, partially offset by a reduction in salaries and benefits expense due to consolidation of research and development activities and lower stock based compensation expense.

Selling, general and administrative expenses for the quarter totaled $9.9 million, an increase of $3.3 million compared to the same quarter in the prior year. This increase was primarily due to higher professional fees related to certain patent and litigation activities and an increase in the number of employees required to support our growing business.

In-process research and development expense of $54.0 million was incurred during the quarter and is related to previously announced transactions completed during the quarter with CombinatoRx, Incorporated and Afmedica, Inc. The amounts allocated to the licensed and acquired technologies were written- off, as the technologies were at an early stage of development and had no alternative future use.

Investment and other income increased by $1.1 million compared to the same quarter in the prior year, due to higher cash balances available for investment and improved investment yields. The investment write-down of $6.0 million related to our investment in CABG Medical, Inc.

Annual results

Adjusted operating net income for the year ended December 31, 2005 was $68.8 million ($0.82 basic income per common share), compared to adjusted operating net income of $52.9 million ($0.63 basic income per common share) for the same period in the prior year. The increase in net income for the year ended December 31, 2005 compared to the same period in the prior year was primarily a result of higher royalty revenue derived from the sale of paclitaxel-eluting coronary stent systems by our partner BSC, partially offset by increases in operating expenditures and income tax expense as the Company became fully taxable in 2005. Excluding certain litigation expenses, adjusted basic operating net income per common share for the year would have been $0.91.

Under U.S. GAAP, we recorded net income from continuing operations of $8.4 million ($0.10 basic income per common share) for the year ended December 31, 2005 compared to net income from continuing operations of $53.0 million ($0.63 basic income per common share) for the same period last year. This decrease was primarily due to in-process research and development expenses of $55.0 million, an investment write-down of $6.0 million, income tax expense of $28.1 million and increases in operating expenses, partially offset by an increase in royalty revenue derived from the sale of paclitaxel- eluting coronary stent systems.

Cash provided by operating activities for the year ended December 31, 2005 was $88.9 million and adjusted EBITDA for the year was $114.8 million.

Revenue of $199.6 million for the year ended December 31, 2005 included royalty revenue of $183.6 million derived from sales of paclitaxel-eluting coronary stent systems by our partner BSC and other royalty, product and license-related revenue of $16.0 million.

Research and development expenditures for the year totaled $32.0 million, an increase of $5.3 million when compared to the prior year. The increase was primarily due to higher patent procurement costs related to patent filing activity, and increases in operating costs due to increased research and development activity.

Selling, general and administrative expenses for the year totaled $37.8 million, an increase of $16.6 million compared to the prior year. The increase in expenditures was primarily due to higher professional fees related to certain patent and litigation related activities, a one-time cost relating to a European patent opposition proceeding and an increase in salaries and benefits (including stock-based compensation) reflecting the increase in the number of employees required to support our growing business.

In-process research and development expense of $55.0 million was incurred during the year and is related to previously announced transactions with CombinatoRx, Incorporated and Afmedica, Inc. in the fourth quarter, and a license payment made to Poly-Med Inc., in the first quarter pursuant to a milestone being met.

Investment and other income increased by $4.3 million compared to the same quarter in the prior year due to higher cash balances available for investment and improved investment yields. The investment write-down of $6.0 million related to our investments in CABG Medical, Inc.

SUBSEQUENT EVENTS Acquisition of American Medical Instruments Holdings, Inc.

On February 1, 2006, we announced that we entered into a definitive agreement to acquire 100% of privately held American Medical Instruments Holdings, Inc. ("AMI"), a leading provider of specialty and single-use medical devices, for cash consideration of $785 million. The AMI transaction will significantly increase and diversify our revenue base, provide us with global manufacturing, marketing and sales capabilities and provide a portfolio of medical device products that we may combine with our drugs, drug delivery and surface modification materials and other medical biomaterials to create new medical device and pharmaceutical product offerings. We have $600 million in fully committed term loan facilities and revolving credit facilities, subject to the satisfaction of customary closing conditions, and expect to finance the transaction through a combination of these facilities, cash on hand or other debt financings. The proposed transaction is expected to close in the second quarter of 2006, and we expect to report our first quarter of combined results when we announce our June 30, 2006 operating and financial results.

PRELIMINARY FULL YEAR 2006 FINANCIAL OUTLOOK Full Year 2006 - Angiotech Standalone

For the full year ended December 31, 2006, we estimate Angiotech total revenues, excluding the impact of the acquisition of AMI, could range between $197 and $208 million. These figures are derived based on a United States market share assumption for TAXUS paclitaxel-eluting stents of 50%, and a range of drug-eluting stent total market size in the United States ranging from $3.4 to $3.8 billion. Our preliminary full year 2006 revenue outlook also includes revenue from other sources of approximately $14 million, and assumed revenue from potential sales of our Vascular Wrap in combination with the Lifespan vascular graft in Europe of approximately $15 million. Our Vascular Wrap revenue outlook assumes we may achieve a CE mark that would allow us to market and sell this product in the European Union in the latter half of 2006. It is uncertain as to whether we would receive such approval in 2006, and if we were not to receive such CE mark approval, then we would not expect to achieve the Angiotech standalone total revenue outlook for 2006 as indicated above.

With respect to certain budgeted expenses for 2006, we would expect research expenses to be approximately $23 to $25 million; product development expenses to be approximately $18 to $20 million; and selling, general and administrative expenses, excluding the impact of any potential litigation expenses, to be approximately $21 to $23 million. Assuming these estimated expense ranges and related assumptions and the TAXUS market share assumptions as indicated above, our diluted adjusted earnings per share could approximate $0.76 to $0.84.

Full Year 2006 - Angiotech/AMI Pro Forma Combined

For the full year 2006, we expect a total pro forma combined revenue range of approximately $390 to $401 million and an adjusted EBITDA range of approximately $151 to $160 million. These figures are derived based on a United States market share assumption for TAXUS paclitaxel-eluting stents of 50%, a range of drug-eluting stent total market size in the United States ranging from $3.4 to $3.8 billion, and product sales revenue contribution from AMI of approximately $193 million. Adjusted EBITDA figures exclude the impact of any potential litigation expenses or any other potential one-time or non- recurring items, including potential transaction fees and other expenses related to the AMI acquisition.

Upon closing of the AMI acquisition and completion of the related financing transactions, we will plan to update our 2006 and 2007 financial outlook at our Analyst Day, currently scheduled for May 25, 2006.

ANGIOTECH PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of U.S.$, except share and per Three Months Ended Three Months Ended share data) December 31, 2005 December 31, 2004 ------------------------------------------------------------------------- Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted REVENUE Royalty revenue 40,588 40,588 44,818 44,818 Product sales 2,209 2,209 586 586 License fees 1,049 (1,049)a - 13,954 (13,900)b 54 ------------------------------------------------------------------------- 43,846 (1,049) 42,797 59,358 (13,900) 45,458 ------------------------------------------------------------------------- EXPENSES License and royalty fees 6,405 6,405 8,462 (1,529)b 6,933 Cost of goods sold - product sales 2,550 (208)d 2,342 1,228 1,228 Research and development 9,129 (537)c 8,592 8,693 (630)c 5,744 (2,319)d Selling, general and administrative 9,934 (804)c 8,925 6,647 (714)c 5,606 (205)d (327)d Depreciation and amortization 2,921 (2,327)e 594 2,100 (1,345)e 755 In-process research and development 53,957 (53,957)f - - - ------------------------------------------------------------------------- 84,896 (58,038) 26,858 27,130 (6,864) 20,266 ------------------------------------------------------------------------- Operating income (loss) (41,050) 56,989 15,939 32,228 (7,036) 25,192 ------------------------------------------------------------------------- Other income (expenses): Foreign exchange gain 4 (4)g - 2,239 (2,239)g - Investment and other income 2,610 2,610 1,479 1,479 Write-down of investment (5,967) 5,967h - - - ------------------------------------------------------------------------- (3,353) 5,963 2,610 3,718 (2,239) 1,479 ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes (44,403) 62,952 18,549 35,946 (9,275) 26,671 Income tax expense (recovery) (1,683) 8,600i 6,917 (5,987) 6,229i 242 ------------------------------------------------------------------------- Net income (loss) from continuing operations (42,720) 54,352 11,632 41,933 (15,504) 26,429 ------------------------------------------------------------------------- Net loss from discontinued operations, net of income taxes (8,540) 8,540 - (452) 452 - ------------------------------------------------------------------------- Net income (loss) for the period (51,260) 62,892 11,632 41,481 (15,052) 26,429 ------------------------------------------------------------------------- Basic net income per common share from continuing operations (0.51) 0.14 0.50 0.32 Diluted net income per common share from continuing operations (0.50) 0.14 0.49 0.31 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average shares out- standing (000's) - basic 84,130 84,130 83,886 83,886 Weighted average shares out- standing (000's) - diluted 85,505 85,505 85,904 85,904 ------------------------------------------------------------------------- ------------------------------------------------------------------------- a. Non-recurring license fee revenue relating to license agreement with Baxter Healthcare Corporation ($1.0 million) and other license fee revenue. b. One-time payment received from Boston Scientific for right to sublicense the paclitaxel-eluting coronary stent technology to third parties, net of license fees due to licensors. c. Stock based compensation expense. d. Termination costs relating to consolidation activities at Palo Alto facility. e. Amortization of acquisition related intangible assets and medical technologies. For the quarter ended December 31, 2005, adjustments include $1,174,000 and $285,000 for amortization of intangible assets related to the acquisitions of Cohesion Technologies, Inc. (now called Angiotech BioMaterials Corp.) and STS Biopolymers, Inc. (now called Angiotech BioCoatings Corp.) respectively; and $868,000 for amortization of medical technologies, primarily relating to the $25.0 million license payment made to Cook Incorporated in 2004. f. In-process research and development expense of $30.6 million and $23.4 million related to transactions with CombinatoRx Incorporated and Afmedica, Inc., respectively. g. Foreign exchange fluctuations on foreign currency cash balances. h. Write-down of investment in CABG Medical, Inc. i. Non-recurring tax adjustments and tax effects of adjustments a. through h. ANGIOTECH PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands of U.S.$, except share and per Year Ended Year Ended share data) December 31, 2005 December 31, 2004 ------------------------------------------------------------------------- Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted REVENUE Royalty revenue 189,203 189,203 100,638 100,638 Product sales 5,334 5,334 8,281 8,281 License fees 5,111 (5,014)a 97 17,312 (13,900)b 3,412 ------------------------------------------------------------------------- 199,648 (5,014) 194,634 126,231 (13,900) 112,331 ------------------------------------------------------------------------- EXPENSES License and royalty fees 28,345 (478)a 27,867 18,072 (1,529)b 16,543 Cost of goods sold - product sales 5,653 (415)d 5,238 5,632 5,632 Research and development 31,988 (2,052)c 28,882 26,659 (2,549)c 21,791 (1,054)d (2,319)d Selling, general and administrative 37,837 (3,332)c 29,779 21,180 (2,634)c 18,219 (1,097)d (327)d (3,629)e Depreciation and amortization 9,540 (6,983)f 2,557 9,235 (6,322)f 2,913 In-process research and development 54,957 (54,957)g - 6,375 (6,375)g - ------------------------------------------------------------------------- 168,320 (73,997) 94,323 87,153 (22,055) 65,098 ------------------------------------------------------------------------- Operating income 31,328 68,983 100,311 39,078 8,155 47,233 ------------------------------------------------------------------------- Other income (expenses): Foreign exchange gain 1,092 (1,092)h - 2,050 (2,050)h - Investment and other income 10,006 10,006 5,668 5,668 Write-down of investment (5,967) 5,967i - - - ------------------------------------------------------------------------- Total other income (expenses) 5,131 4,875 10,006 7,718 (2,050) 5,668 ------------------------------------------------------------------------- Income from continuing operations before income taxes 36,459 73,858 110,317 46,796 6,105 52,901 Income tax expense (recovery) 28,055 13,423j 41,478 (6,183) 6,229j 46 ------------------------------------------------------------------------- Net income from continuing operations 8,404 60,435 68,839 52,979 (124) 52,855 ------------------------------------------------------------------------- Net loss from discontinued operations, net of income taxes (9,591) 9,591 - (527) 527 - ------------------------------------------------------------------------- Net income (loss) for the period (1,187) 70,026 68,839 52,452 403 52,855 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic net income per common share from continuing operations 0.10 0.82 0.63 0.63 Diluted net income per common share from continuing operations 0.10 0.80 0.62 0.62 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average shares out- standing (000's) - basic 84,121 84,121 83,678 83,678 Weighted average shares out- standing (000's) - diluted 85,724 85,724 85,697 85,697 ------------------------------------------------------------------------- ------------------------------------------------------------------------- a. Non-recurring license fee revenue relating to license agreement with CABG Medical, Inc. ($3.3 million), Broncus Technologies, Inc. ($0.5 million), Baxter Healthcare Corporation ($1.0 million) and other license fee revenue, net of license fees due to licensors. b. One-time payment received from Boston Scientific for right to sublicense the paclitaxel-eluting coronary stent technology to third parties, net of license fees due to licensors. c. Stock based compensation expense. d. Termination costs relating to consolidation activities at Palo Alto facility. e. One-time payment to an opposition party in the European patent opposition proceedings. f. Amortization of acquisition related intangible assets and medical technologies. For the year ended December 31, 2005, adjustments include $2.3 million, and $1.1 million for amortization of intangible assets related to the acquisitions of Cohesion Technologies, Inc. (now called Angiotech BioMaterials Corp.) and STS Biopolymers, Inc. (now called Angiotech BioCoatings Corp.) respectively; and $3.5 million for amortization of medical technologies, primarily relating to the $25.0 million license payment made to Cook Incorporated in 2004. g. In-process research and development expense of $30.6 million and $23.4 million related to CombinatoRx and Afmedica transactions, respectively and for payment of $1.0 million to Poly-Med, Inc. h. Foreign exchange fluctuations on foreign currency cash balances. i. Write-down of investment in CABG Medical, Inc. j. Non-recurring tax adjustments and tax effects of adjustments a. through i. ANGIOTECH PHARMACEUTICALS, INC. CALCULATION OF ADJUSTED EBITDA (Unaudited) Three Months Ended Year ended December 31, December 31, (in thousands of U.S.$) 2005 2005 ------------------------------------------------------------------------- Operating income (loss) from continuing operations per GAAP (41,050) 31,328 Depreciation and amortization 3,054 9,999 ------------------------------------------------------------------------- EBITDA (37,996) 41,328 Adjustments: In-process research and development 53,957 54,957 Stock-based compensation 1,341 5,384 Palo Alto consolidation expenses 413 2,566 Payment relating to European patent opposition - 3,629 Non-recurring revenue, net of license fees (1,049) (4,536) Litigation expenses 3,704 11,521 ------------------------------------------------------------------------- Adjusted EBITDA 20,370 114,849 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ANGIOTECH PHARMACEUTICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) As at December 31, December 31, (in thousands of U.S.$) 2005 2004 ------------------------------------------------------------------------- ASSETS Cash and short-term investments 195,442 271,484 Other current assets 13,430 21,185 Long-term investments 170,578 71,711 Property and equipment, net 11,042 15,677 Intangible assets, net 45,447 65,246 Goodwill 46,071 33,346 Deferred income taxes 11,350 - Other assets 1,334 428 ------------------------------------------------------------------------- 494,694 479,077 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities 27,555 24,369 Deferred revenue - long term portion 1,632 2,000 Deferred leasehold inducement 2,827 2,860 Deferred income taxes - 8,022 Stockholders' equity 462,680 441,826 ------------------------------------------------------------------------- 494,694 479,077 ------------------------------------------------------------------------- -------------------------------------------------------------------------

This press release contains the condensed financial statements derived from the consolidated financial statements for the years ended December 31, 2005 and December 31, 2004. If you require a copy of Angiotech's audited consolidated financial statements for the year ended December 31, 2005 or December 31, 2004, please contact the Company or visit our website at www.angiotech.com.

A conference call on Angiotech's Financials will be held on Thursday, March 2, 2006 at 2 PM PST (5 PM EST). The call will be webcast on Angiotech's website at www.angiotech.com under Investor Relations or by dialling toll-free at 1-866-362-4820 (North America) or 617-597-5345 (International) and entering Access Code 19190201. A recording of the call will be available until Thursday, March 9, 2006 by calling 1-888-286-8010 (North America) or 617-801-6888 (International) and entering Access Code 32435888.

Statements contained herein that are not based on historical fact, including without limitation statements containing the words "believes," "may," "will," "estimate," "continue," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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. Such factors include, among others, the following: general economic and business conditions, both national and in the region in which the Company operates; technology changes; competition; changes in business strategy or development plans; the ability to attract and retain qualified personnel; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; adverse results or unexpected delays in drug discovery and clinical development processes; failure to obtain patent protection for discoveries; loss of pat