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Angiotech Announces Financial Results for the Second Quarter Ended June 30, 2010
Friday, July 30, 2010
Website | News Archive
Vancouver, BC, July 30, 2010--(T-Net)--Angiotech Pharmaceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) today announced its financial results for the second quarter ended June 30, 2010.
"We are pleased to report continued quarter over quarter growth in product sales, driven primarily by our most innovative Proprietary Medical Products," said Dr. William Hunter, President and CEO of Angiotech. "In addition, we are encouraged by sales trends for our Base Medical Products, which continued to show steady improvement across all key product groups through the first half of 2010."
Second Quarter Financial Highlights
- Total revenue was $61.9 million.
- Net product sales were $53.0 million. Sales of our Proprietary Medical Products were $16.4 million, or 31% of total product sales. Sales of our Base Medical Products were $36.6 million, or 69% of total product sales.
- Royalty revenue was $8.9 million.
- Research and development expenses were $6.9 million.
- Selling, general and administrative expenses were $22.8 million.
- Net loss and net loss per share were $14.1 million and $0.17, respectively.
- As of June 30, 2010, cash and short-term investments were $35.1 million and net debt was $539.9 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 EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted to exclude certain non-cash and non-recurring items) was $6.5 million.
- Adjusted revenue was $62.0 million.
- Adjusted cost of goods sold was $27.2 million.
- Adjusted research and development expenses were $6.7 million.
- Adjusted selling, general and administrative expenses were $21.1 million.
- Adjusted net loss and adjusted net loss per share for the quarter were $7.6 million and $0.09, respectively.
Correction in non-GAAP measure reported in prior period
A clerical error in the calculation of adjusted net (loss) income for the
three months ended March 31, 2010 was made in the quarterly press release
issued on May 4, 2010. Adjusted income tax expense of $3.0 million was added
to adjusted (loss) income before income taxes for the period end March 31,
2010 when it should have been deducted. As a consequence, the adjusted net
income reported of $1.9 million or $0.02 per common share reported for the
three months ended March 31, 2010 should have been an adjusted net loss of
$4.0 million or $0.05 per common share. There was no impact on the GAAP
reported results for the three months ended March 31, 2010.
Second Quarter Highlights
Proprietary Medical Products. Our Proprietary Medical Products include our Quill(TM) SRS wound closure product line, Skater(TM) line of drainage catheters, Option(TM) inferior vena cava ("IVC") filter, HemoStream(TM) chronic dialysis catheter and BioPince(TM) 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 second quarter of 2010 increased by 20% compared to the second quarter of 2009 and 4% compared to the first quarter of 2010.
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 second quarter of 2010 increased by 9% compared to the second quarter of 2009.
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(R) coronary stent systems incorporating the drug paclitaxel.
Royalty revenue derived from sales of TAXUS stent systems by BSC for the second quarter of 2010 declined by 51% compared to the second quarter of 2009. The decline in royalty revenue was due to lower sales of TAXUS stent systems by BSC, as sales of TAXUS continued to be negatively impacted by competitive pressure in the drug-eluting coronary stent market. Royalty revenue for the quarter ended June 30, 2010 was based on BSC's net sales for the period January 1, 2010 to March 31, 2010 of $142 million, of which $71 million was in the U.S., compared to net sales of $252 million, of which $119 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 June 30, 2010 on BSC's net sales was 6.0% for sales in the U.S. and 5.1% for sales in other countries, compared to an average rate of 6.6% for sales in the U.S. and 6.2% 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 the U.S., the E.U. and Japan.
Closing of Acquisition of Certain Product Candidates and Technology Assets of Haemacure Corporation. In April 2010 we announced the closing of the acquisition of certain product candidates and technology assets of Haemacure Corporation ("Haemacure"). Through an asset sale transaction, we acquired all of the relevant research and development activities, manufacturing operations, key personnel, and intellectual property rights necessary to pursue further clinical development of Haemacure's human biomaterial product candidates, specifically fibrin sealant and thrombin hemostat.
Athersys Inc. In July, 2010 we announced that our partner, Athersys, Inc. ("Athersys"), had announced positive results from its phase I clinical trial of MultiStem(R), its allogeneic cell therapy product, administered to individuals following acute myocardial infarction, more commonly referred to as a heart attack. The study results, which representd 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.
The phase I clinical trial is an open label, multi-center dose escalation trial evaluating the safety and maximum tolerated dose of a single administration of allogeneic MultiStem cells following an acute myocardial infarction. Enrolled patients received MultiStem delivered via a catheter into the damaged region of the heart 2-5 days following percutaneous coronary intervention (PCI), a standard treatment for heart attack. The study includes patients in three treatment cohorts or dose groups (20 million, 50 million and 100 million cells per patient) and a registry group where patients received only standard of care. Nineteen treated and 6 registry subjects have been enrolled in the study. The trial is being conducted at multiple cardiovascular treatment centers in the United States, including the Cleveland Clinic, Columbia University Medical Center and Henry Ford Health System.
Highlights of Study:
--------------------
- Administration of MultiStem was found to be well tolerated at all dose
levels.
- No clinically significant changes in vital signs, allergic reactions,
or infusional toxicities associated with MultiStem administration were
observed.
- Each dose group showed improvement in mean left ventricular ejection
fraction ("LVEF"), a measure of heart function, compared to baseline
and relative to the registry group.
- Patients in the 50 million dose group had a statistically significant
absolute improvement in mean 4-month LVEF relative to baseline
(9.8 percentage points, representing a 23.4% improvement over
baseline, p less than 0.02).
- Among patients with more severe heart attacks - as measured by
baseline LVEFs less than or equal to 45% - the 50 and 100 million dose
groups each demonstrated better than a 25% improvement over baseline
in mean LVEF at 4 months.
Cook Medical - Zilver(R) PTX(R). In June 2010 we announced that our
partner, Cook Medical, Inc. ("Cook"), had announced that it had submitted its
Pre-Market Approval ("PMA") application to the U.S. Food and Drug
Administration for the company's Zilver PTX Drug-Eluting Peripheral Stent,
intended for use in patients with peripheral arterial disease ("PAD") in the
superficial femoral artery ("SFA"). Cook's PMA submission includes data from
the randomized portion of the ongoing Zilver PTX clinical trial, the largest
study of its kind for the endovascular treatment of PAD in the SFA. In
addition, in May 2010, we announced that Cook presented one-year data at Euro
PCR that confirmed sustained clinical outcomes with Zilver PTX. According to
data presented, 86.2% of all patient subgroups treated with Zilver PTX
demonstrated vessel patency at 12 months without the requirement for an
additional intervention. The single-arm study also revealed a low stent
fracture rate of just 1.5%. Additionally, in April 2010 we announced that Cook
had announced that it had enrolled its first patient in its landmark
Formula(TM) PTX clinical trial, the first trial of its kind to evaluate the
safety and effectiveness of a paclitaxel-eluting stent to treat renal artery
disease, the narrowing of the arteries that supply blood to the kidneys. The
multi-center, randomized trial plans to enroll 120 patients at sites across
Europe.
Boston Scientific - TAXUS. In June 2010 we announced that our partner, BSC, had commercially launched and implanted its first TAXUS Element(TM) Paclitaxel-Eluting Coronary Stent Systems in the European Union and other CE Mark countries. The TAXUS Element Stent System is BSC's third-generation drug-eluting stent technology and incorporates a platinum chromium alloy with an innovative stent design and an advanced catheter delivery system. In May 2010, we had announced that BSC had received CE Mark approval for its TAXUS Element Paclitaxel-Eluting Coronary Stent System. This approval included a specific indication for the treatment of diabetic patients.
Amendment to Credit Agreement. In April 2010 we completed a third amendment to our credit agreement with Wells Fargo Capital Finance, LLC (formerly Wells Fargo Foothill, LLC). The amendment included, among other items, amendments to financial covenants pertaining to minimum Adjusted EBITDA levels, interest coverage ratios and the definition of Adjusted EBITDA. The significant amended items are intended to reflect the continued decline and uncertainty of sales of TAXUS by BSC and the related potential impact on our Adjusted EBITDA. This amendment allows us continued access to funds per the terms of the credit agreement.
Financial Information
This press release contains financial data derived from the unaudited
consolidated financial statements for the quarter ended June 30, 2010 and
2009. Full unaudited consolidated interim financial statements and
Management's Discussion and Analysis for the three months ended June 30, 2010
will be filed on Form 10-Q on or before August 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.
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of U.S. $, Three months ended Six months ended
except per share data) June 30 June 30
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2010 2009 2010 2009
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REVENUE
Product sales, net $ 52,948 $ 47,179 $ 103,928 $ 93,316
Royalty revenue 8,886 16,996 21,194 34,107
License fees 52 398 105 25,450
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61,886 64,573 125,227 152,873
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EXPENSES
Cost of products sold 27,871 25,682 53,075 49,648
License and royalty fees 1,477 2,568 3,714 5,474
Research and development 6,853 6,833 13,660 12,930
Selling, general and
administration 22,784 21,606 44,382 41,178
Depreciation and
amortization 8,277 8,296 16,651 16,560
Write-down of assets
held for sale - - 700 -
Escrow settlement recovery - - (4,710) -
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67,262 64,985 127,472 125,790
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Operating income (loss) (5,376) (412) (2,245) 27,083
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Other income (expenses):
Foreign exchange gain
(loss) 919 (1,441) 1,266 (709)
Investment and other
(expense) income (333) (600) (386) (615)
Interest expense on
long-term debt (9,027) (9,641) (17,946) (19,685)
Write-down of investments (216) - (216) -
Loan settlement gain 1,180 - 1,180 -
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Total other expenses (7,477) (11,682) (16,102) (21,009)
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(Loss) income before
income taxes (12,853) (12,094) (18,347) 6,074
Income tax expense
(recovery) 1,221 (217) 2,422 5,507
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Net (loss) income $ (14,074) $ (11,877) $ (20,769) $ 567
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Basic and diluted net
(loss) income per
common share $ (0.17) $ (0.14) $ (0.24) $ 0.01
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Basic and diluted
weighted average number
of common shares
outstanding (in
thousands) 85,170 85,122 85,164 85,122
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ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in thousands of U.S. $, except per share data) 2010 2009
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ASSETS
Current assets
Cash and cash equivalents $ 29,666 $ 49,542
Short-term investments 5,482 7,780
Accounts receivable 30,536 28,167
Income tax receivable 914 1,090
Inventories 37,859 35,541
Deferred income taxes, current portion 3,623 4,284
Prepaid expenses and other current assets 2,529 3,294
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Total current assets 110,609 129,698
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Assets held for sale 3,800 5,300
Property, plant and equipment 48,382 46,879
Intangible assets 157,394 173,019
Deferred financing costs 10,197 11,409
Deferred income taxes, current portion 2,074 4,624
Other assets 1,910 3,754
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Total assets $ 334,366 $ 374,683
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 40,639 $ 46,324
Income taxes payable 5,163 10,858
Interest payable on long-term debt 6,027 6,004
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Total current liabilities 51,829 63,186
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Deferred leasehold inducement 4,466 2,888
Deferred income taxes, non-current portion 38,307 41,402
Other tax liabilities 3,247 3,898
Long-term debt 575,000 575,000
Other liabilities 1,261 1,596
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Total non-current liabilities 622,281 624,784
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Shareholders' deficit
Share capital
Authorized:
200,000,000 Common shares, without par value
50,000,000 Class I Preference shares,
without par value
Common shares issued and outstanding:
June 30, 2010 - 85,170,276
December 31, 2009 - 85,138,081 472,749 472,742
Additional paid-in capital 34,589 33,687
Accumulated deficit (887,310) (866,541)
Accumulated other comprehensive income 40,228 46,825
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Total shareholders' deficit (339,744) (313,287)
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Total liabilities and shareholders' deficit $ 334,366 $ 374,683
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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 (NASDAQ: ANPI, TSX: ANP), please visit our website at
www.angiotech.com.
Appendix A: Presentation of Certain Non-GAAP Financial Information and
Reconciliations to Corresponding GAAP Financial Measures
The financial results presented in this press release may include any or all of the following non-GAAP, or adjusted, financial measures, which we believe provide important supplemental information to management and investors about our 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 costs of goods sold ("adjusted COGS") (6) adjusted research and development expense ("adjusted R&D expense"), and (7) adjusted selling, general and administrative expense ("adjusted SG&A expense").
Economic Substance of Non-GAAP Financial Measures
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 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 COGS, 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.
Use of Non-GAAP Financial Measures
Management uses Adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per share, adjusted revenue, adjusted COGS, adjusted R&D expense and adjusted SG&A expense when setting corporate and operational goals, and evaluating operating performance in connection with:
- Presenting, comparing and assessing the financial results and
forecasts reported to our Board of Directors.
- Evaluating, managing and benchmarking our operating performance
- Analyzing underlying trends in our business.
- Evaluating market position and performance relative to our
competitors, many of which use the same or similar performance
measures.
- Establishing internal operating budgets.
- Determining compensation under bonus or other incentive programs.
- Enhancing comparability from period to period.
- Assessing compliance with credit facility covenants.
- Providing vital information in assessing cash flows to service our
significant debt obligations.
- Comparing performance with internal forecasts and targeted business
models.
- Evaluating and valuing potential acquisition candidates.
The adjustments used to compute our non-GAAP financial measures are
consistent with those excluded from segmented operating results used by our
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.
ANGIOTECH PHARMACEUTICALS, INC.
CALCULATION OF ADJUSTED EBITDA
(Unaudited)
Three months ended Six months ended
June 30 June 30
(in thousands U.S. $) 2010 2009 2010 2009
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GAAP net (loss) income $ (14,074) $ (11,877) $ (20,769) $ 567
Interest expense on
long-term debt 9,027 9,641 17,946 19,685
Income tax expense
(recovery) 1,221 (217) 2,422 5,507
Depreciation and
amortization 9,243 9,207 18,578 18,368
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EBITDA 5,417 6,754 18,177 44,127
Adjustments:
Non-recurring revenue,
net of license fees (a) (52) (398) (105) (25,450)
Non-recurring sales
provision related to
product recall (m) 193 - 193 -
Restructuring related
charges (b) 1,367 332 2,296 1,266
Technology acquisition
related charges (c) - 625 - 937
Non-recurring transaction
fees (l) 752 413 1,002 1,032
Stock-based compensation
expense (d) 481 423 908 807
Litigation related
expenses (g) 76 1,494 145 2,241
Foreign exchange (gain)
loss (h) (919) 1,441 (1,266) 709
Investment and other
income (65) (36) (52) (61)
Losses on asset
disposals (j) 21 - 61 40
Write-downs of investments
and other long-lived
assets (i) 216 - 916 -
Write-downs and other
non-cash deferred
financing costs (f) - 636 - 636
Non-recurring manufacturing
variances and product
recall charges (m) 156 896 156 896
Non-recurring escrow
settlement recovery (k) - - (4,710) -
Non-recurring loan
settlement gain (k) (1,180) - (1,180) -
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Adjusted EBITDA $ 6,463 $ 12,580 $ 16,541 $ 27,180
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RECONCILIATION OF GAAP NET (LOSS) INCOME TO NON-GAAP ADJUSTED NET LOSS
(Unaudited)
Three months ended Six months ended
June 30 June 30
(in thousands U.S. $) 2010 2009 2010 2009
----------- ----------- ----------- -----------
GAAP - net (loss)
income ($ 14,074) ($ 11,877) ($ 20,769) $ 567
Non recurring
revenue (a) (52) (398) (105) (25,450)
Non-recurring sales
provision related to
product recall (m) 193 - 193 -
Technology acquisition
related charges (c)
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