Updated and Amended Credit Facility and
Forbearance Agreement with Wells Fargo
Capital Finance, LLC Completed
Facility to Provide Angiotech up to $35 Million of Liquidity
during Recapitalization
Transaction Process
VANCOUVER, Nov. 9 /PRNewswire-FirstCall/ - Angiotech
Pharmaceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) today announced that
it had released its financial results for the third quarter ended
September 30, 2010.
In addition, Angiotech also announced today that
it had entered into an updated and amended credit facility and
Forbearance Agreement with Wells Fargo Capital Finance, LLC ("Wells
Fargo"). The updated and amended credit facility will provide us
with up to $35 million of liquidity, with the applicable interest
rate and other material terms being consistent with our current
credit facility with Wells Fargo, except that the updated and
amended credit facility is expected to increase our borrowing base,
thereby assuring us immediate access to approximately $25 million
under the facility, and provides for amended levels of material
financial covenants. The Amended and Restated Forbearance Agreement
provides for the credit facility to be available under the amended
terms through the earlier of April 30, 2011 or the completion
of our previously announced recapitalization transaction, subject
to certain terms and conditions described in more detail below.
"We are pleased to report our highest ever third
quarter product sales, driven primarily by continued growth in
sales of our Proprietary Medical Products and continued stability
and improvement across all segments of our Base Medical Products
business," said Dr. William Hunter, President and CEO of
Angiotech. "Our innovations, in particular our proprietary Quill™
Knotless Tissue-Closure Device franchise, combined with the
tremendous efforts of our people, have continued to produce
satisfying results, even as we continue to address the challenges
posed by declining royalties received from our partner Boston
Scientific."
Third Quarter Financial Highlights
- Total revenue was $59.0 million.
- Net product sales were $51.9 million. Sales of our Proprietary
Medical Products were $17.3 million, or 33% of total product sales.
Sales of our Base Medical Products were $34.6 million, or 67% of
total product sales.
- Royalty revenue was $7.1 million.
- Research and development expenses were $6.2 million.
- Selling, general and administrative expenses were $22.5
million.
- Net loss and net loss per share were $18.5 million and $0.22,
respectively.
- As of September 30, 2010, cash and short-term investments
were $31.3 million and net debt was $543.7 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 revenue was $58.9 million.
- Adjusted cost of goods sold was $25.6 million.
- Adjusted research and development expenses were $6.1
million.
- Adjusted selling, general and administrative expenses were
$21.9 million.
- Adjusted EBITDA (earnings before interest, taxes, depreciation
and amortization, adjusted to exclude certain non-cash and
non-recurring items) was $5.1 million.
- Adjusted net loss and adjusted net loss per share for the
quarter were $8.2 million and $0.10, respectively.
Recent Highlights
Proprietary Medical Products. Our
Proprietary Medical Products include our Quill™ Knotless
Tissue-Closure Device product line, Skater™ line of drainage
catheters, Option™ inferior vena cava ("IVC") filter, HemoStream™
chronic dialysis catheter and BioPince™ 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 third quarter of 2010 increased by 18% compared to the third
quarter of 2009 and foreign currency changes had minimal impact on
revenue growth.
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 third quarter of 2010 increased by 1%
compared to the third quarter of 2009. Excluding the impact of
foreign currency changes, revenue growth would have been 3%.
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® coronary stent systems incorporating
the drug paclitaxel.
Royalty revenue derived from sales of TAXUS
stent systems by BSC for the third quarter of 2010 declined by 56%
compared to the third quarter of 2009. The decline in royalty
revenue is due to lower sales of TAXUS stent systems by BSC, which
continue to be negatively impacted by competitive pressures in the
drug-eluting coronary stent market. Royalty revenue for the quarter
ended September 30, 2010 was based on BSC's net sales for the
period April 1, 2010 to June 30, 2010 of $113 million, of
which $66 million was in the U.S., compared to net sales of $226
million, of which $96 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 September 30, 2010 on BSC's net sales was 6.0%
for sales in the U.S. and 4.5% for sales in other countries,
compared to an average rate of 6.2% for sales in the U.S. and 6.1%
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 certain
territories including the U.S., E.U. and Japan, pursuant to which
we receive lower royalty rates as end-user sales of
paclitaxel-eluting stents decline in these territories.
Transaction Agreements with Senior
Subordinated Noteholders and Senior Floating Rate
Noteholders. On October 1, 2010 we announced that we
had not made our $9.7 million interest payment due to the holders
(the "Subordinated Noteholders") of our 7.75% Senior Subordinated
Notes (the "Subordinated Notes") on October 1, 2010 and that
we were in discussions with certain Subordinated Noteholders to
potentially restructure and reduce existing debt levels. On
October 29, 2010 we announced that we had entered into a
Recapitalization Support Agreement (the "Support Agreement") with
the holders of approximately 73% of the aggregate principal amount
of our Subordinated Notes (the "Consenting Noteholders") to
effectuate a recapitalization that would result in a significant
reduction of our debt. Upon completion, the recapitalization
transaction would eliminate $250 million in total indebtedness and
provide significant improvements to our credit ratios, liquidity
and financial flexibility. Under the Support Agreement, the
Consenting Noteholders have agreed to exchange their Subordinated
Notes for new common stock in Angiotech (the "Exchange Offer"). The
Exchange Offer will be open to all qualifying holders of the
Subordinated Notes (the "Noteholders") and Noteholders
participating in the Exchange Offer would receive 90% of the new
common stock of Angiotech issued and outstanding following the
completion of the recapitalization transaction, subject to
potential dilution. The Noteholders that agree to the terms of the
Support Agreement by November 30, 2010 will be entitled to
receive, as additional consideration, 3.5% of the new common stock
of Angiotech (distributed on a pro rata basis) issued and
outstanding at the completion of the recapitalization transaction,
subject to potential dilution.
In addition, on October 29, 2010 we also
entered into a support agreement (the "FRN Support Agreement") with
holders of approximately 51% of the aggregate principal amount of
our existing Senior Floating Rate Notes (the "Existing Floating
Rate Notes") for the exchange of Existing Floating Rate Notes for
new floating rate notes (the "New Floating Rate Notes"). The
Exchange Offer will be open to all qualifying holders of the
Existing Floating Rate Notes (the "FRN Noteholders"). The New
Floating Rate Notes will be issued on substantially the same terms
and conditions as the Existing Floating Rate Notes other than
amendments to certain covenants related to the incurrence of
additional indebtedness, and the definitions of permitted liens and
change of control. The New Floating Rate Notes are also expected to
be secured by a second lien over the property and assets of
Angiotech and certain of its Subsidiaries, which currently secure
the Company's revolving credit facility with Wells Fargo. Pursuant
to the Support Agreement, the obligation of the Consenting
Noteholders to complete the recapitalization transaction is
conditional on the completion of the transactions contemplated
under the FRN Support Agreement.
Updated and Amended Credit Facility and
Forbearance Agreement with Wells Fargo. On
September 30, 2010, we entered into a Forbearance Agreement
with Wells Fargo to preserve our existing revolving credit facility
while we completed negotiations and transaction agreements with the
Consenting Noteholders as described above. Under the Forbearance
Agreement, Wells Fargo agreed to not immediately exercise any
rights or remedies it has related to our failure to make our
interest payment on October 1, 2010.
Subsequently, on November 9, 2010, we
announced that we had entered into an amendment and restatement to
the Forbearance Agreement (the "Amended and Restated Forbearance
Agreement") with Wells Fargo to continue to preserve our existing
revolving credit facility during the period required to complete
the proposed recapitalization transaction. Under the Amended and
Restated Forbearance Agreement, Wells Fargo agreed to not
immediately exercise any rights or remedies it has related to:
(a) our failure to make our $9.7 million interest payment due
to the Subordinated Noteholders on October 1, 2010;
(b) our ongoing litigation with QSR Holdings, Inc.; or
(c) any failure to deliver audited financial statements with
an unqualified audit opinion with respect to the going concern
assumption for the fiscal year ending December 31, 2010. The
purpose of the credit facility amendment is to provide Angiotech
with liquidity during the period required to complete the proposed
recapitalization transaction and fulfill the liquidity requirement
specified by the Support Agreement. We incurred amendment fees of
$0.1 million to complete both the Forbearance Agreement and Amended
and Restated Forbearance Agreement and $0.3 million to complete the
amendment to the credit facility. We currently have no borrowings
outstanding under the credit facility other than amounts specified
under the letters of credit referred to below.
The amendment to our existing credit facility
with Wells Fargo provides for, among other changes:
|
(i) |
an amendment of financial covenants pertaining to minimum
EBITDA levels and fixed charge coverage ratios; |
|
(ii) |
an increase to the borrowing base available to secure loans by
including in such borrowing base the value of certain real
property, securities and intellectual property owned by the Company
and its subsidiaries, in addition to accounts receivable and
inventory, in each case subject to reserves, eligibility standards
and advance rate formulas. As a result of such amendment, the
amount of financing available to us under our amended revolving
credit facility will immediately increase to approximately $25
million, which is net of $2.8 million of outstanding secured
letters of credit under the credit facility; |
|
(iii) |
an amendment to the specified use of proceeds provisions to
allow for certain secured and unsecured intercompany loans by our
U.S. entities to our Canadian entities; and |
|
(iv) |
an amendment to permit the sale of certain assets of the
Company. |
The Amended and Restated Forbearance Agreement
will terminate on the earliest to occur of:
|
(i) |
the occurrence of another event constituting an Event of
Default under the existing revolving credit facility; |
|
(ii) |
the occurrence of a Material Adverse Change as defined under
the existing revolving credit facility, subject to exclusions for
changes relating to the recapitalization plan; |
|
(iii) |
failure to attain certain intermediate milestones with respect
to the recapitalization plan; |
|
(iv) |
termination of the Support Agreement or the FRN Support
Agreement; |
|
(v) |
consummation of the recapitalization plan on terms and
conditions not reasonably satisfactory to Wells Fargo under the
existing revolving credit facility; |
|
(vi) |
failure to remain within the applicable grace period with
respect to the non-payment of the interest payment due to the
Subordinated Note holders on October 1, 2010; and |
|
(vii) |
April 30, 2011. |
The Support Agreement requires that, upon
implementation of the recapitalization transaction, the existing
revolving credit facility be amended, refinanced or replaced to
provide not less than $25 million and not more than $35 million in
liquidity. As a result, further consent from Wells Fargo under the
revolving credit facility will be required in connection with the
consummation of the proposed recapitalization transaction. If such
consent is not obtained, we would be required to replace the
existing revolving credit facility with a new revolving credit
facility.
QSR Holdings. On October 6,
2010, we announced that on October 4, 2010 we were notified
that QSR Holdings, Inc. ("QSR"), as the representative for the
former stockholders of Quill Medical, Inc. ("QMI"), made a formal
demand to the American Arbitration Association naming us and our
subsidiaries, QMI and Angiotech Pharmaceuticals (US), Inc.
("Angiotech US") as respondents. The arbitration demand alleges
that we failed to satisfy certain obligations under the Agreement
and Plan of Merger, dated May 25, 2006, by and among
Angiotech, Angiotech US, Quaich Acquisition, Inc. and QMI (the
"Merger Agreement"), and seeks either direct monetary damages or,
in the alternative, extension for one calendar year of certain
earn-out periods as more fully set forth in the Merger Agreement.
In addition, on October 5, 2010, certain of the respondents
were served with the Summons and Complaint in an action commenced
in the United States District Court for the Middle District of
North Carolina on October 1, 2010 by QSR, entitled QSR
Holdings, Inc. v. Angiotech Pharmaceuticals, Inc., Angiotech
Pharmaceuticals (US), Inc. and Quill Medical, Inc. (the "Federal
Litigation"). The Complaint in the Federal Litigation alleges,
among other items, that: (a) we breached certain contractual
obligations under the Merger Agreement; (b) that certain
misrepresentations or omissions were made by us during the initial
negotiation of the Merger Agreement; and (c) tortious
interference. QSR is seeking damages in an unstated amount together
with punitive damages and/or attorneys fees to the extent allowed
by law. Given the preliminary stages of these proceedings, it is
not possible at this time to predict the outcome of the Federal
Litigation or of any arbitration or other proceeding that may
result from the Arbitration Demand. We intend to vigorously defend
the Federal Litigation and any arbitration or other proceeding that
may result from the Arbitration Demand.
TAXUS®
Paclitaxel-eluting Coronary Stent Clinical Results.
Our partner BSC announced several clinical updates relating to
paclitaxel-eluting coronary stents at the recently held
Cardiovascular Research Foundation's annual Transcatheter
Cardiovascular Therapeutics ("TCT") scientific symposium in
Washington, D.C. On September 25, 2010 we announced that our
corporate partner, BSC, released three-year follow-up data from the
HORIZONS-AMI trial. The trial is designed to determine the safety
and efficacy of the TAXUS® Express2™ Paclitaxel-Eluting
Coronary Stent System compared to bare-metal stenting in patients
experiencing an acute myocardial infarction ("AMI"), more commonly
referred to as a heart attack. With 3,006 patients enrolled
worldwide, HORIZONS-AMI is the largest randomized trial to compare
the use of drug-eluting stents to bare-metal stents for AMI
patients. HORIZONS-AMI demonstrated that the TAXUS Express Stent
significantly reduced clinical and angiographic restenosis compared
to an otherwise identical bare-metal Express® control
stent. After three years follow-up, the primary efficacy endpoint
of ischemia-driven target lesion revascularization ("TLR") was 9.4
percent for patients treated with TAXUS Express vs. 15.1 percent
for bare-metal Express (p0.001), a relative reduction of 40
percent. On September 22, 2010 we announced that our corporate
partner, BSC, had released results from an analysis of 1,166
patients from its PERSEUS clinical program comparing the
performance of the TAXUS® Element™ Paclitaxel-Eluting
Coronary Stent System in diabetic versus non-diabetic patients.
Results demonstrated that despite the known increased risk of
restenosis for diabetics versus non-diabetics in patients
undergoing coronary revascularization, the TAXUS Element Stent had
comparable levels of TLR and late loss in both diabetic and
non-diabetic patients. On September 22, 2010 we announced that
BSC had released comprehensive data from the TAXUS ATLAS clinical
program, a series of global, prospective, single-arm trials
evaluating the TAXUS® Liberté®
Paclitaxel-Eluting Stent System in a variety of lesions and patient
groups. Five-year results from the TAXUS ATLAS trial and four-year
results from the TAXUS ATLAS Small Vessel and Long Lesion trials
continue to show significant advantages for the thin-strut TAXUS
Liberté Stent when compared to the first-generation
TAXUS® Express® Stent.
Zilver®
PTX ® Clinical Results. On
September 24, 2010 we announced that a summary of the final
clinical trial results for the randomized study of Cook Medical,
Inc.'s ("Cook") Zilver® PTX® Drug-Eluting
Peripheral Stent ("Zilver PTX") for use in patients with peripheral
arterial disease in the superficial femoral artery was presented at
the TCT conference in Washington D.C. The study, which was the
largest clinical trial to ever evaluate the performance of a
drug-eluting stent in the treatment of peripheral vascular disease,
met its 12-month primary endpoint showing non-inferior event-free
survival and superior patency for the Zilver PTX as compared to
balloon angioplasty. Cook Medical, a license holder of our
proprietary paclitaxel technology, has developed Zilver-PTX, a
self-expanding, highly durable nitinol stent that uses a
proprietary technology to deliver a locally therapeutic dose of
paclitaxel, a proven anti-restenotic drug, to the target lesion. We
believe the data from this clinical trial supports Cook's
Pre-Market Approval application submitted to the U.S. Food and Drug
Administration earlier this year.
Athersys Inc. In July, 2010 we
announced that Athersys had announced positive results from its
phase I clinical trial of MultiStem®. The study results,
which represented 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. On September 23, 2010 we, along with our partner
Athersys, Inc. ("Athersys") announced updated results from the
phase I clinical trial of MultiStem®, Athersys'
allogeneic cell therapy product, administered to individuals
following an AMI, more commonly referred to as a heart attack. The
updated study results were presented at the TCT conference held in
Washington, D.C. The updated study results, based on four months of
post-treatment patient data, also demonstrate that MultiStem was
well tolerated at all dose levels and also suggest improvement in
heart function in treated patients.
Financial Information
This press release contains financial data
derived from the unaudited consolidated financial statements for
the quarter ended September 30, 2010 and 2009. Full unaudited
consolidated interim financial statements and Management's
Discussion and Analysis for the three months ended
September 30, 2010 will be filed on Form 10-Q on
November 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.
Conference Call Information
A conference call to discuss these financial
results will be held today, Tuesday November 9, 2010 at 11:00
AM ET (8:00 AM PT).
Dial-in information:
North America (toll-free):
(800) 510-9834
International: (617) 614-3669
Enter Passcode: 9442 9774
An archived replay of the call will be available
until November 16, 2010.
North America (toll-free): (888) 286-8010
International: (617) 801-6888
Enter Passcode: 4734 7778
A live webcast will be available to all interested parties through
the Investors section of our website:
www.angiotech.com/investors
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
(in
thousands of U.S. $, except per share data) |
Three
months ended September 30 |
Nine
months ended September 30 |
|
|
|
|
|
|
2010 |
2009 |
2010 |
2009 |
REVENUE |
|
|
|
|
Product sales, net |
$ 51,868 |
$ 48,660 |
$ 155,796 |
$ 141,976 |
Royalty revenue |
7,063 |
14,531 |
28,257 |
48,638 |
License fees |
53 |
53 |
158 |
25,503 |
|
58,984 |
63,244 |
184,211 |
216,117 |
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
Cost of products sold |
26,808 |
25,958 |
79,883 |
75,606 |
License and royalty
fees |
1,170 |
2,463 |
4,884 |
7,937 |
Research and
development |
6,240 |
4,596 |
19,900 |
17,526 |
Selling, general and
administration |
22,489 |
17,924 |
66,871 |
59,102 |
Depreciation and
amortization |
8,297 |
8,285 |
24,948 |
24,845 |
Write-down of assets held for
sale |
— |
— |
700 |
— |
Escrow settlement
recovery |
— |
— |
(4,710) |
— |
|
65,004 |
59,226 |
192,476 |
185,016 |
Operating income
(loss) |
(6,020) |
4,018 |
(8,265) |
31,101 |
|
|
|
|
|
Other income
(expenses): |
|
|
|
|
Foreign exchange gain
(loss) |
3 |
(518) |
1,269 |
(1,227) |
Investment and other (expense)
income |
(126) |
46 |
(512) |
74 |
Debt restructuring
costs |
(2,978) |
— |
(2,978) |
— |
Interest expense on long-term
debt |
(9,833) |
(9,286) |
(27,779) |
(28,971 ) |
Write-down of investments and
deferred financing charges |
— |
— |
(216) |
(643 ) |
Loan settlement gain |
— |
— |
1,180 |
— |
Total other expenses |
(12,934) |
(9,758) |
(29,03 ) |
(30,767) |
(Loss) income before income
taxes |
(18,954) |
(5,740) |
(37,301) |
334 |
Income tax (recovery)
expense |
(454) |
2,062 |
1,968 |
7,569 |
Net loss |
$ (18,500) |
$ (7,802) |
$ (39,269) |
$ (7,235) |
|
|
|
|
|
Basic and diluted net loss per
common share |
$ (0.22) |
$ (0.09) |
$ (0.46) |
$ (0.08) |
|
|
|
|
|
Basic and diluted weighted
average number of common shares outstanding (in
thousands) |
85,174 |
85,136 |
85,162 |
85,125 |
|
|
|
|
|
ANGIOTECH PHARMACEUTICALS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
(in thousands of U.S. $, except per share data)
|
September 30,
2010 |
December 31,
2009 |
ASSETS |
|
|
Current assets |
|
|
Cash and cash equivalents |
$ 25,566 |
$ 49,542 |
Short-term investments |
5,746 |
7,780 |
Accounts receivable |
31,046 |
28,167 |
Income tax receivable |
1,657 |
1,090 |
Inventories |
38,010 |
35,541 |
Deferred income taxes, current
portion |
3,974 |
4,284 |
Prepaid expenses and other current
assets |
3,487 |
3,294 |
Total current assets |
109,486 |
129,698 |
|
|
|
Assets held for sale |
2,300 |
5,300 |
Property, plant and
equipment |
50,538 |
46,879 |
Intangible assets |
151,104 |
173,019 |
Deferred financing costs |
9,510 |
11,409 |
Deferred income taxes, current
portion |
2,125 |
4,624 |
Other assets |
1,737 |
3,754 |
Total assets |
$ 326,800 |
$ 374,683 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
DEFICIT |
|
|
|
|
|
Current liabilities |
|
|
Accounts payable and accrued
liabilities |
$ 44,593 |
$ 46,324 |
Income taxes payable |
4,901 |
10,858 |
Interest payable on long-term
debt |
10,806 |
6,004 |
Total current liabilities |
60,300 |
63,186 |
|
|
|
Deferred leasehold
inducement |
4,335 |
2,888 |
Deferred income taxes, non-current
portion |
38,355 |
41,402 |
Other tax liabilities |
3,385 |
3,898 |
Long-term debt |
575,000 |
575,000 |
Other liabilities |
1,093 |
1,596 |
Total non-current
liabilities |
622,168 |
624,784 |
|
|
|
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: |
|
|
|
September 30, 2010 - 85,176,449 |
|
|
|
December 31, 2009 - 85,138,081 |
472,751 |
472,742 |
Additional paid-in capital |
35,030 |
33,687 |
Accumulated deficit |
(905,810) |
(866,541) |
Accumulated other comprehensive
income |
42,361 |
46,825 |
Total shareholders'
deficit |
(355,668) |
(313,287) |
|
|
|
Total liabilities and shareholders'
deficit |
$ 326,800 |
$ 374,683 |
|
|
|
Forward Looking Statements
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 2010 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 legislation and
regulations and changes in, or the failure to comply with,
governmental legislation and 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, 2009 filed with the SEC
on Form 10-K, as amended, and our quarterly report for the second
quarter of 2010 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.
Additional Information and Where to Find
It
This communication may be deemed to be
solicitation material in respect of the proposed recapitalization
transaction with holders of its Senior Subordinated Notes and
Senior Floating Rate Notes, as announced on October 29,
2010. In connection with the proposed transaction, Angiotech
intends to file relevant materials with the SEC, including a proxy
statement on Schedule 14A. SHAREHOLDERS OF ANGIOTECH ARE URGED
TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING
ANGIOTECH'S PROXY STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security
holders will be able to obtain the documents free of charge at the
SEC's web site, http://www.sec.gov, and Angiotech
shareholders will receive information at an appropriate time on how
to obtain transaction-related documents for free from Angiotech.
Such documents are not currently available.
Participants in Solicitation
Angiotech and its directors, executive officers
and other members of management and employees may be deemed to be
participants in the solicitation of proxies from the holders of
Angiotech common shares in respect of the proposed recapitalization
transaction. Information about the directors and executive officers
of Angiotech is set forth in Angiotech's Annual Report on Form 10-K
for the most recently ended fiscal year, which was filed with the
SEC on March 16, 2010 (as amended by our Amendment #1 on Form
10-K/A, which was filed with the SEC on April 29,
2010). Investors may obtain additional information regarding
the interest of such participants by reading the proxy statement
regarding the acquisition when it becomes available.
©2010 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 (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
September 30 |
Nine months
ended
September 30 |
(in thousands U.S.$) |
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP net loss |
$ (18,500) |
$ (7,802) |
$ (39,269) |
$ (7,235) |
Interest expense on long-term debt |
9,833 |
9,286 |
27,779 |
28,971 |
Income tax (recovery) expense |
(454) |
2,062 |
1,968 |
7,569 |
Depreciation and amortization |
9,318 |
9,198 |
27,896 |
27,566 |
|
|
|
|
|
EBITDA |
197 |
12,744 |
18,374 |
56,871 |
Adjustments: |
|
|
|
|
Non-recurring revenue, net of license fees
(a) |
(53) |
(53) |
(158) |
(25,503) |
Restructuring related charges (b) |
1,430 |
167 |
3,727 |
1,433 |
Technology acquisition related charges
(c) |
— |
427 |
— |
1,365 |
Non-recurring transaction fees (l) |
2,978 |
— |
3,909 |
1,032 |
Stock-based compensation expense (d) |
442 |
363 |
1,351 |
1,170 |
Litigation related expenses (g) |
18 |
371 |
163 |
2,612 |
Foreign exchange (gain) loss (h) |
(3) |
518 |
(1,269) |
1,227 |
Investment and other income and
losses on asset disposals (j) |
126 |
(46) |
170 |
(74) |
Write-downs of investments and other long-lived
assets (i) |
— |
— |
916 |
— |
Write-downs and other non-cash deferred financing
costs (f) |
— |
— |
— |
643 |
Non-recurring manufacturing
variances and product recall charges (m) |
(61) |
765 |
288 |
1,661 |
Non-recurring escrow settlement recovery
(k) |
— |
— |
(4,710) |
— |
Non-recurring loan settlement gain (k) |
— |
— |
(1,180) |
— |
Adjusted EBITDA |
$ 5,074 |
$ 15,256 |
$ 21,581 |
$ 42,437 |
|
|
|
|
|
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP
ADJUSTED NET (LOSS) INCOME
(Unaudited)
|
|
|
|
|
(in thousands U.S.
$) |
Three months
ended
September 30 |
Nine months
ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP - net loss |
($ 18,500) |
($ 7,802) |
($ 39,269) |
($ 7,235) |
|
Non recurring revenue (a) |
(53) |
(53) |
(158) |
(25,503) |
|
Technology acquisition related charges
(c) |
— |
427 |
— |
1,365 |
|
Non-recurring restructuring related charges
(b) |
1,430 |
167 |
3,727 |
1,433 |
|
Non-recurring transaction fees (l) |
2,978 |
— |
3,909 |
1,032 |
|
Stock based compensation expense (d) |
442 |
363 |
1,351 |
1,170 |
|
Litigation related expenses (g) |
18 |
371 |
163 |
2,612 |
|
Write-down of investments & other
long-lived assets (i) |
— |
— |
916 |
— |
|
Write-down and other deferred financing charges
(f) |
737 |
708 |
2,193 |
2,719 |
|
Foreign exchange (gain) loss (h) |
(3 ) |
518 |
(1,269) |
1,227 |
|
Acquisition related intangible asset amortization
expense (e) |
7,565 |
7,510 |
22,710 |
22,344 |
|
Losses on asset disposals (j) |
51 |
39 |
112 |
72 |
|
Non-recurring manufacturing variances
(m) |
— |
765 |
— |
1,661 |
|
Non-recurring charges related to product recall
(m) |
(61) |
— |
288 |
— |
|
Non-recurring escrow settlement recovery
(k) |
— |
— |
(4,710) |
— |
|
Non-recurring loan settlement gain (k) |
— |
— |
(1,180) |
— |
|
Estimated tax impact of non-GAAP adjustments
(n) |
(2,758) |
(2,941) |
(8,599) |
(3,706) |
Adjusted net (loss) income |
$ (8,154) |
$ 72 |
$ (19,816) |
$ (809) |
|
|
|
|
|
RECONCILIATION OF GAAP NET (LOSS) INCOME PER
SHARE
TO NON-GAAP ADJUSTED NET (LOSS) INCOME PER SHARE
(Unaudited)
|
|
|
|
|
|
Three months ended September 30 |
Six months ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
Basic and
diluted |
Basic and
diluted |
|
|
|
|
|
GAAP - net loss per share |
$ (0.22) |
$ (0.09) |
$ (0.46) |
$ (0.08) |
|
Non recurring revenue (a) |
(0.00) |
(0.00) |
(0.00) |
(0.30) |
|
Technology acquisition related charges
(c) |
— |
0.01 |
— |
0.02 |
|
Non-recurring restructuring related charges
(b) |
0.02 |
0.00 |
0.04 |
0.02 |
|
Non-recurring transaction fees (l) |
0.03 |
— |
0.05 |
0.01 |
|
Stock based compensation expense (d) |
0.01 |
0.00 |
0.02 |
0.01 |
|
Litigation related expenses (g) |
0.00 |
0.00 |
0.00 |
0.03 |
|
Write-down of
investments & other long-lived assets (i) |
— |
— |
0.01 |
— |
|
Write-down and other deferred financing charges
(f) |
0.01 |
0.01 |
0.03 |
0.03 |
|
Foreign exchange (gain) loss (h) |
(0.00) |
0.01 |
(0.01) |
0.01 |
|
Acquisition related intangible
asset amortization expense (e) |
0.09 |
0.09 |
0.27 |
0.26 |
|
Losses on asset disposals (j) |
0.00 |
0.00 |
0.00 |
0.00 |
|
Non-recurring manufacturing variances
(m) |
— |
0.01 |
— |
0.02 |
|
Non-recurring charges related to product recall
(m) |
(0.00) |
— |
0.00 |
— |
|
Non-recurring escrow settlement recovery
(k) |
— |
— |
(0.06) |
— |
|
Non-recurring loan settlement gain (k) |
— |
— |
(0.01) |
— |
|
Estimated tax impact of non-GAAP adjustments
(n) |
(0.03) |
(0.03) |
(0.10) |
(0.04) |
Adjusted net (loss) income per
share |
$ (0.10) |
$ 0.00 |
$ (0.23) |
$ (0.01) |
|
|
|
|
|
RECONCILIATION OF GAAP REVENUE TO NON-GAAP
ADJUSTED REVENUE
(Unaudited)
|
|
|
|
|
(in thousands U.S.
$) |
Three months ended
September 30 |
Nine months
ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP - revenue |
58,984 |
63,244 |
184,211 |
216,117 |
|
Non-recurring revenue (a) |
(53) |
(53) |
(158) |
(25,503) |
|
Non-recurring sales provision
related to product recall (m) |
(61) |
— |
132 |
— |
Adjusted revenue |
$ 58,870 |
$ 63,191 |
$ 184,185 |
$ 190,614 |
|
|
|
|
|
RECONCILIATION OF GAAP COGS TO NON-GAAP
ADJUSTED COGS
(Unaudited)
|
|
|
|
|
(in thousands U.S.
$) |
Three months ended
September 30 |
Nine months
ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP - COGS |
$ 26,808 |
$ 25,958 |
$ 79,883 |
$ 75,606 |
|
Non-recurring manufacturing variances
(m) |
— |
(765) |
— |
(1,661) |
|
Non-recurring restructuring related charges
(b) |
(1,180) |
— |
(2,167) |
— |
|
Non-recurring charges related to
product recall (m) |
— |
— |
(156) |
— |
Adjusted COGS |
$ 25,628 |
$ 25,193 |
$ 77,560 |
$ 73,945 |
|
|
|
|
|
RECONCILIATION OF GAAP RESEARCH &
DEVELOPMENT EXPENSE TO NON-GAAP ADJUSTED
RESEARCH & DEVELOPMENT EXPENSE
(Unaudited)
|
|
|
|
|
(in thousands U.S.
$) |
Three months ended September 30 |
Nine months
ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP - research and development
expense |
$ 6,240 |
$ 4,596 |
$ 19,900 |
$ 17,526 |
|
Technology acquisition related
charges (c) |
— |
(427) |
— |
(1,365) |
|
Stock based compensation expense (d) |
(119) |
(103) |
(344) |
(318) |
Adjusted research
and development expense |
$ 6,121 |
$ 4,066 |
$ 19,556 |
$ 15,843 |
|
|
|
|
|
RECONCILIATION OF GAAP SELLING,
GENERAL & ADMINISTRATION EXPENSE TO NON-GAAP ADJUSTED
SELLING, GENERAL & ADMINISTRATIVE EXPENSE
(Unaudited)
|
|
|
|
|
(in thousands U.S.
$) |
Three months ended
September 30 |
Nine months
ended
September 30 |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
GAAP - selling,
general and administration expense |
$ 22,489 |
$ 17,924 |
$ 66,871 |
$ 59,102 |
|
Non-recurring restructuring
related charges (b) |
(250) |
(167) |
(1,218) |
(1,433) |
|
Stock based compensation expense
(d) |
(323) |
(260) |
(1,007) |
(852) |
|
Litigation related charges
(g) |
(18) |
(371) |
(163) |
(2,612) |
|
Non-recurring transaction fees
(l) |
— |
— |
(931) |
(1,032) |
Adjusted selling,
general and adminstration expense |
$ 21,898 |
$ 17,126 |
$ 63,552 |
$ 53,173 |
|
|
|
|
|
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, 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.
ANGIOTECH PHARMACEUTICALS, INC.
WORLDWIDE SALES
(Unaudited)
|
|
|
|
|
|
Three Months Ended |
Change |
(in
thousands of U.S.$) |
30-Sep-10 |
30-Jun-10 |
As Reported
Basis |
Constant Currency
Basis |
Proprietary Medical Products |
$ 17,330 |
$ 16,397 |
6% |
5% |
Base Medical Products |
34,475 |
36,551 |
-6% |
-7% |
Total Medical Products |
$ 51,805 |
$ 52,948 |
-2% |
-3% |
|
|
|
|
|
|
|
|
|
Three Months Ended |
Change |
(in
thousands of U.S.$) |
30-Sep-10 |
30-Sep-09 |
As
Reported
Basis |
Constant Currency
Basis |
Proprietary Medical Products |
$ 17,330 |
$ 14,646 |
18% |
18% |
Base Medical Products |
34,475 |
34,025 |
1% |
3% |
Total Medical Products |
$ 51,805 |
$ 48,671 |
6% |
8% |
|
|
|
|
|
ANGIOTECH PHARMACEUTICALS, INC.
NON-GAAP CONSTANT CURRENCY NET SALES RECONCILIATIONS
(Unaudited)
|
|
|
|
|
Q3 2010 Net Sales as compared to Q2 2010
|
|
Change |
|
(in
thousands of U.S.$) |
As Reported
Currency Basis |
Constant
Currency Basis |
Estimated Impact of
Foreign Currency |
Proprietary Medical Products |
$ 933 |
$ 846 |
87 |
Base Medical Products |
(2,076) |
(2,412) |
336 |
|
|
|
|
Total Medical Products |
$ (1,143) |
$ (1,566) |
423 |
|
|
|
|
|
|
|
Q3 2010 Net Sales as compared to Q3 2009
|
|
Change |
|
(in
thousands of U.S.$) |
As
Reported
Currency Basis |
Constant
Currency Basis |
Estimated Impact of
Foreign Currency |
Proprietary Medical Products |
$ 2,684 |
$ 2,719 |
(35) |
Base Medical Products |
450 |
960 |
(510) |
|
|
|
|
Total Medical Products |
$ 3,134 |
$ 3,679 |
(545) |
|
|
|
|
For a consolidated reconciliation of all GAAP
financial measures identified above to corresponding non-GAAP
financial measures, refer to the following tables.
ANGIOTECH PHARMACEUTICALS, INC.
RECONCILIATION OF GAAP FINANCIAL MEASURES TO
CORRESPONDING
NON-GAAP FINANCIAL MEASURES
(Unaudited)
|
|
|
|
|
|
|
(in
thousands of U.S.$, except share and per share data) |
Three months ended
September 30, 2010 |
Three months ended
September 30, 2009 |
|
Reported |
Adjustments |
Adjusted |
Reported |
Adjustments |
Adjusted |
|
|
|
|
|
|
|
REVENUE |
|
|
|
|
|
|
Product sales, net |
$ 51,868 |
$ (61) m |
$ 51,807 |
$ 48,660 |
$ — |
$ 48,660 |
Royalty revenue |
7,063 |
— |
7,063 |
14,531 |
— |
14,531 |
License fees |
53 |
(53)a |
— |
53 |
(53) a |
—
|
|
58,984 |
(114) |
58,870 |
63,244 |
(53) |
63,191 |
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
Cost of products sold |
26,808 |
(1,180)b |
25,628 |
25,958 |
(765) m |
25,193 |
License and royalty fees |
1,170 |
— |
1,170 |
2,463 |
— |
2,463 |
Research and development |
6,240 |
(119)d |
6,121 |
4,596 |
(427) c |
4,066 |
|
|
— c |
|
|
(103) d |
|
Selling, general and administrative |
22,489 |
(250)b |
21,898 |
17,924 |
(167) b |
17,126 |
|
|
(323)d |
|
|
(260) d |
|
|
|
(18)g |
|
|
(371) g |
|
Depreciation and amortization |
8,297 |
(7,565)e |
732 |
8,285 |
(7,510) e |
775 |
|
|
|
|
|
|
|
|
65,004 |
(9,455) |
55,549 |
59,226 |
(9,603) |
49,623 |
Operating (loss) income |
(6,020 ) |
9,341 |
3,321 |
4,018 |
9,550 |
13,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
Foreign exchange gain (loss) |
3 |
(3)h |
— |
(518) |
518 h |
—
|
Investment and other (loss) income |
(126) |
51j |
(75) |
46 |
39 j |
85 |
Debt restructuring costs |
(2,978) |
2,978l |
— |
— |
— |
—
|
Interest expense on long-term debt |
(9,833) |
737f |
(9,096) |
(9,286) |
708 f |
(8,578) |
|
(12,934) |
3,763 |
(9,171) |
(9,758) |
1,265 |
(8,493) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
(18,954) |
13,104 |
(5,850) |
(5,740) |
10,815 |
5,075 |
Income tax (recovery) expense |
(454) |
2,758n |
2,304 |
2,062 |
2,941 n |
5,003 |
|
|
|
|
|
|
|
Net (loss) income for the period |
$ (18,500) |
$ 10,346 |
$ (8,154) |
$ (7,802) |
$ 7,874 |
$ 72 |
|
|
|
|
|
|
|
Basic and diluted net (loss) income per common
share |
$ (0.22) |
$ 0.12 |
$ (0.10) |
$ (0.09) |
$ 0.09 |
$ 0.00 |
Weighted average shares outstanding (000's) -
basic & diluted |
85,174 |
|
85,174 |
85,136 |
|
85,136 |
|
|
|
|
|
|
|
ANGIOTECH PHARMACEUTICALS, INC.
RECONCILIATION OF GAAP FINANCIAL MEASURES TO
CORRESPONDING
NON-GAAP FINANCIAL MEASURES
(Unaudited)
|
|
|
|
|
|
|
(in
thousands of U.S.$, except share and per share data) |
Nine months ended
September 30, 2010 |
Nine months ended
September 30, 2009 |
|
Reported |
Adjustments |
Adjusted |
Reported |
Adjustments |
Adjusted |
REVENUE |
|
|
|
|
|
|
Product sales, net |
$ 155,796 |
$ 132 m |
$ 155,928 |
$ 141,976 |
$ — |
$ 141,976 |
Royalty revenue |
28,257 |
— |
28,257 |
48,638 |
— |
48,638 |
License fees |
158 |
(158) a |
— |
25,503 |
(25,503) a |
—
|
|
|
|
|
|
|
|
|
184,211 |
(26) |
184,185 |
216,117 |
(25,503) |
190,614 |
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
Cost of products sold |
79,883 |
(2,167) b |
77,560 |
75,606 |
(1,661) m |
73,945 |
|
|
(156) m |
|
|
— |
|
License and royalty fees |
4,884 |
|
4,884 |
7,937 |
|
7,937 |
Research and development |
19,900 |
(344) d |
19,556 |
17,526 |
(1,365) c |
15,843 |
|
|
— c |
|
|
(318) d |
|
Selling, general and administrative |
66,871 |
(1,218) b |
63,552 |
59,102 |
(1,433) b |
53,173 |
|
|
(1,007) d |
|
|
(852) d |
|
|
|
(163) g |
|
|
(2,612) g |
|
|
|
(931) l |
|
|
(1,032) l |
|
Depreciation and amortization |
24,948 |
(22,710) e |
2,238 |
24,845 |
(22,344) e |
2,501 |
Write-down of assets held for sale |
700 |
(700) i |
— |
— |
— |
—
|
Escrow settlement recovery |
(4,710) |
4,710 k |
— |
— |
— |
—
|
|
192,476 |
(24,686) |
167,790 |
185,016 |
(31,617) |
153,399 |
Operating (loss) income |
(8,265) |
24,660 |
16,395 |
31,101 |
6,114 |
37,215 |
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
Foreign exchange (loss) gain |
1,269 |
(1,269) h |
— |
(1,227) |
1,227 h |
—
|
Investment and other income (loss) |
(512) |
112 j |
(58 ) |
74 |
72 j |
146 |
|
|
342 b |
|
|
|
|
Debt restructuring costs |
(2,978) |
2,978 l |
— |
— |
— |
—
|
Interest expense on long-term debt |
(27,779) |
2,193 f |
(25,586) |
(28,971) |
2,076 f |
(26,895) |
Write-down of investments and deferred financing
charges |
(216) |
216 i |
— |
(643 ) |
643 f |
—
|
Loan settlement gain |
1,180 |
(1,180) k |
— |
— |
— |
—
|
|
(29,036) |
3,392 |
(25,644) |
(30,767) |
4,018 |
(26,749) |
|
|
|
|
|
|
|
(Loss) income before income taxes |
(37,301) |
28,052 |
(9,249) |
334 |
10,132 |
10,466 |
Income tax expense (recovery) |
1,968 |
8,599 n |
10,567 |
7,569 |
3,706 n |
11,275 |
Net (loss) income for the period |
$ (39,269) |
$ 19,453 |
$ (19,816) |
$ (7,235) |
$ 6,426 |
$ (809) |
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
$ (0.46) |
$ 0.23 |
$ (0.23) |
$ (0.08) |
$ 0.08 |
$ (0.01) |
|
|
|
|
|
|
|
Weighted average shares outstanding (000's) -
basic and diluted |
85,162 |
|
85,162 |
85,125 |
|
85,125 |
|
|
|
|
|
|
|
Description of Adjustments
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,
2010.
(a) Non-Recurring Revenue
We report adjusted net income (loss), adjusted
net income (loss) per share and adjusted revenue which exclude
certain items that are non-recurring and are unrelated to the
day-to-day operating activities from our reported GAAP-based
revenue.
Our adjusted results for the three and nine
months ended September 30, 2010 and 2009 exclude certain
non-recurring and non-operating license revenue. Our adjusted
results for the nine months ended September 30, 2009 also
excludes a $25.0 million one-time payment received from Baxter
International Inc. The payment was deducted from our GAAP-based
revenue because it was non-recurring and received in lieu of future
royalty payments on licensed technology and non-recurring
non-operating license revenue.
(b) Restructuring-Related Charges
We report adjusted net income (loss), adjusted
net income (loss) per share, adjusted COGS, adjusted R&D and
adjusted SG&A metrics which exclude certain expenses related to
corporate reorganization or plant restructuring activities that we
are pursuing, or have completed in prior periods. These amounts,
which are added back to our GAAP-based net income (loss) and net
income (loss) per share to calculate corresponding adjusted
metrics, primarily represent severance costs, asset write-offs,
contract renegotiation or termination fees, and other expenses
associated with plant closures, transfers of production lines from
one facility to another and plant headcount optimization
initiatives that are not reasonably expected to recur in the
future.
Our adjusted results for the three and nine
months ended September 30, 2010 exclude restructuring charges
of $1.4 million and $3.7 million, respectively. These restructuring
charges relate to headcount reductions; exit costs associated with
a leased property which is no longer in use; transfer costs
associated with the movement of the QuillTM SRS
production line to our Puerto Rico facility; an inventory
write-down related to a distribution agreement, which will
terminate at the end of 2010; and residual costs from the 2008
closure of our Syracuse, New York manufacturing facility. Our
adjusted results for the three and nine months ended
September 30, 2009 exclude restructuring charges of $0.2
million and $1.4 million, respectively. These restructuring charges
relate to the closure of our Syracuse, New York manufacturing
facility, the termination of a product supply and distribution
agreement, and other corporate reorganization initiatives.
(c) Technology Acquisition-Related
Charges
We report adjusted net income (loss), adjusted
net income (loss) per share and adjusted R&D expense metrics
which exclude certain non-recurring, and in some instances
non-cash, expenses related to research-stage-technology purchases
that we have completed. These amounts, which are added back to our
GAAP-based net income (loss), net income (loss) per share and
research and development expense to calculate corresponding
adjusted metrics, primarily represent 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 technologies occur infrequently and are highly variable,
non-comparable in amount and are not part of our day-to-day
operations.
On April 6, 2010 we completed the
acquisition of certain product candidates and technology assets
from Haemacure Corporation ("Haemacure"). Under US GAAP, the
acquisition qualified as a business combination. The assets were
essentially acquired in exchange for the settlement of the loan we
extended to Haemacure. The $1.2 million difference between the $2.5
million carrying value of the loan and the $3.7 million contractual
amount of the loan was recognized as a gain on the effective
settlement of the pre-existing debt arrangement. Our adjusted
results for nine months ended September 30, 2010 exclude the
$1.2 million non-recurring gain.
Given that the loan was effectively recovered
through the asset purchase arrangement, there were no technology
acquisition-related charges to adjust for in our 2010 reported
metrics.
Our adjusted results for the three months ended
September 30, 2009 excludes $0.4 million of amortization
expense related to prepayments for services in connection with our
Haemacure asset acquisition as described above. Our metrics for the
nine months ended September 30, 2009 also excludes technology
acquisition-related charges of $0.9 million related to the
termination of our collaboration agreement with Lipose
Corporation.
(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 metrics that exclude amounts recorded for
stock-based compensation expense. Stock-based compensation expense
is added back to our GAAP-based financial measures because it is a
non-cash charge required by GAAP, which represents an estimated
additional cost associated with the issuance of stock options to
management and employees as part of their compensation. Such
compensation expense is a non-cash expense calculated using the
Black-Scholes methodology to derive the expected fair value of
employee stock options. Fair value calculations are highly
subjective, because they are dictated by the specific assumptions
and inputs used in the model. Key assumptions and inputs may
include our actual stock price on the day the calculation is
completed, the historical volatility of our stock price, the
estimated 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 determine, 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. Inclusion of stock based compensation in our results makes
it difficult to assess our operational cash flows as well as
measure and compare our performance to that of similar companies in
our industry, our operating goals or our performance in prior
periods. 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 is already
reflected in the related calculation of our GAAP and our adjusted
net income (loss) per share metrics, irrespective of such
additional operating expenses required to be recorded for GAAP
purposes.
Our adjusted results for the three and nine
months ended September 30, 2010 exclude stock-based
compensation expense of $0.4 million and $1.4 million,
respectively, from our GAAP-based research & development
and selling, general & administrative expense metrics.
Similarly, our adjusted metrics for the three and nine months ended
September 30, 2009 exclude stock-based compensation expense of
$0.4 million and $1.2 million, respectively.
(e) Intangible Asset Amortization
Expense
We report adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude amounts
recorded for certain intangible asset amortization expenses. These
amounts, which are non-cash expenses added back to our GAAP-based
net income (loss) and net income (loss) per share metrics to
calculate the corresponding adjusted metrics, primarily represent
expenses incurred during a period to adjust the carrying value of
acquired technology or intellectual property, to reflect the useful
lives of such assets as estimated and recorded by us at the time of
an acquisition. The allocation of excess acquisition purchase
prices over book values among intangible assets, goodwill and
purchased research and development technology can be highly
subjective and may vary significantly from company to company or
between acquisition transactions, thus making comparisons of our
current operating results to those of similar companies or our
historical results difficult. In addition, we believe the economic
impact of any such acquisitions is reflected in the cash cost or
dilution effect resulting from such transactions, and is therefore
reflected in our adjusted metrics through the impact on interest
expense or income, our reported fully diluted shares outstanding,
the amounts of revenue earned and other operating expenses incurred
during the period.
Our adjusted results for the three and nine
months ended September 30, 2010 exclude $7.6 million and $22.7
million of intangible asset amortization expenses, respectively,
from our GAAP-based net income (loss) and net income (loss) per
share metrics. Similarly, our adjusted metrics for the three and
nine months ended September 30, 2009 exclude intangible asset
amortization expenses of $7.5 million and $22.3 million,
respectively.
(f) Non-Cash Deferred Financing
Charges
We report adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude amounts
recorded for certain non-cash deferred financing charges. These
amounts, which are non-cash expenses added back to our GAAP net
income (loss) and net income (loss) per share metrics to calculate
the corresponding adjusted metrics, primarily represent expenses
incurred related to the amortization of debt financing fees,
incurred in connection with our debt financing activities, over the
expected life of the debt instrument as well as write-downs of
deferred financing charges which are estimated to have no future
benefit. As these non-cash expenses are not directly correlated to
our day-to-day operating performance and are due to capital
structure or financing decisions made by us that are specific to
our situation at that time, inclusion of these charges in our
financial results makes it more difficult to compare our
performance to that of prior periods or similar companies in our
industry, or to assess the cash flow generation of our
operations.
Our adjusted results for the three months ended
September 30, 2010 and 2009 each exclude non-cash amortization
of financing charges of $0.7 million from our GAAP-based net income
(loss) and net income (loss) per share metrics. Our adjusted
metrics for the nine months ended September 30, 2010 and 2009
exclude non-cash amortization charges of $2.2 million and $2.1
million, respectively. The metrics for the nine months ended
September 30, 2009 also exclude a $0.6 million write-off of
deferred financing charges related to a term loan which was
terminated prior to the scheduled maturity date.
(g) Litigation-Related Charges
We report adjusted SG&A expense, adjusted
net income (loss) and adjusted net income (loss) per share metrics
which exclude amounts recorded for certain litigation-related
charges. These charges, which are added back to our GAAP selling,
general and administrative expense, net income (loss) and net
income (loss) per share metrics to calculate the corresponding
adjusted metrics, primarily represent expenses incurred in
connection with extraordinary litigation matters that are
inherently unpredictable, highly variable from period to period,
are not reasonably expected to recur in future periods or are not
related to the day to day operational activities of our
business.
Our adjusted results for the three and nine
months ended September 30, 2010 exclude litigation-related
charges of $0.02 million and $0.2 million, respectively, from our
GAAP based net income (loss) and net income (loss) per share
metrics. Similarly, our metrics for the three and nine months ended
September 30, 2009 exclude litigation-related charges of $0.4
million and $2.6 million, respectively.
(h) Foreign Exchange Gains and Losses
We report adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude amounts
recorded for certain foreign exchange gains and losses. These
amounts, which are added back to our GAAP net income (loss) and net
income (loss) per share metrics to calculate the corresponding
adjusted metrics, primarily represent expenses related to
translation differences arising from translating assets held by us
in foreign territories and denominated in foreign currencies, into
our reporting currency. These foreign currency assets fund our
research and development activities in Canada, and are unique to
our current operational structure. As they have no bearing on our
day-to-day operations, operating decisions or our ability to fund
or manage our operations or research and development programs, we
exclude them from our non-GAAP financial measures.
Our adjusted results for the three and nine
months ended September 30, 2010 exclude net foreign exchange
gains of nil and $1.3 million, respectively, from our GAAP-based
net income (loss) and net income (loss) per share metrics.
Similarly, our adjusted metrics for the three and nine months ended
September 30, 2009 exclude net foreign exchange losses of $0.5
million and $1.2 million, respectively.
(i) Other Long-Lived Asset Impairment
Charges
We have reported adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude certain
write-downs of investments or other long-lived assets, for which
the carrying values are impaired and irrecoverable. These amounts
are added back to our GAAP net income (loss) and net income (loss)
per share metrics to derive corresponding adjusted metrics because
they are typically non-recurring, non operating and non-cash
write-downs or expense items, thus making it difficult to compare
our operating performance in the period the impairment expense is
incurred, to our operating performance in other periods or to the
operating performance of similar companies in our industry.
Management may also exclude these charges from our operating goals,
forecasts, budgets and non-GAAP financial measures.
Our adjusted results for the nine months ended
September 30, 2010 excludes a $0.2 million write-off a
long-term investment and a $0.7 million non-cash impairment charge
on a property which was classified as held for sale. There were no
adjustments to our 2009 reported metrics.
(j) Losses / Gains on Asset Disposals
We have reported adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude certain
losses or gains recorded from asset disposals. These gains and
losses are adjusted from our GAAP-based metrics because they are
non-cash in nature, non-recurring and difficult to predict from
period to period and are not factors relating to or impacting our
ability to conduct our day-to-day business goals or operations.
Furthermore, the magnitude of the gains and losses recorded is
often dependent on asset-specific factors such as the age and
condition of the asset, salvage values and technological
obsolescence. Management also excludes such gains and losses when
developing our operating goals, forecasts, budgets and non-GAAP
financial measures because inclusion in operating results makes it
difficult to compare our operating performance for a particular
period to our historical operating performance or the operating
performance of similar companies in our industry.
Our adjusted results for the three and nine
months ended September 30, 2010 both exclude asset disposal
losses of $0.1 million. The adjusted metrics for the three and nine
months ended September 30, 2009 exclude asset disposal losses
of nil and $0.1 million, respectively.
(k) Non-Recurring Gains
We report adjusted net income (loss) and
adjusted net income (loss) per share metrics which exclude certain
extraordinary and non-recurring gains. These amounts are adjusted
from our GAAP-based metrics because they are unplanned, difficult
to predict and related to one-time events not expected to recur
from period to period.
Our adjusted results for the nine months ended
September 30, 2010 exclude a $4.7 million recovery received in
connection with the settlement of an outstanding escrow claim with
RoundTable Healthcare Partners, LP relating to our March 2006
acquisition of American Medical Instruments Holdings, Inc.
As described under the Technology
Acquisition-Related Charges section above, our adjusted results
for the three and nine months ended September 30, 2010 exclude
the Haemacure loan settlement gain of $1.2 million.
(l) Non-Recurring Transaction Fees
We report adjusted net income (loss), adjusted
net income (loss) per share and adjusted SG&A metrics which may
exclude certain extraordinary and non-recurring costs related to
significant corporate transactions. These amounts are adjusted from
our GAAP-based metrics because they are highly variable and
specific to the extent and nature of the transaction being
undertaken. As these expenses are not directly correlated to our
day-to-day operating performance and are due to transaction or
related financing decisions made by us that are specific to the
situation at that time, inclusion of these charges in our financial
results makes it more difficult to compare our performance to that
of prior periods or similar companies in our industry, or to assess
the cash flow generation of our operations.
Our adjusted results for the three months ended
September 30, 2010 exclude $3.0 million of fees and expenses
relating to the proposed recapitalization transaction, as described
in the Recent Highlights section above and in our
October 29, 2010 press release. These costs represent
professional fees paid to financial and legal advisors to assist in
the analysis and implementation of financial and strategic
alternatives, as well as fees paid to advisors and consultants
retained by the Consenting Noteholders. Our adjusted results for
the nine months ended September 30, 2010 exclude the $3.0
million of fees and expenses relating to the proposed
recapitalization transaction, $0.4 million of general consulting
costs and $0.6 million of Haemacure transaction-related expenses
that we absorbed in accordance with the US GAAP business
combination guidance.
There were no adjustments to our reported
metrics for non-recurring transaction fees for the three months
ended September 30, 2009. However, our adjusted results for
the nine months ended September 30, 2009 exclude $1.0 million
of non-recurring transaction fees incurred related to the
exploration of certain financing and strategic alternatives, as
well as the termination of a supply and distribution agreement.
(m) Non-Recurring Production Charges
We report adjusted COGS, adjusted net income
(loss) and adjusted net income (loss) per share metrics which
exclude amounts recorded for certain extraordinary and
non-recurring production costs. These amounts are adjusted from our
GAAP-based metrics because they are unplanned, difficult to predict
and related to one-time events not expected to recur from period to
period.
During the second quarter of 2010, we initiated
a voluntary product recall to remedy packaging defects at one of
our manufacturing facilities. The products under consideration were
not determined to be defective and no patient injuries were
reported. Our 2010 second quarter results included a $0.2 million
sales provision and a $0.2 million product warranty charge for the
expected cost of replacing the units with defective packaging.
During the third quarter, we recouped $0.1 million in sales by
replacing products with defective packaging from specific customers
who responded to our product recall. Our adjusted results for the
three months ended September 30, 2010 therefore subtract the
$0.1 million sales recovery recorded and the adjusted results for
the nine months ended September 30, 2010 add back the net
sales provision of $0.1 million and deduct the $0.2 million product
warranty charge. Quality controls measures and corrective actions
have been taken to ensure that future products are properly sealed
and packaged.
Our adjusted results for the three and nine
months ended September 30, 2009 exclude $0.8 million and $1.6
million, respectively, of non-recurring manufacturing charges
related to excess labor charges and inventory write-offs associated
with order cancellations by a significant customer of our surgical
needle business.
(n) Income Tax Expense (Benefit) Related
to the Above Adjustments
Income tax expense is adjusted by the amount of
additional tax expense or benefit that would arise if we used our
adjusted non-GAAP financial measures to calculate our tax
provision, based on the relevant statutory rates applicable to the
jurisdictions in which the above non-GAAP adjustments reside. The
cumulative effect of tax adjustments described above for the three
and nine months ended September 30, 2010 were $2.8 million and
$8.6 million, respectively, compared to $2.9 million and $3.7
million for the same respective periods in 2009.
Material Limitations
While we believe our measures of 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 are useful for the reasons noted
above, we believe there may be certain inherent limitations in
these measures, including but not limited to:
- Exclusion of amortization and depreciation expense from our
adjusted financial measures does not take into account the need for
future capital spending, whether this is to support growth or to
replace assets which are subject to wear and tear.
- Exclusion of write-downs, amortization and depreciation from
our adjusted financial measures does not take into consideration
the potential tax impacts or obligations which can materialize into
actual future cash flows.
- As we use our own approach for calculating our adjusted
financial measures, other companies may not make the same
adjustments or disclose their financial data in a manner that would
allow comparison of their results to our adjusted results, thus
decreasing comparability of our adjusted financial measures as
comparative analytical tools.
- Non-GAAP based adjustments may not take into account the full
economic cost of running our business. For example, financing costs
are required to raise capital, which is used to fund operations.
Adjusted financial measures do not necessarily reflect these
considerations.
As noted above, our adjusted financial measures
are not substitutes for our GAAP-derived financial measures and
statements. These adjusted measures are used by management to
supplement our GAAP disclosures and help investors and lenders gain
a better understanding of our operating performance and to offer
investors and lenders an opportunity to access the same data
management and our Board of Directors may use to assess our
operating performance. Management compensates for the foregoing
limitations by ensuring that our GAAP disclosures are transparent
and sufficient to provide readers with the information required to
reconcile financial results and form unbiased conclusions.
SOURCE Angiotech Pharmaceuticals, Inc.
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