Today's News |
Angiotech Announces Financial Results for the Fourth Quarter Ended December 31, 2010
Friday, March 18, 2011Company Profile | Follow Company
Vancouver, BC, March 18, 2011--(T-Net)--Angiotech Pharmaceuticals, Inc. (NASDAQ: ANPI) (TSX: ANP) today announced that it had released its financial results for the fourth quarter ended December 31, 2010.
Fourth Quarter Financial Highlights
Selected Non-GAAP Financial Measures
Fourth Quarter Highlights
Proprietary Medical Products
During the fourth quarter, our Proprietary Medical Products included 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. Revenue for these products for the fourth quarter of 2010 increased by 10% compared to the fourth quarter of 2009. Foreign currency changes had an immaterial impact on revenue growth of our Proprietary Medical Products during the quarter.
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 fourth quarter of 2010 increased by 13% compared to the fourth quarter of 2009. Foreign currency changes had an immaterial impact on revenue growth of our Base Medical Products during the quarter.
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. The majority of our royalty revenues are currently derived from Boston Scientific Corporation's ("BSC") sales of TAXUS® coronary stent systems ("TAXUS"), which incorporate the drug paclitaxel.
Royalty revenue derived from sales of TAXUS by BSC for the fourth quarter of 2010 declined by 59% compared to the fourth quarter of 2009. The decline in royalty revenue is due to lower sales of TAXUS, which continues to be negatively impacted by competitive pressures in the drug-eluting coronary stent market. Royalty revenue for the quarter ended December 31, 2010 was based on BSC's net sales for the period July 1, 2010 to September 30, 2010 of $97 million, of which $61 million was in the U.S., compared to net sales of $209 million, of which $93 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 December 31, 2010 on BSC's net sales was 6.0% for sales in the U.S. and 4.2% for sales in other countries, compared to an average rate of 6.1% for sales in the U.S. and 6.0% 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.
Recapitalization Transaction, CCAA and Related Proceedings
Over the past several years, revenues in our Pharmaceutical Technologies Segment, specifically our royalties derived from sales of TAXUS by BSC, have experienced significant declines. These declines have led to significant constraints on our liquidity, working capital and capital resources. As a result, our ability to continue to support our business initiatives and our long-term debt obligations is uncertain. As a result, we have explored a range of financial and strategic alternatives in order to address these declines. After extensive exploration of various possible solutions, we recently announced a proposed recapitalization transaction, negotiated with a significant percentage of the holders of our long-term debt, to effectuate a significant reduction in our long-term debt that would improve our liquidity, working capital and financial position.
As part of our recapitalization process, on October 1, 2010, we did not make the $9.7 million interest payment due on our $250 million 7.75% Senior Subordinated Notes (the "Subordinated Notes") in connection with discussions being conducted with certain of the holders of our Subordinated Notes (the "Subordinated Noteholders").
On October 29, 2010, we entered into a Recapitalization Support Agreement (as amended, the "RSA") with the holders (the "Consenting Noteholders") of approximately 73% of our Subordinated Notes to, among other things, effectuate a recapitalization that would effectively eliminate $250 million of our total outstanding indebtedness and related interest obligations by exchanging Subordinated Notes for new common shares in Angiotech (the "Recapitalization Transaction"), thereby providing significant improvements to our credit ratios, liquidity and financial flexibility. As at March 14, 2011, holders of approximately 85% of the Subordinated Notes had agreed to the terms of the RSA.
On October 29, 2010, we also entered into a support agreement (as amended, the "FRN Support Agreement") with holders (the "Consenting FRN Holders") of approximately 51% of the aggregate principal amount outstanding of our existing senior floating rate notes (the "Existing Floating Rate Notes") pursuant to which the Consenting FRN Holders agreed to exchange their Existing Floating Rate Notes for new senior floating rate notes (the "New Floating Rate Notes" and such exchange, the "FRN Exchange Offer"). On February 10, 2011, we commenced the FRN Exchange Offer pursuant to the terms of the FRN Support Agreement. In accordance with the terms of the RSA, the obligation of the Consenting Noteholders to complete the Recapitalization Transaction is conditioned on the completion of the transactions contemplated by the FRN Support Agreement. Under the terms of the FRN Support Agreement, the obligation of all parties thereto to consummate the FRN Exchange Offer is conditioned upon the concurrent implementation of the Recapitalization Transaction. As at March 14, 2011, approximately 89% of the holders of the Existing Floating Rate Notes have agreed to the terms of the FRN Exchange Offer.
On January 28, 2011, in connection with our obligations under the Recapitalization Support Agreement ("RSA"), we and certain of our subsidiaries (the "Angiotech Entities") voluntarily filed for creditor protection (the "CCAA Proceedings") under the Companies' Creditors Arrangement Act (Canada) (the "CCAA") and obtained an initial order (the "Initial Order") from the Supreme Court of British Columbia (the "Canadian Court") to implement the Recapitalization Transaction through a plan of compromise and arrangement (as amended, supplemented or restated from time to time, the "CCAA Plan") under the CCAA. In order to have the CCAA Proceedings recognized in the United States, on January 30, 2011, we also commenced proceedings under Chapter 15 of Title 11 of the United States Code (the "U.S. Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (together with the CCAA Proceedings, the "Creditor Protection Proceedings"). On February 22, 2011, the U.S. court granted an order that, among other things, recognized the CCAA Proceedings as a foreign main proceeding and provided that the Initial Order would be enforced on a final basis and given full force and effect in the United States.
Under the terms of the proposed CCAA Plan, the Subordinated Notes will be exchanged for equity interests in Angiotech and retired in full, thereby eliminating approximately $250.0 million of our outstanding indebtedness, plus the accrued and unpaid interest related thereto. In addition, all of our existing common shares and options to acquire common shares will be cancelled without any payment or consideration therefor. The CCAA Plan will also address certain unsecured obligations which we expect to be limited.
The Initial Order, among other things, provided for a general stay of proceedings against the Angiotech Entities preventing creditors and certain other parties from exercising rights to recover amounts owning to them as of January 28, 2011 or to exercise other rights that could arise as a result of the commencement of proceedings under the CCAA. The stay of proceedings was initially scheduled to expire on February 17, 2011 and was subsequently extended to April 15, 2011 and may be extended further by order of the Canadian Court (the "Stay Period").
On February 17, 2011, the Canadian Court granted an order (the "Claims Procedure Order") establishing a procedure for the adjudication, resolution and determination of claims of the Affected Creditors (as defined in the CCAA Plan) for voting and distribution purposes under the CCAA Plan. Creditors who do not file a Proof of Claim in accordance with the Claims Procedure Order will be barred from receiving distributions under the CCAA Plan and from asserting their claim in the future. As at January 28, 2011, the claims of Affected Creditors totaled approximately $3.6 million. In accordance with the terms of the fourth amendment to the RSA, the maximum amount of permitted claims, excluding the Company's obligations under the Subordinated Notes and Existing Floating Rate Notes, is $30.0 million. Under the terms of the Claims Procedure Order, for the purposes of voting and distributions under the CCAA Plan, the amount of the claims in respect of the Subordinated Notes will only include the accrued amounts owing directly by Angiotech under the indenture governing the Subordinated Notes and by the other Angiotech Entities under the guarantees executed by such other Angiotech Entities in respect of the Subordinated Notes up to the date of the Initial Order, January 28, 2011.
On February 17, 2011, the Canadian Court also granted an order (the "Meeting Order") authorizing the holding of a meeting (the "Meeting") of the Affected Creditors on April 4, 2011. The purpose of the Meeting is for the Affected Creditors to consider, and if deemed advisable, vote for or against the resolution approving the CCAA Plan. If the CCAA Plan is approved by a majority in number of Affected Creditors representing at least two-thirds in value of all such Affected Creditors' claims that have been accepted for purposes of voting at the Meeting, in accordance with the provisions of the Claims Procedure Order, the Meeting Order and the CCAA, in each case, present and voting in person or by proxy at the Meeting, the Angiotech Entities intend to bring a further motion before the Canadian Court on or about April 6, 2011 seeking an order sanctioning the CCAA Plan.
The Court has appointed Alvarez & Marsal Canada, Inc. as our monitor (the "Monitor") to oversee our business and financial affairs, with the powers set forth in the CCAA and orders of the Court, during the CCAA Proceedings. The Monitor will report to the Court on a regular basis on our financial and operational position and other relevant matters.
In accordance with the terms of the Initial Order, on February 7, 2011, we and certain of our subsidiaries entered into a definitive agreement with Wells Fargo to secure a debtor-in-possession credit facility (the "DIP Facility"). The DIP Facility will provide liquidity for working capital, general corporate purposes and expenses while we implement the CCAA Plan. The DIP Facility permits us to make revolving credit loans and provide letters of credit in an aggregate principal amount (including the face amount of any letters of credit) of up to $28.0 million. The DIP Facility is required to be repaid and terminated in connection with the implementation of the CCAA Plan. The Company expects to have a new credit facility in place upon implementation of the CCAA Plan in order to facilitate the repayment of any borrowings outstanding under the DIP Facility or the Existing Credit Facility, as amended.
For more information pertaining to our CCAA Proceedings, including our Monitor's reports, refer to our Monitor's website at www.alvarezandmarsal.com/angiotech, our website at www.angiotech.com and our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2011.
QSR Holdings Litigation Settlement
In October 2010 QSR Holdings, Inc. ("QSR"), as the representative of the former stockholders of Quill Medical, Inc. ("QMI"), filed an Arbitration Demand with the American Arbitration Association and commenced proceedings against us and certain of our subsidiaries in the United States District Court for the Middle District of North Carolina (QSR Holdings, Inc. v. Angiotech Pharmaceuticals, Inc., Angiotech Pharmaceuticals (US), Inc. and Quill Medical, Inc., the "Federal Litigation") alleging, among other things, that we failed to satisfy certain obligations under the Agreement and Plan of Merger (the "Merger Agreement") dated May 25, 2006 by and among Angiotech, Angiotech US, Quaich Acquisition, Inc. and QMI. On January 27, 2011, we entered into a Settlement Agreement (the "Settlement Agreement") with QSR which resolves, among other things, any and all claims that the parties may have arising out of the Merger Agreement (including, without limitation, all claims, counterclaims or defenses that were or could have been asserted in the Arbitration Demand and the Federal Litigation) in exchange for a payment of $6 million (the "Settlement Amount") by Angiotech US. $2.0 million of the Settlement Amount is payable on the earliest of (i) 10 business days after the implementation of the CCAA Recapitalization contemplated by the RSA (the "Implementation Date") and (ii) May 31, 2011. The remainder of the Settlement Amount is payable in 24 equal monthly installments beginning on the earlier of (i) 30 days after the Implementation Date; and (ii) July 31, 2011 (subject to reduction in the event of pre-payment as more fully set forth in the Settlement Agreement). The Settlement Agreement further provides for complete and mutual releases between the parties, as more fully set forth therein. Pursuant to the Settlement Agreement, QSR has irrevocably dismissed the Federal Litigation and the Arbitration Demand with prejudice. As at December 31, 2010, we have recorded $0.6 million of litigation expense, related to these legal proceedings. In accordance with the guidance on contingent consideration under Financial Accounting Standard ("FAS") 141, which pertains to business combinations arising prior to December 15, 2008, the remaining Settlement Amount is expected to be recognized as goodwill in our 2011 first quarter results.
Rex Medical LP Arbitration and Litigation Settlement, Agreement Termination
In light of our liquidity and capital constraints, on November 11, 2010, we informed Rex that we would not be able to continue selling the Option IVC Filter ("Option") under the existing terms of the 2008 License, Supply, Marketing and Distribution Agreement (the "Option Agreement"). On November 18, 2010, Rex initiated an arbitration hearing against us alleging that we breached the Option Agreement. Rex sought monetary damages in excess of $3.0 million, including costs, fees and expenses incurred in connection with the arbitration proceeding. On December 2, 2010, Rex obtained a temporary restraining order and preliminary injunction against Angiotech US from the United States District Court for the Southern District of New York (such action, the "SDNY Action") requiring Angiotech Pharmaceutical US to honor its obligations under the Option Agreement for a period of 180 days or until the Rex Arbitration was concluded. On January 24, 2011, Angiotech US received a termination notice from Rex indicating that the Option Agreement would cease on April 24, 2011.
On February 16, 2011, Angiotech US entered into a Settlement and License Termination Agreement with Rex (the "Rex Settlement Agreement"), which provides for the full and final settlement and/or dismissal of all claims arising under the Option Agreement. Pursuant to the Rex Settlement Agreement, the Company and Rex agreed to withdraw any claims that have been or could have made in the Rex Arbitration, as well as to dismiss the SDNY Action with prejudice. The Rex Settlement Agreement further provides that: (i) the Option Agreement will terminate on March 31, 2011, or at an earlier date if so elected by Rex (the "Termination Date"), upon which Angiotech US will no longer market, sell or distribute the Option IVC Filter; (ii) Angiotech US will make a payment in the amount of $1.5 million to Rex within five business days of the effective date of the Rex Settlement Agreement in full and final payment and settlement of all claims and royalties due under the Option Agreement relating to the sales of the Option IVC Filter recorded by Angiotech US prior to January 1, 2011, and all milestone payments due or that may come due to Rex under the Option Agreement now or in the future; (iii) within five business days of the effective date, Angiotech US will make a royalty payment to Rex based upon actual cash receipts collected from customers attributable to sales of the Option IVC Filter that are recorded and accrued between January 1, 2011 and the effective date; (iv) from the effective date through the Termination Date, Angiotech US will make ongoing royalty payments to Rex on a weekly basis based upon actual cash receipts collected during each previous calendar week in respect of sales of the Option IVC Filter; and (v) Angiotech US will deliver to Rex certain materials relating to the marketing and sale of the Option IVC Filter. The Rex Settlement Agreement became effective on March 10, 2011 upon the Canadian Court granting an order authorizing Angiotech US to enter into the Rex Settlement Agreement and approving the terms thereof.
As at December 31, 2010, we recorded a $0.9 million inventory write-down and a $1.1 million intangible asset write-down in connection with the termination of the Option Agreement. In accordance with ASC No. 855 on Subsequent Events, we are currently assessing the impact of the Rex Settlement Agreement on our 2011 first quarter results.
National Institutes of Health
In November 1997, we entered into an exclusive license agreement with the Public Health Service of the U.S., through the National Institutes of Health (the "NIH"), whereby the NIH granted us an exclusive, worldwide license to certain technologies of the NIH for the use of paclitaxel (the "NIH License Agreement"). Pursuant to the NIH License Agreement, we agreed to pay to the NIH certain milestone payments upon achievement of specified clinical and commercial development milestones and to pay royalties on net TAXUS® sales by BSC and Zilver-PTX sales by Cook Medical Inc. and its affiliates ("Cook"). At December 31, 2010 and December 31, 2009, we accrued royalty fees and interest of $7.2 million and $7.3 million, respectively, payable to the NIH under the NIH License Agreement relating to royalties on net TAXUS® sales for the years 2010 and 2009, respectively. On December 29, 2010, we entered into an amendment to the NIH License Agreement whereby NIH agreed to eliminate: (i) approximately $7.2 million of unpaid royalties and interest due on sales of TAXUS® by BSC and (ii) future royalties payable on licensed products sold by BSC going forward, in exchange for a 0.25% increase of existing royalty rates for licensed products sold by Cook and an extension of the term for payment of such royalties of approximately two years. Given that the unpaid royalties have not been extinguished and will effectively be paid out through the incurrence of future royalty fees for licensed products sold by Cook, which were indeterminable and could not be forecasted at the time of our assessment, the $7.2 million of royalties remains accrued for as at December 31, 2010 in accordance with Accounting Standards Codification ("ASC") No. 470-60-35 on Troubled Debt Restructuring.
NASDAQ and TSX Delisting
On July 6, 2010, we received a notice from The NASDAQ Stock Market ("NASDAQ") stating that the bid price for our common shares had closed below the required minimum of $1.00 per share for the previous 30 consecutive business days, and that in accordance with the applicable NASDAQ listing rule, we had a grace period of 180 calendar days, until January 3, 2011, to regain compliance with the applicable NASDAQ listing rule. On January 4, 2011, we received a letter from NASDAQ confirming that the Company's common shares would be delisted from NASDAQ as a result of its failure to regain compliance with the applicable NASDAQ listing rule. Accordingly, our common shares were delisted from NASDAQ at the opening of business on January 13, 2011. A Form 25-NSE was filed with the SEC on January 21, 2011, removing our common shares from listing and registration on NASDAQ.
On January 28, 2011 we received notice from the Toronto Stock Exchange (the "TSX") stating that the TSX would be reviewing the eligibility for continued listing on TSX of our securities pursuant to Part VII of The Toronto Stock Exchange Company Manual. In addition, the TSX advised that our securities would be suspended from trading on the TSX until further notice from the TSX. On February 1, 2011, we received further notice from the TSX that our common shares would be delisted from the TSX effective at the close of market on March 3, 2011. The delisting was imposed as a result of our not meeting the continued listing requirements of the TSX. The TSX also advised that trading in our common shares would remain suspended until the time of delisting. We did not appeal the TSX's decision to delist our common shares and our common shares were delisted from the TSX at the close of market on March 3, 2011.
Financial Information
This press release contains financial data derived from the audited consolidated financial statements for the year ended December 31, 2010 and 2009. Full audited consolidated financial statements and Management's Discussion and Analysis for the year ended December 31, 2010 was filed on Form 10-K on March 16, 2011 with the relevant regulatory agencies, as well as posted on the Investor's section 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.
Company Snapshot |
||
Surgical Specialties Corporation (formerly Angiotech)
Vancouver, BC (Biotech/Life Sciences)
|