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| ANPI > SEC Filings for ANPI > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
For the three and six months ended June 30, 2009
(All amounts following are expressed in U.S. dollars unless otherwise indicated.)
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis ("MD&A"), dated June 30, 2009, provides an update to the MD&A for the year ended December 31, 2008 and should be read in conjunction with our unaudited consolidated financial statements for the three and six months ended June 30, 2009 and our audited consolidated financial statements for the year ended December 31, 2008, each of which has been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). Additionally, the MD&A and unaudited consolidated financial statements for the three and six months ended June 30, 2009 have been prepared in accordance with the applicable rules and regulations of the United States Securities and Exchange Commission ("SEC") for the presentation of interim financial information. Additional information relating to our Company, including our 2008 audited consolidated financial statements and our 2008 Annual Report on Form 10-K (as amended by our Form 10-K/A, the "10-K"), is available by accessing the SEDAR website at www.sedar.com or the SEC's EDGAR website at www.sec.gov/edgar.shtml.
Forward-Looking Statements and Cautionary Factors That May Affect Future Results
Statements contained in this Quarterly Report on Form 10-Q that are not based on historical fact, including without limitation statements containing the words "believes," "may," "plans," "will," "estimates," "continues," "anticipates," "intends," "expects" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and constitute "forward-looking information" within the meaning of applicable Canadian securities laws. All such statements are made pursuant to the "safe harbor" provisions of applicable securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for the remainder of 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition and the results of, or outlook for, our operations, research and development and product and drug development. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements.
Many such known risks, uncertainties and other factors are taken into account as part of our assumptions underlying these forward-looking statements and include, among others, the following: general economic and business conditions in the United States, Canada and the other regions in which we operate; market demand; technological changes that could impact our existing products or our ability to develop and commercialize future products; competition; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; availability of financial reimbursement coverage from governmental and third-party payers for products and related treatments; adverse results or unexpected delays in pre-clinical and clinical product development processes; adverse findings related to the safety and/or efficacy of our products or products sold by our partners; decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our technology and products; the requirement for substantial funding to conduct research and development, to expand manufacturing and commercialization activities; and any other factors that may affect our performance.
In addition, our business is subject to certain operating risks that may cause any results expressed or implied by the forward-looking statements in this Quarterly Report on Form 10-Q 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 SEC.
For a more thorough discussion of the risks associated with our business, see the section entitled "Risk Factors" in this Quarterly Report 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 Quarterly Report on Form 10-Q to reflect future results, events or developments.
This Quarterly Report on Form 10-Q contains forward-looking information that constitutes "financial outlooks" within the meaning of applicable Canadian securities laws. We have provided this information to give shareholders general guidance on management's current expectations of certain factors affecting our business, including our financial results. Given the uncertainties, assumptions and risk factors associated with this type of information, including those described above, investors are cautioned that the information may not be appropriate for other purposes.
Business Overview
We are a specialty pharmaceutical and medical device company that discovers, develops and markets innovative technologies primarily focused on acute and surgical applications. We generate our revenue through our sales of medical products and components, as well as from royalties derived from sales by our partners of products utilizing certain of our proprietary technologies. For the first six months of 2009, we recorded $93.3 million in direct sales of our various medical products and components and $59.6 million in royalties and license fees received from our partners.
Our research and development efforts focus on understanding and characterizing biological conditions that often occur concurrent with medical device implantation, surgery or acute trauma, including scar formation and inflammation, cell proliferation, bleeding and coagulation, infection and tumor tissue overgrowth. Our strategy is to utilize our various technologies in the areas of drugs, drug delivery, surface modification, biomaterials and medical devices to create and commercialize novel, proprietary medical products that reduce surgical procedure side effects, improve surgical outcomes, shorten hospital stays, or are easier or safer for a physician to use.
We develop our products using a proprietary and systematic discovery approach. We use our drug screening capabilities to identify new uses for known pharmaceutical compounds. We look for compounds that address the underlying biological causes of conditions that can occur with medical device implantation, surgery or acute trauma. Once appropriate drugs have been identified, we work to formulate the drug, or a combination of drugs, with our portfolio of drug, drug delivery and surface modification technologies and biomaterials to develop a novel surgical implant or medical device. We have patent protected, or have filed patent applications for, certain of our technology and many of our products and potential product candidates.
We currently operate in two segments: Pharmaceutical Technologies and Medical Products.
Pharmaceutical Technologies
Our Pharmaceutical Technologies segment focuses primarily on establishing product development and marketing collaborations with major medical device, pharmaceutical or biomaterials companies and to date has derived the majority of its revenue from royalties due from partners that develop, market and sell products incorporating our technologies. Currently, our principal revenues in this segment are from royalties derived from sales by Boston Scientific Corporation ("BSC") of TAXUS®coronary stent systems incorporating the drug paclitaxel. TAXUS stents have been evaluated by the industry's most extensive randomized, controlled clinical trial program, with patient follow-up out to five years in some cases. BSC's controlled clinical trial results have been supplemented by data on more than 35,000 patients enrolled in post-approval registries. To date, millions of TAXUS stents have been implanted globally.
Medical Products
Our Medical Products segment manufactures and markets a wide range of single-use specialty medical products, primarily medical device products and medical device components. These products are sold directly to end users or other third-party medical device manufacturers. This segment contains two specialized direct sales and distribution organizations as well as significant manufacturing capabilities. Many of our medical products are made using our proprietary manufacturing processes or are protected by our intellectual property. Our Medical Products segment may apply certain of our proprietary technologies to its products to create novel, next-generation medical products to market directly to end users or medical products distributors.
Proprietary Medical Products. Certain of our product lines, which we refer to as our Proprietary Medical Products, are marketed and sold by our two direct sales groups. We believe certain of these product lines contain technology advantages that may provide for more substantial revenue growth potential as compared to our overall product portfolio. Our significant currently marketed Proprietary Medical Products include (i) our Quill™ SRS wound closure product line, which is marketed and sold by our Surgical Products Sales Group, and (ii) our HemoStream™ dialysis catheter, our SKATER™ line of drainage catheters, our BioPince™ full core biopsy device, our EnSnare™ retrieval device and our V+Pad ™ hemostatic pad which are marketed and sold by our Interventional Products Sales Group.
Base Medical Products. Certain of our product lines, which we refer to as our Base Medical Products, represent more mature finished goods product lines in the ophthalmology, biopsy and general surgery areas or medical device components manufactured by us and sold to other third-party medical device manufacturers who assemble those components into finished medical devices. Sales of our Base Medical Products are supported by a small group of direct sales personnel, as well as a network of independent sales representatives and medical product distributors. Sales of our Base Medical Products tend to exhibit greater volatility or slower relative growth, particularly our sales of components to third-party medical device manufacturers, which may be impacted by customer concentration and the business issues that certain of our large customers may face, as well as to a more limited extent by economic and credit market conditions.
Significant Recent Developments
Option™ Inferior Vena Cava Filter. In June 2009, we announced that the United States Food and Drug Administration ("FDA") had granted 510(k) clearance for the Option™ Inferior Vena Cava ("IVC") Filter, for use in both permanent and retrievable indications. We commenced commercial sales of the Option IVC Filter in the United States in July 2009.
IVC filters are implanted in patients that are at high risk for developing pulmonary embolism, which can be a life threatening condition. IVC filters are implanted in the inferior vena cava and are designed to catch clot material to prevent it from reaching the lungs, while allowing blood to continue to flow normally. Patients at high risk for pulmonary embolism are typically patients undergoing a significant surgical procedure, trauma patients or patients that have experienced a previous embolic event. IVC filters have been shown in several studies to significantly reduce the risk of pulmonary embolism and related mortality in certain high risk patient populations. In certain cases, once the risk of an embolic event has passed, the IVC filter will be removed in a subsequent surgical procedure. We believe the Option IVC Filter may have a number of potential competitive benefits, which include a unique filter design that may reduce the potential for filter migration after implantation, thereby making the product safer for patients, insertion potential through either the femoral or jugular route, which may make the product easier for a physician to use, and the use of non-thrombogenic material which reduce the risk of blood clots occurring in the filter. We also believe the unique design of the Option IVC Filter may allow physicians to remove or retrieve the device from patients more easily, or after longer periods of time have passed as compared to existing competitive IVC filters.
The Option IVC Filter was approved based upon the results of a United States multi-center prospective clinical trial. The purpose of the clinical trial was to evaluate the device's safety and efficacy in preventing pulmonary emboli and to assess the ability to retrieve the device from the body up to 175 days following implantation. The results, representing a total of 100 patients, were presented at the 2009 Society of Interventional Radiology conference in San Diego, CA on March 9, 2009. Successful filter implantation was achieved in 100% of the subjects and the retrieval rate in the study was 92.3%. Clinical success, which was achieved in 88% of subjects, was defined as placement of the filter without subsequent pulmonary embolism, significant filter migration or embolization, symptomatic caval thrombosis or other complications requiring filter removal or invasive intervention.
The Option IVC Filter was licensed in March 2008 from our partner Rex Medical L.P. ("Rex Medical"). We are obligated to pay royalties and milestone payments to Rex Medical derived from our sales of the Option IVC Filter. We made a milestone payment of $2.5 million to Rex Medical upon 510(k) clearance of the Option IVC Filter during the second quarter of 2009 and recorded the payment as an intangible asset.
License, Distribution, Development and Supply Agreements with Haemacure Corporation. In June 2009, we announced that we had entered into license, distribution, development and supply agreements for fibrin and thrombin technologies with Haemacure Corporation ("Haemacure"). The collaboration provides us with access to technology for certain of our surgical product candidates which are currently in preclinical development. As part of this collaboration, we have agreed to provide to Haemacure a senior secured bridge financing facility. The senior secured bridge loan will provide $2.5 million to Haemacure in multiple draw-downs throughout 2009. The loan will be senior to all of Haemacure's existing and future indebtedness, subject to certain exceptions, will bear interest at an annual rate of 10%, compounded quarterly, and will have a term of two years. We may, at our sole discretion, during a period of two years, advance up to an additional $1 million to Haemacure from time to time, in multiple draw-downs, for a total loan amount of $3.5 million. The senior secured bridge loan also has certain equity conversion features and rights to board representation upon conversion. As of June 30, 2009, $1.2 million of the loan has been drawn upon by Haemacure and a further $0.6 million of the loan, which had been accrued at June 30, 2009, was drawn upon subsequent to June 30, 2009. Of the total of $1.8 million paid and accrued, $1.2 million has been classified as other assets and $0.6 million has been classified as prepaid expenses and other current assets.
New TAXUS Regulatory Approvals and Clinical Data. In July 2009, we announced that our partner BSC had received approval from the FDA to market its TAXUS Liberté Long™ paclitaxel-eluting coronary stent system, a next-generation paclitaxel-eluting stent specifically designed for treating more diffuse coronary artery disease with a single coronary stent. At 38 mm, it is the longest available paclitaxel-eluting stent, providing physicians an option that can potentially reduce the number of stents used in more complex cases, simplifying procedures and reducing costs. It affords a more efficient treatment option for the estimated 8 to 10
percent of patients with long lesions. BSC plans to launch the product in the United States in August 2009. In May 2009, we announced that our partner BSC, had received approval from the FDA to market its TAXUS® Liberté® Atom™ paclitaxel-eluting coronary stent system, a next-generation paclitaxel-eluting stent specifically designed for treating small coronary vessels. It was approved for use in vessels as small as 2.25 mm in diameter and joins the TAXUS Express Atom™ stent as the only drug-eluting stents ("DES") approved for small vessel use in the United States.
In May 2009, we announced that our partner BSC had launched the platinum chromium TAXUS Element™ paclitaxel-eluting coronary stent system in select markets worldwide. The platinum chromium TAXUS Element paclitaxel-eluting coronary stent system is the third-generation BSC coronary stent platform that incorporates our research, technology and intellectual property related to the use of paclitaxel. The TAXUS Element stent features BSC's proprietary platinum chromium alloy, which is designed to enable thinner stent struts, increased flexibility and a lower stent profile while improving radial strength, recoil and radiopacity. In addition, the TAXUS Element stent platform incorporates new balloon technology intended to improve upon BSC's market-leading Maverick® balloon catheter technology.
New Independent TAXUS Clinical Data. In May 2009 we announced that our partner BSC had welcomed the publication of an article in the Journal of the American College of Cardiology (JACC) reviewing data on more than 19,000 patients from the Swedish national registry who were evaluated for restenosis, or the re-narrowing or arteries, after percutaneous coronary intervention ("PCI"). The Swedish Coronary Angiography and Angioplasty Registry holds data on all patients undergoing PCI in Sweden. The objective of this independent study was to evaluate restenosis rates of DES's in patients with and without diabetes in a real-world setting. The article reported that patients who received a TAXUS Liberté paclitaxel-eluting stent had numerically lower incidences of repeat procedures to treat restenosis at two years as compared to patients treated with 'olimus-based DES's, including Johnson & Johnson, Inc.'s Cypher® Stent and Medtronic Inc.'s Endeavor®Stent.
In the patients with diabetes, the TAXUS Liberté demonstrated a statistically significant lower restenosis rate compared to the Endeavor, which had more than two times the risk of repeat procedures. The JACC article reported that both the TAXUS Liberté stent and BSC's first-generation paclitaxel-eluting stent, the TAXUS Express, were the only stents in the study showing no increased risk of restenosis for patients with diabetes as compared to those without diabetes. Data for both the Cypher and Endeavor stents indicated significant increased risk of restenosis in patients with diabetes. In addition, the study showed that the TAXUS Liberté had an approximately 23 percent lower restenosis rate at two years compared to the prior-generation TAXUS Express.
The Swedish registry study included four DES brands: TAXUS Liberté, TAXUS Express, Cypher and Endeavor. In total, the registry included 35,478 DES implants during 22,962 procedures in 19,004 patients, with 1,807 restenoses reported over a mean 29-month follow-up period. For the entire study population, the repeat revascularization rate per stent was 3.5 percent after one year and 4.9 percent after two years. Overall, the adjusted risk of restenosis was 1.23 times higher in patients with diabetes than in patients without diabetes. In patients with diabetes, restenosis was higher in the non-TAXUS stents. The sirolimus-eluting Cypher and the zotorolimus-eluting Endeavor had higher restenosis rates in patients with diabetes compared with those in patients without diabetes (1.25 times and 1.77 times, respectively).
New ZILVER ® PTX™ Clinical Data. In April 2009 we announced that our partner Cook Medical Inc. ("Cook") had reported data that showed that 82 percent of patients who were treated with Cook's ZILVER PTX paclitaxel-eluting peripheral stent were free from reintervention at two-year follow up. The ZILVER PTX Registry study, involving 792 patients globally, is assessing the safety and efficacy of the ZILVER PTX in treating peripheral artery disease. The most recent results were reported at the 31st International Symposium Charing Cross Controversies Challenges Consensus. Data was compiled at 12 and 24 months for 593 patients and 177 patients respectively. The registry, which enrolled a broad spectrum of patients, includes patients with complex lesions (e.g., long lesions, total occlusions, in-stent restenosis). The corresponding event-free survival rates were 87 percent and 78 percent, and freedom from target lesion revascularization was 89 percent and 82 percent. Clinical measures that included ankle-brachial index, Rutherford score, and walking distance and speed scores showed significant improvement at six and 12 months and were maintained through 24 months. Detailed evaluation of stent x-rays demonstrated excellent stent integrity through 12 months, confirming previously published results showing 99 percent completely intact stents (less than 1 percent stent fracture rates observed) with a mean follow up of 2.4 years in the challenging superior femoral artery and popliteal arteries, including behind the knee locations.
Financial and Strategic Alternatives Process. Over the last two and a half years, revenue in our Pharmaceutical Technologies segment has declined significantly, primarily due to lower royalties derived from sales by BSC of TAXUS coronary stent systems. This decline in royalty revenue has negatively and materially impacted our liquidity and results of operations. As a result of this and other factors impacting our business and the capital markets, our management and Board of Directors believe a transaction or transactions of significant size and scope may be necessary to meaningfully address liquidity concerns and the working capital needs of our business. Our evaluation of various financial and strategic alternatives continued through the second quarter of 2009. As part of this continuing process, we secured interim senior secured financing for working capital and liquidity purposes in the first quarter of
2009 by way of a credit facility, we amended our credit facility in the second quarter of 2009, and in July 2009 we filed a shelf registration statement on Form S-3 in the United States and a preliminary short form base shelf prospectus in British Columbia and Ontario, as described in more detail below.
Amendment to Credit Facility. On May 29, 2009, we entered into an amendment to our senior secured term loan and revolving credit facility with Wells Fargo Foothill, LLC ("Wells Fargo") as the sole arranger, administrative agent and lender that we had previously announced in March 2009. This financing originally included a delayed draw secured term loan facility of up to $10.0 million, and a secured revolving credit facility with a borrowing base derived from the value of certain of our finished goods inventory and accounts receivable, providing up to an additional $22.5 million in available credit, subject to certain terms and conditions. The amendment included, among other things, early termination of the term loan facility, which was undrawn at the time of the amendment and was originally scheduled to terminate on August 31, 2009. The amendment also expanded the definition of Permitted Investments and eliminated the $2.5 million availability block, increasing the total available credit under the revolving credit facility to $25.0 million (subject to a borrowing base formula derived from the value of certain of our finished goods inventory and accounts receivable).
Filing of Shelf Registration Statement on Form S-3. On July 23, 2009, we announced that we had filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission and a corresponding preliminary short form base shelf prospectus with the securities commissions of British Columbia and Ontario (collectively, the "Offering Documents"). The Offering Documents, when made final and / or declared effective, will allow us to make offerings of Common shares, Class I Preference shares, debt securities, warrants or units for initial aggregate proceeds of up to $250.0 million during the next 25 months to potential purchasers in the United States, British Columbia and Ontario.
Ongoing Clinical Programs
The following discussion describes our product candidates, or certain of our partners' product candidates, that are being evaluated in ongoing human clinical trials and their stage of development:
Partner Clinical Programs
ZILVER PTX Paclitaxel-Eluting Peripheral Vascular Stent System. The ZILVER PTX paclitaxel-eluting peripheral vascular stent, which is under evaluation in clinical trials being conducted by our partner Cook, is a specialized stent product incorporating our proprietary paclitaxel technology and is designed for placement in diseased arteries in the limbs to restore blood flow. Cook licenses the rights to use paclitaxel with peripheral stents and certain other non-coronary medical devices from us. Under the terms of our license agreement with Cook, we are entitled to receive royalty payments upon the commercial sale of paclitaxel-eluting peripheral vascular stent products, including the ZILVER PTX.
Of patients with PAD, only a quarter indicate any material symptoms. The "silent" nature of this condition can result in a number of patients being diagnosed only when their condition has progressed to the severe stage. In patients with severe PAD whose condition is not improving with risk-factor modification, exercise programs and pharmacological therapy, invasive procedures may need to be carried out. These procedures include angioplasty, stenting or surgery. To date, stent procedures for PAD in the limbs have been limited due to high observed rates of restenosis, as well as risk of stent fracture with existing products, as these stents are exposed and not protected by the patient's anatomy as with coronary stents.
Cook is a co-exclusive licensee, together with BSC, of our proprietary paclitaxel technology to reduce restenosis following stent placement in PAD. The . . .
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