Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ANPMF > SEC Filings for ANPMF > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for ANGIOTECH PHARMACEUTICALS INC

Form 10-Q for ANGIOTECH PHARMACEUTICALS INC


14-Nov-2012

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

ANGIOTECH PHARMACEUTICALS, INC.

For the three and nine months ended September 30, 2012

(All amounts following are expressed in U.S. dollars unless otherwise indicated.)

The following management's discussion and analysis ("MD&A") for the three and nine months ended September 30, 2012 should be read in conjunction with our unaudited consolidated financial statements as at and for the three and nine months ended September 30, 2012 and our audited consolidated financial statements as at December 31, 2011 and for the five months ended September 30, 2011 and four months ended April 30, 2011. The MD&A and unaudited financial statements for the three and nine months ended September 30, 2012 have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") and the applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for the presentation of interim financial information. Additional information relating to our company, including our 2011 Annual Report on Form 10-K, is available by accessing the EDGAR website at www.sec.gov/edgar.shtml.

Cautionary Statements Regarding Forward-Looking Statements 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 2012 and beyond, our strategies or future actions, our targets, expectations for our financial condition and the results of, or outlook for, our operations or new, product or business development initiatives. 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 U.S., E.U. and the other regions in which we operate; market demand; the initiatives of competitors or technological changes that could impact our existing products or our ability to develop and commercialize future products; competition; 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; general capital markets conditions and the requirement for funding to sustain or expand manufacturing, commercialization or our various product development 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: market acceptance of our technology and products; our ability to successfully manufacture, market and sell our various products; the impact of changes in our business strategy or development plans; our ability to attract and retain qualified personnel; our ability to complete, in a timely and cost effective manner, pre-clinical and clinical development of certain potential new products; our ability to obtain or maintain patent protection for discoveries; potential 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


Table of Contents

against us; the availability of capital to finance our activities; our ability to service our debt obligations; and any other factors referenced in our other filings with the applicable securities regulatory authorities.

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 and in our 2011 Annual Report on Form 10-K.

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 securities laws. We have provided this information in order to provide general guidance on management's current expectations of certain factors affecting our business, including our future 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.

Basis of Presentation

On May 12, 2011 (the "Plan Implementation Date" or the "Effective Date"), we implemented a recapitalization transaction that, among other things, eliminated our $250 million 7.75% Senior Subordinated Notes due in 2014 ("Subordinated Notes") and $16 million of related interest obligations in exchange for new common shares issued (the "Recapitalization Transaction"). In connection with the execution of this Recapitalization Transaction, on January 28, 2011, we and certain of our subsidiaries (the "Angiotech Entities") filed for creditor protection under the Companies' Creditors Arrangement Act ("CCAA") in Canada and Chapter 15 of Title 11 of the Bankruptcy Code in the U.S (the "Creditor Protection Proceedings").

Upon commencement of the Creditor Protection Proceedings through to the Convenience Date (as described below), we applied Accounting Standards Codification ("ASC") No. 852 - Reorganization to prepare our consolidated financial statements. During Creditor Protection Proceedings, ASC No. 852 required us to distinguish transactions and events directly associated with the Recapitalization Transaction from ongoing operations of the business as follows:
(i) certain expenses, recoveries, loss provisions, and other charges incurred during Creditor Protection Proceedings were reported as Reorganization Items on the Consolidated Statement of Operations and (ii) specific cash flow items directly related to the Reorganization Items were segregated on the Consolidated Statement of Cash Flows. In addition, in accordance with the terms of the recapitalization plan, we also ceased to accrue interest from January 28, 2011 onwards on our pre-petition Subordinated Notes.

Upon emergence from Creditor Protection Proceedings and completion of the Recapitalization Transaction on May 12, 2011, we adopted fresh-start accounting as required by ASC No. 852. We applied fresh start accounting on April 30, 2011 (the "Convenience Date") after concluding that the operating results between the Convenience Date and the Effective Date did not result in a material difference. Given that the reorganization and adoption of fresh-start accounting resulted in a new entity for financial reporting purposes, we refer to Angiotech as the "Predecessor Company" for all periods preceding the Convenience Date and "Successor Company" for all periods subsequent to the Convenience Date. Financial information presented in this MD&A therefore includes the results of the Successor Company for the three and nine months ended September 30, 2012, the three and five months ended September 30, 2011 and the results of the Predecessor Company for the four months ended April 30, 2011.

Overall, the implementation of fresh start accounting resulted in: (i) a comprehensive revaluation of our assets and liabilities to their estimated fair values, (ii) the elimination of our pre-reorganization deficit, additional paid-in-capital and accumulated other comprehensive income balances and
(iii) reclassification of certain balances. Given these material changes to our consolidated financial statements, the results of the Successor Company may not be comparable in certain respects to those of the Predecessor Company. However, given that these fresh start adjustments were non-cash in nature and did not change our business or operations, we believe that the comparison of the three and nine months ended September 30, 2012 versus the three and nine months ended September 30, 2011 provides the best basis for analyzing our operating results. Where specific income statement items have been


Table of Contents

significantly impacted, either temporarily or permanently, by the reorganization and fresh-start accounting, we have provided detailed explanations of such in the discussion below.

Business Overview

Angiotech develops, manufactures and markets medical device products and technologies. Our products are designed to serve physicians and patients primarily in the areas of interventional oncology, wound closure and ophthalmology. We currently operate in two business segments: Medical Device Products and Licensed Technologies.

Medical Device Products

Our Medical Device Products segment, which generates the majority of our revenue, develops, manufactures and markets a wide range of single use medical device products, as well as precision manufactured medical device components. These products and components are sold directly to hospitals, clinics, physicians, other end users, medical products distributors, and other third-party medical device manufacturers.

Our most significant product groups within this business segment include:

† Interventional Oncology. We develop, manufacture and market a range of proprietary single use medical device products for the diagnosis of cancer, primarily biopsy devices and related products. We also offer additional product lines for selected other interventional radiology procedures performed primarily by physicians that also utilize our biopsy product lines. Our most significant product lines include our BioPince™ full core biopsy devices, our True-Core™ and SuperCore™ single use disposable biopsy devices, our T-Lok™ bone marrow biopsy devices and our SKATER™ line of drainage catheters. We sell the significant majority of these product lines through our direct sales organization directly to hospitals and other end users, as well as through third party medical products distributors in certain countries outside of the United States.

† Wound Closure. We develop, manufacture and market a full line of wound closure products, primarily various types of sutures and surgical needle products. Our most significant product lines include our Quill™ Knotless Tissue-Closure products and our LOOK™ brand sutures for dental and general surgery. We sell these product lines, in particular our Quill product line, directly to hospitals, surgery centers, clinics and other end users through our direct sales organization, as well as through third party medical products distributors. We also manufacture certain of these products in finished form for other third party medical device manufacturers and distributors that sell them under independently owned brand names.

† Ophthalmology. We develop, manufacture and market a selection of single-use disposable products for ophthalmic surgery, including various types of surgical blades used primarily in cataract surgery, as well as ancillary products including sutures, cannulas, eye shields and punctual plugs. Our most significant product lines include our Sharpoint™ brand disposable ophthalmic surgical blades. We sell these product lines directly, primarily to surgery centers and clinics, through our direct sales organization, as well as through third party medical products distributors. We also manufacture ophthalmic surgical blades in finished form for other third party medical device manufacturers and distributors that sell them under independently owned brand names.

† Medical Device Components. We develop, manufacture and market a wide range of components, primarily on a made-to-order basis, for other third party medical device manufacturers. These products primarily comprise unsterilized product components, which are shipped to the customer for final assembly and sterilization. These components are typically manufactured using the same manufacturing capabilities and technologies we utilize to produce our various other product lines. We sell these product lines directly to corporate customers through our direct sales organization. Our customers include many leading medical device manufacturers in the cardiology and vascular access, interventional radiology, ophthalmology, orthopedics, women's health, and wound closure product areas.


Table of Contents

Licensed Technologies

Our Licensed Technologies segment includes certain of our legacy technologies for which research and development activities have been concluded. This segment generates additional revenue in the form of royalties received from partners who license and utilize these technologies in their medical device product lines. Our principal revenues in this segment to date have been royalties derived from sales by our partner Boston Scientific Corporation ("BSC") of TAXUS paclitaxel-eluting coronary stents for the treatment of coronary artery disease.

We have also licensed the same technology utilized by BSC in its TAXUS product line to our partner Cook Medical, Inc. ("Cook") for use in its Zilver PTX paclitaxel-eluting peripheral vascular stent, which is used for the treatment of vascular disease in the leg. Zilver PTX is currently approved for sale in the E.U. and certain other countries outside of the U.S., and is awaiting approval by the U.S. Food and Drug Administration ("FDA") for sale in the U.S. Should Cook receive U.S. approval from the FDA for Zilver PTX, we expect to receive additional royalty revenue from sales of this product.

We currently receive royalty revenue derived from sales of TAXUS and Zilver PTX based upon our license agreements with BSC and Cook which relate to the use of several families of intellectual property underlying our proprietary paclitaxel technology. The royalty rate applied to BSC's sales increases in certain countries depending upon unit sales volumes achieved by BSC. The royalty rate applied to Cook's sales of Zilver PTX are flat rates, with a lower royalty rate applied to sales of Zilver PTX outside of the U.S. as compared to the U.S. regardless of the unit sales volumes achieved. On February 3, 2012, we received a $4.0 million sales milestone fee from Cook that was triggered by Cook achieving a certain targeted level of sales of Zilver PTX under the terms of our existing license agreement with them. Upon receipt, we recognized the entire $4.0 million sales milestone fee as deferred revenue given that: (i) the milestone was not determined to be substantive for the purposes of assessing revenue recognition under ASC No. 605 - Revenue Recognition: Milestone Method, and (ii) under the terms of the arrangement, the fee is subject to adjustment and will be drawn down by 50% of future Zilver PTX royalties received from Cook. During the three and nine months ended September 30, 2012, $0.3 million and $0.4 million of the deferred revenue balance was recognized respectively as revenue based on the draw down formula described above. As at September 30, 2012, the remaining deferred revenue balance was $3.5 million. Approximately $1.3 million of this balance was classified as current and $2.2 million was classified as non-current.

Minimal costs are currently associated with our receipt of royalty revenue derived from TAXUS. We expect to incur royalty expense associated with Cook's sales of Zilver PTX based on the terms of our license agreement with the National Institutes of Health ("NIH"). We may continue to receive royalty revenue from BSC and Cook throughout the remainder of the lives of the relevant licensed patent families in each respective geography, depending upon BSC's and Cook's level of product sales and commercial and clinical success.

Strategy

Our strategy is to target selected market segments where we can establish or maintain a leadership position in medical device products or components, and thereby achieve profitable revenue growth and improved cash flows. Key elements of this strategy include:

† Maintaining and Investing in Our Precision Manufacturing Capabilities and Technology. We maintain multiple facilities with precision manufacturing capabilities specifically tailored to medical products. These operations enable us to control the most critical aspects of manufacturing of our products or product components, and thereby assure we are able to readily and flexibly provide products and serve our customers in a safe, consistent and high quality manner that complies with all regulations. We believe maintaining and investing in these capabilities and ensuring the on-time delivery of quality products provides a key barrier to entry in our current markets, and may facilitate more rapid capture of new market or product opportunities as compared to competitors that manufacture using mainly outside vendors or third party manufacturers.

† Developing and Investing in Highly Specialized Sales and Marketing Personnel and Activities. We have developed several focused, specialized groups of sales and marketing personnel that, in combination with third party distribution networks, target highly selective market sub-segments or customers, with


Table of Contents

an emphasis on product areas where our precision manufacturing capabilities may provide us with a competitive advantage in markets that may be underserved by the largest medical product providers and manufacturers. We believe this hybrid selling approach, as opposed to working solely through third party sales organizations or personnel, facilitates our ability to build our most important product brands and help customers better understand the key advantages of our products and capabilities.

† Selectively Investing in New Product Development, Intellectual Property and Proprietary Know-How. We maintain dedicated medical device product engineering, regulatory and quality affairs personnel centered primarily in two of our facility locations. We believe maintaining dedicated product development resources in-house, in combination with our in-house manufacturing capabilities, may facilitate a more rapid and disciplined response to new market opportunities and customer needs, and may provide opportunities to improve our gross profit margins or our competitive position through the development of new, proprietary manufacturing technology or know-how.

† Pursuing Selective and Disciplined Business Development, Product or Business Acquisition Activities. We expect to continue to supplement our in-house product development and commercialization activities by selectively pursuing product licenses, distribution arrangements, acquisitions or other similar transactions. We believe such activities, when pursued within the discipline of our profitable operating model and within defined financial risk parameters, may provide additional opportunity for us to capitalize on, and generate additional operating profit and cash flow, from our significant investments in our dedicated manufacturing and sales and marketing resources.

Significant Recent Developments

Refinancing of $225 million of Senior Floating Rate Notes

In July 2012, we launched an offer to exchange up to a maximum of $225.0 million in aggregate principal amount of our outstanding $325 million existing Floating Rate Notes (the "Existing Notes") due December 1, 2012 (the "Maximum Principal Exchange Amount") for new 9% Senior Notes due December 1, 2016 (the "New Notes") issued by Angiotech Pharmaceuticals (US), Inc. pursuant to an Offering Memorandum and Consent Solicitation Statement (the "Exchange Offer"). On August 13, 2012, $225.0 million of the $255.5 million tendered Existing Notes were irrevocably extinguished and exchanged, on a pro rata basis, for $229.4 million of New Notes. All note holders that tendered their Existing Notes by the July 23, 2012 early tender date received the New Notes with a principal amount that included a 2% premium above the principal amount of the Existing Notes exchanged. In accordance with ASC No. 470-50 - Debt Extinguishment and Modification, the refinancing of the $225.0 million of Existing Notes was determined to be an extinguishment of debt given that the change in future cash flows on a pre and post transaction basis exceeded 10% and was therefore considered substantial. As such, the New Notes were recorded at their fair value of $229.4 million and a $4.4 million non-cash debt extinguishment loss was triggered upon settlement and cancellation of the $225.0 million of Existing Notes that were tendered. For more detail on the terms, rights and conditions associated with the New Notes, refer to Liquidity and Capital Resources below.

Redemption of $40 million of Existing Notes

On September 17, 2012, pursuant to a Notice of Optional Partial Redemption, we exercised our call option to redeem approximately $40 million in aggregate principal amount of our $100 million outstanding Existing Notes. On October 17, 2012 we redeemed $40 million of Existing Notes at 100% of the principal amount, together with accrued and unpaid interest of $0.2 million. After accounting for the $40 million partial redemption, our total long-term debt will be reduced to$289.4 million and our total long-term debt maturing in December 2013 will be reduced $60 million. We anticipate that we will be able to continue to reduce debt or meet our remaining debt obligations at or prior to their maturity through a combination of cash flow generated from operations, cash received from dispositions of assets or other strategic transactions or through the pursuit of debt, equity or other similar financing transactions.


Table of Contents

Quill Transaction

On April 4, 2012, we concurrently entered into a series of agreements with Ethicon, LLC and Ethicon, Inc. (collectively "Ethicon") in connection with our proprietary Quill technology and certain related manufacturing equipment and services. Significant terms of the respective agreements are described as follows:

i. Asset Sale and Purchase Agreement

On April 4, 2012, we entered into an Asset Sale and Purchase Agreement (the "APA") with Ethicon. Pursuant to the terms of the APA, we sold certain intellectual property related to its Quill technology, as well as certain related manufacturing equipment, to Ethicon. Under the terms of the APA, on April 4, 2012 Ethicon made an initial cash payment of $20.4 million to us, and agreed to pay us up to an additional $30.0 million in additional cash consideration, with any additional amounts that may be paid contingent upon the completion of certain activities, including the transfer of certain Quill-related know-how to Ethicon and the achievement of certain product development milestones.

ii. Co-Exclusive Patent and Know-How License Agreement

Concurrent with the APA, we also entered into a Co-Exclusive Patent and Know-How License Agreement dated April 4, 2012 (the "License Agreement") with Ethicon. Under the License Agreement, Ethicon has granted us a worldwide, royalty free license to the intellectual property sold to Ethicon under the APA, which effectively grants the us an unrestricted right to manufacture and distribute Quill wound closure products (without the Ethicon label) in any market and at our discretion.

iii. Manufacturing and Supply Agreement

On April 4, 2012, we also entered into a Manufacturing and Supply Agreement (the "MSA") with Ethicon, pursuant to which we will act as Ethicon's exclusive manufacturer of knotless wound closure products that utilize the Quill technology for an undisclosed term. Under the terms of the MSA, Ethicon agreed to pay us up to $12.0 million in cash consideration, with any amounts that may be paid contingent upon the completion of certain activities, specifically the achievement of certain product development milestones. The MSA requires us to fulfill periodic orders placed by Ethicon subject to certain terms and conditions. In addition, under the terms of the MSA, Ethicon has a right of first negotiation with respect to the commercialization of any new products, as defined, in the field of knotless wound closure, which may be developed by us and are not otherwise covered by the MSA.

As many of the contingent payments embedded in the respective agreements are subject to the same or interrelated performance conditions; the APA, License Agreement and MSA were determined to be closely related for accounting purposes. As such, these agreements were collectively determined, for accounting purposes, to represent a multiple-element arrangement. This conclusion was based on the following factors: (a) the degree of continuing involvement required from us to complete the transfer of certain Quill know-how to Ethicon, and to achieve the product development milestones, and (b) the fact that we have retained the same unrestricted rights that we had on a pre-transaction basis to continue manufacturing and distributing the Quill wound closure products for our own purposes, in any market at our discretion.

In accordance with ASC No. 605, we evaluated this multiple-element arrangement to identify all key deliverables listed below:

† $0.4 million of cash received during the three months ended June 30, 2012, related to the sale of certain manufacturing equipment;

† $20.0 million of cash received up-front during April 2012 for the transfer of title of certain Quill related intellectual property to Ethicon;

† $5.0 million of cash received during August 2012 for the transfer of certain know-how to Ethicon;

† $22.0 million of cash received during October 2012 related to the achievement of certain product development milestones associated with the development of an initial set of product codes; and


Table of Contents

. . .

  Add ANPMF to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ANPMF - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.