Ares Management and New Leaf Venture Partners Commit To Purchase
Convertible Notes in New Subsidiary of $200 to $300 Million
VANCOUVER, July 7 /PRNewswire-FirstCall/ -- Angiotech
Pharmaceuticals, Inc. (NASDAQ:ANPINASDAQ:TSX:NASDAQ:ANP), a global
specialty pharmaceutical and medical device company, today
announced that Angiotech's Board of Directors has authorized a
transaction to create a new subsidiary, Angiotech Pharmaceutical
Interventions, Inc. ("API"). Angiotech will contribute to API
certain business assets and intellectual property, which include
primarily business assets of Angiotech other than the intellectual
property and royalty revenue related to the TAXUS(R) coronary stent
system. The Company has entered into a note purchase agreement with
Ares Management and New Leaf Venture Partners, under which the
investors will purchase between $200 and $300 million, at the
Company's option, of convertible notes issued by API that will be
convertible into a significant minority equity interest in API.
Angiotech and its shareholders will benefit from the future
performance of API based on retaining a significant continuing
equity interest in the newly formed subsidiary. The net proceeds
from the issuance of the convertible notes will be used to reduce
Angiotech's existing debt, pursuant to tender offers announced and
commenced concurrent with this announcement. The transaction is
subject to approval of the Company's shareholders and other
customary closing conditions. "We are pleased to announce a
transaction today that we believe offers significant immediate
value and risk mitigation for our shareholders and bondholders,
while retaining significant participation in API for our
shareholders," said Dr. William Hunter, President and Chief
Executive Officer of Angiotech. "We are excited to work with our
new partners at Ares and New Leaf, who offer us considerable
capital resources and business experience, to execute our strategy
of developing drug-device combinations, locally deliverable drugs,
or other novel technologies that improve the outcomes of surgical
or other medical interventions." "This transaction offers Angiotech
the opportunity for meaningful reduction of debt and interest
expense, and allows us to raise a total amount of proceeds greater
than would have been reasonably achievable through the consolidated
company's capital alternatives," said Thomas Bailey, Chief
Financial Officer of Angiotech. "After considering a wide range of
strategic alternatives with the assistance of our advisors, our
Board determined that this transaction establishes a more flexible
capital structure to support our various business and product
development initiatives." "We are pleased, together with New Leaf,
to have the opportunity to work with Angiotech to establish and
capitalize API," said Bennett Rosenthal, Senior Partner of Ares
Management. "The combination of our firms' significant capital
resources, financial expertise and health care investing experience
make us ideal partners for API. We are all tremendously excited
about the market potential and growth trajectory of the company's
various product opportunities." "New Leaf and Ares believe that
Angiotech has a very attractive portfolio of marketed products and
pipeline programs, and that this transaction puts the Company in
the best position to support these assets with the investments
needed to maximize their long term potential," said Ron Hunt,
Managing Director of New Leaf Venture Partners, LLC. Transaction
Highlights - Raises substantial proceeds in equity-linked security
targeted to reduce cash pay debt. The proposed transaction enables
Angiotech to raise a sizable amount of gross proceeds in the form
of convertible securities that will bear non-cash interest payable
in kind, and will be convertible into shares of Angiotech's newly
formed subsidiary, API. The net proceeds that the Company elects to
raise will be utilized to reduce selected principal amounts of the
two cash pay debt securities of Angiotech currently outstanding,
significantly reducing Angiotech's cash interest expense and
thereby improving interest coverage and debt ratios. - Retain
majority API stake for Angiotech shareholders. This transaction
leaves a pro forma API initial ownership stake of between 52% and
68% for Angiotech's existing shareholders (measured accounting for
the convertible notes on an "if converted" basis at closing).
Importantly, Angiotech's existing shareholders will continue to
participate meaningfully in the success of the various API
businesses and product opportunities, including API's proprietary
Quill SRS(TM) technology and its recently approved
5-flourouracil-eluting central venous catheter. - Mitigates risks
related to Angiotech's drug-eluting stent royalty revenue and cash
flows. The debt and cash interest expense reduction that may be
achieved, combined with the significant implied equity value of
Angiotech's ownership stake in API, should improve Angiotech's
ability to continue to meet its debt obligations should royalties
received from its partner Boston Scientific Corporation ("BSC")
decline from current levels as a result of additional competitive
entrants into the market for drug-eluting stents. - Unlock and
capture value embedded in Angiotech's non-TAXUS assets. The
conversion ratio of the securities issued implies a total equity
value for API of $625 million, assuming $75 million in cash and
cash equivalents at API at closing and no debt, other than the
guarantees of the remaining amounts of Angiotech's two existing
debt issues. The proposed transaction at this value enables
Angiotech to raise a significant amount of capital to address the
Company's current capital structure issues with more limited
dilution than would likely be possible if Angiotech were to attempt
to raise similar amounts of capital using security structures
available to Angiotech on a consolidated basis. - Flexible
transaction size to optimize use of capital. Angiotech expects to
raise a minimum of US$200 million in gross proceeds through this
transaction. Depending upon the interest level in the contemplated
tender offers for Angiotech's two outstanding debt issues, the
Company may elect to raise up to US$300 million. This transaction
structure allows Angiotech the flexibility to elect to raise a
variable amount of capital, at the Company's option, depending on
the expected cost of retiring selected amounts of each outstanding
debt issue. - Align capitalization with business risk, strategy and
structures. By forming and capitalizing API, Angiotech has
established a plan to achieve a more equity oriented capital
structure for its operating businesses, more consistent with its
original strategy and with peer companies in the life sciences
industry. With the opportunity to pursue an initial public offering
of API in the future, or other financial and strategic alternatives
together with Ares and New Leaf, API will have improved financial
flexibility, enabling API to better capitalize on its various
business and product development opportunities. In addition, by
selectively reducing cash pay debt, Angiotech expects the remaining
royalty revenue derived from its partners BSC and Cook Group
Incorporated ("Cook") will be adequate to service any remaining
debt. The various assets, including the royalty business and API
equity stake, owned by Angiotech will also allow continued
exploration of additional financing and strategic alternatives to
potentially further reduce or eliminate remaining Angiotech debt.
Transaction Description and Plan - Transaction Process. In late
2007 and early 2008, Angiotech management and its Board of
Directors discussed and reviewed various financial and strategic
alternatives, with the goal of evaluating and pursuing selected
opportunities to reduce debt, mitigate certain risks and improve
shareholder value. As a result of this review, Angiotech conducted
a process, together with its financial and legal advisors, in which
multiple potential investors were contacted to evaluate an
investment in API. Angiotech received and evaluated multiple
proposals over the past several months, and ultimately concluded
negotiations with Ares and New Leaf. - Formation of API. API has
been established as a Delaware corporation, with principal
executive offices in Vancouver, British Columbia. Immediately prior
to the close of the transaction, Angiotech and API will enter into
agreements to transfer to API certain assets and liabilities of
Angiotech, which primarily include the various operating business
assets and product development programs of Angiotech, and exclude
(i) intellectual property and royalty revenue related to BSC's
TAXUS paclitaxel-eluting coronary stent system; (ii) potential
royalty and other income from certain other uses of paclitaxel
licensed to BSC and Cook (including uses relating to Cook's
ZILVER(R) PTX paclitaxel-eluting peripheral vascular stent); (iii)
potential royalty and other income from certain other uses of
paclitaxel licensed to Broncus Technologies Incorporated
("Broncus") relating to the Exhale(R) paclitaxel-eluting lung
stent; and (iv) certain other assets and liabilities not related to
the ongoing business of API. The business of Angiotech prior to the
transaction consists primarily of the business assets to be
transferred to API, and the license agreements with BSC, Cook and
Broncus. For the year ended December 31, 2007, Angiotech had $288
million in revenue, $111 million of which was royalty revenue
derived mainly from BSC, and $177 million of which was product and
royalty revenue derived from the assets to be transferred to API. -
Financing Transaction. The Company has entered into a Note Purchase
Agreement, providing for the issuance and sale of between $200
million and $300 million of convertible notes to Ares Management
and New Leaf Venture Partners. The convertible notes will have an
initial conversion price of $20 per share, and each $1,000
principal amount of convertible notes will be convertible into 50
shares of API, implying an initial equity value for API of $625
million assuming $75 million in cash and cash equivalents at API at
closing and no debt, other than the guarantees of remaining amounts
of Angiotech's two existing debt issues. The convertible notes will
be convertible into 32% to 48% of the common stock of API,
depending upon the final initial transaction size, calculated on an
"if converted" basis and without taking into account any future
dilution resulting from additional pay in kind convertible notes,
or any incentives to be issued to API employees under plans to be
established for API. The notes will bear interest at a weighted
average rate that will equate to 7.75% per annum, and will be
payable semiannually in kind in additional convertible notes. The
notes are convertible into API common stock at any time after
September 30, 2009, or upon the occurrence of certain qualified
transactions, including an initial public offering of API that
attains certain valuation thresholds, a sale or disposition of API
or a change in control, sale or disposition of Angiotech while
Angiotech retains a majority interest in API. - Tender Offers.
Under the terms of the transaction, API will pay the net proceeds
from the sale of convertible notes to Angiotech. The net proceeds
will be used to consummate tender offers to repurchase portions of
Angiotech's Senior Floating Rate Notes due 2013 and its 7.75%
Senior Subordinated Notes due 2014, each as tendered by holders in
response to tender offers that Angiotech expects to close
simultaneously with the transaction. As of June 30, 2008, Angiotech
had an outstanding principal balance of $575 million under the
Existing Notes. - Remaining Angiotech Debt. Remaining debt at
Angiotech upon closing will be serviced primarily by cash flows
generated from royalties derived from the assets to be retained by
Angiotech, including any royalties received from BSC, Cook or
Broncus. In addition, Angiotech's remaining debt obligations will
continue to be subject to a guarantee by API. - Board of Directors
and Management. The Board of Directors of Angiotech is expected to
remain as comprised prior to the close of the transaction. William
Hunter and Thomas Bailey will remain in their current positions as
CEO and CFO of Angiotech respectively. The Board of Directors of
API is expected to include three members appointed by Angiotech's
Board of Directors, three members selected by Ares, and a new,
independent director to be selected by Angiotech. Substantially all
of the executive officers, management and employees of Angiotech
will continue in similar capacities with API, with the exception of
David Hall, Angiotech's Chief Compliance Officer, who is expected
to be named to the position of President of Angiotech upon the
close of the transaction. - Future Potential Transactions,
Strategic Alternatives. It is anticipated that Angiotech may pursue
additional transactions in the future, including an initial public
offering of API or a sale or securitization of API or of
Angiotech's other assets, including potentially its royalty
businesses, which may serve to further reduce Angiotech debt or
that may realize additional value for Angiotech shareholders. - Tax
impact of the transaction, or future transactions. The initial
transaction is not expected to result in material tax consequences
for Angiotech, or Angiotech shareholders. Future tax consequences
will depend upon the type and timing of any transaction or type of
disposition of any of Angiotech's assets pursued, if any, and the
valuation achieved in such transaction or transactions. -
Conditions and Anticipated Close. An independent Special Committee
of the Board of Directors of Angiotech has recommended that the
Board (a) approve the transaction, and (b) recommend that the
shareholders vote in favor of the transaction. The transaction is
subject to the approval of Angiotech's shareholders, and other
customary conditions. The transaction is expected to be completed
later in the third quarter or early in the fourth quarter of 2008.
Goldman, Sachs & Co. is serving as Angiotech's financial
advisor and Sullivan & Cromwell LLP and Borden Ladner Gervais
LLP are serving as its legal advisors. Merrill Lynch Canada Inc. is
serving as financial advisor to the Special Committee of the Board
of Directors of Angiotech, and Lawson Lundell LLP is serving as the
legal advisor to the Special Committee. Proskauer Rose LLP is
serving as legal advisor to Ares Management, and Latham &
Watkins LLP is serving as legal advisor to New Leaf Venture
Partners. Conference Call Information A conference call to discuss
this transaction will be held today, Monday, July 7, 2008 at 5:30
AM PT (8:30 AM ET). Dial-in information: North America (toll free):
(800) 638-4930 International: (617) 614-3944 Enter passcode:
83196265 A replay archive of the conference call will be available
until July 14 by calling (888) 286-8010 (North America) or (617)
801-6888 (International) and entering passcode 57624159. A live
webcast will be available to all interested parties through the
Investors section of Angiotech's website at
http://www.angiotech.com/ Cautionary Statement Regarding
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", "estimate",
"continue", "anticipates", "intends", "expects" and similar
expressions, constitute "forward-looking statements" within the
meaning of the U.S. Private Securities Litigation Reform Act of
1995 and 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 second half of 2008 and beyond, our strategies or future
actions, our targets, expectations for our financial condition and
the results of, or outlook for, our operations, research,
development, product and drug development and our plans and
anticipated effects of the transaction described in this press
release. 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 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: the inability to consummate the transaction
described in this press release or that the transaction will not
provide the anticipated benefits described in this press release;
general economic and business conditions, both nationally and in
the 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; 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 and to
expand manufacturing and commercialization activities or consummate
acquisitions; and any other factors that may affect performance. In
addition, our business is subject to certain operating risks that
may cause the actual 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 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 continued
availability of capital to finance our activities; and any other
factors referenced in our other filings with the 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, 2007 filed with the SEC on Form 40-F and our quarterly
report for the three months ended March 31, 2008 filed with the SEC
on Form 10-Q. Given these uncertainties, assumptions and risk
factors, readers 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 investment of Ares Corporate Opportunities Fund
III, L.P., New Leaf Ventures I, L.P. and New Leaf Ventures II, L.P.
in Angiotech Pharmaceuticals, Inc.'s ("Angiotech") subsidiary,
Angiotech Pharmaceutical Interventions, Inc. In connection with the
proposed investment, 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
transaction. Information about the directors and executive officers
of Angiotech is set forth in Angiotech's Annual Report on Form 40-F
for the most recently ended fiscal year, which was filed with the
SEC on March 31, 2008. Investors may obtain additional information
regarding the interest of such participants by reading the proxy
statement regarding the acquisition when it becomes available.
About Angiotech Angiotech Pharmaceuticals, Inc. is a global
specialty pharmaceutical and medical device company with over 1,500
dedicated employees. 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:ANPINASDAQ:TSX:NASDAQ:ANP), please visit our website at
http://www.angiotech.com/. About Ares Management LLC Founded in
1997 by a group of experienced investment professionals, Ares
manages investment capital in private equity, capital markets
(principally leveraged loans, high-yield bonds, and distressed
debt), and private debt (primarily through Ares Capital Corporation
(NASDAQ:ARCC), a publicly-traded specialty finance company).
Through these three complementary lines of business, Ares has the
ability to provide capital to companies at any place in the capital
structure and at any stage of development. Ares is an SEC
registered investment advisor and has grown committed capital under
management from approximately $3.8 billion of committed capital in
2003 to in excess of $25 billion as of mid-2008. As of June 2008,
Ares (based in Los Angeles, California) has more than 240 employees
with offices in Los Angeles, New York and London. For more
information, visit the Ares website at http://www.aresmgmt.com/.
About New Leaf Venture Partners NLV Partners is a life
science-dedicated venture capital firm with offices in Menlo Park
and New York. Founded by an experienced team of venture capitalists
with deep healthcare industry experience, NLV Partners invests
primarily in companies focused on clinical-stage biopharmaceutical
products, early-stage medical devices, and molecular diagnostics.
NLV Partners manages over $1.3 billion of assets, including NLV-I,
NLV-II and the healthcare technology portfolio of Sprout Group. For
further information, visit the NLV Partners website at
http://www.nlvpartners.com/. CONTACT: Sage Baker, Investor
Relations and Corporate Communications, Angiotech Pharmaceuticals,
Inc., (604) 221-6933, ; Deirdre Neary, Investor Relations and
Corporate Communications, Angiotech Pharmaceuticals, Inc., (604)
222-7056, ; Steve Frankel, Joele Frank, Wilkinson Brimmer Katcher,
Office (212) 355-4449 x 119, Cell (917) 952-0676, ,
http://www.joelefrank.com/ DATASOURCE: Angiotech Pharmaceuticals,
Inc. CONTACT: Sage Baker, Investor Relations and Corporate
Communications, Angiotech Pharmaceuticals, Inc., (604) 221-6933, ;
Deirdre Neary, Investor Relations and Corporate Communications,
Angiotech Pharmaceuticals, Inc., (604) 222-7056, ; Steve Frankel,
Joele Frank, Wilkinson Brimmer Katcher, Office (212) 355-4449 x
119, Cell (917) 952-0676, , http://www.joelefrank.com/
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