Angiotech battered by Boston Scientific warning

September 22, 2006
Globe and Mail
Canadian Press


TORONTO — Shares in cancer drug developer Angiotech Pharmaceuticals Inc. dropped more than 10 per cent Friday after its U.S. partner Boston Scientific said it expects lower third-quarter revenues from heart stents developed by the companies.

Angiotech stock fell $1.25 to $10.47 with 157,284 changing hands Friday morning on the Toronto Stock Exchange.

Boston Scientific said Thursday it expects third-quarter sales of the Taxus stent will come in at between $550-million (U.S.) and $580-million, substantially below second-quarter sales of $647-million, and its net income will be between $90-million and $145-million.

The American company's stock also fell, dropping more than 10 per cent or $1.68 to $14.68 on the New York Stock Exchange.

The U.S.-based partner of Vancouver-based Angiotech said it expects between $370-million and $380-million of its stent sales will be booked in the United States.

Earlier this month, the Food and Drug Administration announced that an outside panel of health experts would examine whether drug-coated stents could produce sometimes fatal blood clots.

A dominant stent manufacturer, Boston Scientific worked with Angiotech to develop the Taxus drug-coated stent, a tiny mesh cylinder used to keep open clogged heart arteries.

In a research note, Merrill Lynch analyst Hari Sambasivam said the Boston Scientific guidance came in lower than a projected $610-million. Taxus royalties represent about 39 per cent of Angiotech revenue for the fourth quarter and “we estimate a negative impact of two cents to our (earnings per share) estimate of 16 cents,” Mr. Sambasivam wrote.

“The shares are likely to remain weak given the lower Taxus, but we retain our buy rating due to upcoming milestones” on other technologies being developed by the company, he wrote.

In recent months Angiotech has shifted away from its reliance on Boston Scientific in an effort to diversify its revenue base.

In June, the company paid $40-million in cash for Quill Medical Inc., a company in North Carolina that makes wound closure and cosmetic surgery products. The deal also included future contingent payments based on milestones and revenue increases.

The Canadian company also bought American Medical Instruments Holdings Inc. for $785 million and partnered to develop cancer treatments with U.S. biotechnology company Genzyme.

UBS Securities maintained its “Buy 2” rating on Angiotech, although lowering its price target for the firm's shares to $16 from $20.

“Despite our reduced expectations for the (drug-eluting stent) market, we maintain our view that Angiotech represents compelling value and has an attractive longer-term growth profile,” wrote analyst Jeff Elliott.

Angiotech hopes to reduce its share of revenue attributable to the Taxus stent to 20 per cent of its total revenue by the end of 2007. Several rival drug-coated stents are expected to come on to the market in 2008.