Angiotech makes its best buy

Pharmaceuticals company spends close to $900 million for global products operation

Gillian Shaw, Vancouver Sun
February 02, 2006

Angiotech Pharmaceuticals Inc. stock closed up 12 per cent Wednesday on news of a close-to-$900-million Cdn deal to buy American Medical Instruments Holdings Inc., an acquisition that will immediately boost the bottom line and add critical manufacturing, sales and marketing capabilities to the Vancouver company.

"This is a very exciting and important day in the history of Angiotech," William Hunter, president and chief executive officer told analysts in a conference call Wednesday. "To this point in our evolution we've been largely an R&D and intellectual-property-based company.

"For the first time as we exit this transaction we believe we become a fully integrated company capable of many more things than we were yesterday."

AMI, a privately held manufacturer of specialty, single-use medical devices, brings with it operations in the U.S., the United Kingdom, Denmark and Puerto Rico, including more than 550,000 square feet of manufacturing operations with 12 plants, 1,400 employees and a global sales and marketing force that will be key in the commercialization of products in the Angiotech pipeline.

Important, too, in the acquisition is the diversification it brings to Angiotech, which now relies on revenues from the Taxus drug-coated stent sold by its U.S. partner Boston Scientific Inc.

The $785 million US in cash Angiotech is spending to acquire AMI, in a deal closing in the second quarter, will immediately bolster the company's revenues. AMI's revenue for 2005 was almost as high Angiotech's at about $174 million US last year, representing 46 per cent of the estimated combined revenues of the two companies in 2005.

Angiotech stock shot up as high as $16.41 on the Toronto exchange Wednesday, up from Tuesday's close of $14.20, before falling back to close at $15.90. The stock has been somewhat battered in the past year, dropping from a 52-week high of $23.09 to a low of $13.57.

Analysts welcomed the news, which, while prompting reminiscences of QLT's attempts to diversify almost two years ago with its $855-million Atrix Laboratories acquisition, doesn't appear to come with the same risks.

"I think this one is a much safer purchase because it just doesn't have any products where you are looking for key regulatory approval of an innovation or market acceptance," said Karen Boodram, an analyst with Pacific International Securities. "It is single-use little catheters, sutures, low in value stuff yet cumulatively it brings in $174 million US."

While Boodram said the $785-million US price tag "seems rich," she said it bought Angiotech what it needed.

"They were over 90-per-cent revenue dependent on whatever happened with Boston Scientific and Taxus royalty revenues and now this makes them 50-per-cent dependent on that," she said. "Diversification is a big thing and getting a sales force so they can get out and start selling some of these products."

Brian Bapty, an analyst with Raymond James, said he liked the fact that even though Angiotech is taking on debt to complete the deal -- debt he says will pose no problem for the company -- it didn't have to issue any equity. The cash deal is financed with $200 million in hand from Angiotech with $600 million in financing, leaving Angiotech with about $160 million in cash on its books.

"Like all acquisitions it is how they execute and from that perspective it is a very synergistic acquisition," said Bapty. "What we like about it is that it is entirely in keeping with the direction Angiotech has been moving.

"It has been combining and collecting synergistic technologies."

The acquisition also gives Angiotech an opportunity to combine its biomaterials and drug-coating technologies with AMI devices to create new products.

"AMI is getting low single-digit market share in some instances and more in others," said Bapty. "With Angiotech, there is no question they could triple, quadruple or 10-fold those market shares.

"That's why this is an eyebrow- raising transaction."

In his report on the acquisition, Jeff Elliott, an analyst with UBS Securities Canada, echoed the positive reaction of other analysts, but with a cautionary note.

"Although ANPI has a history of successful acquisitions, this is the largest transaction it has attempted, which is of some concern in terms of integration," he wrote.