Angiotech Pharma. / (ANPI – NASDAQ) / $7.16
Note to Readers: All new or revised material since the last report is highlighted.
Reason for Report: Analyst Day Prev. Ed.: May 31, 2007
Recent Events
On July 10, 2007, ANPI announced the completion of enrolment in its Central Venous Catheter (CVC) Pivotal Study.
On June 15, 2007, ANPI hosted its annual analyst day outlining the near and long-term opportunities available within AMI and upcoming product launches.
On June 12, 2007, ANPI announced the extension of its development partnership with CombinatoRx, to create next generation Drug Device and local delivery medicines.
Overview
Based in Vancouver, Canada, Angiotech Pharmaceuticals (ANPI) is a specialty pharmaceutical company that discovers and develops treatment solutions for diseases or complications associated with medical device implants, surgical interventions, and acute injury or trauma, with a primary focus on vascular and orthopedic diseases. ANPI is a leading technology provider of drug-coated medical devices and biomaterials. It offers various drug, drug delivery, and surface modification technologies, as well as other medical biomaterials to be applied in a range of medical devices, surgical procedures, and medical disciplines. The company has a strategic alliance with Boston Scientific Corporation (BSX) to co-develop a drug-eluting stent (DES), coated with paclitaxel called Taxus. The company also has a research and license agreement with CombinatoRx, and a strategic collaboration agreement with Genzyme Corp. The company’s website is www.angiotech.com.
Analysts have identified the following factors for evaluating the investment merits of ANPI:
Key Positive Arguments / Key Negative ArgumentsANPI has enormous leverage to the DES market based on low expenses and limited manufacturing costs. / ANPI could face significant challenges in expanding its market share as it experiences tough competition from the industry players (like J&J, MDT, ABT, etc.)
The acquisition of Cohesion Technologies provides ANPI with revenue and additional product alliances. / The future of ANPI relies almost entirely on the success of BSX’s Taxus.
The acquisition of GDT by ANPI’s partner BSX would help to keep out potential competitors from the market. / The acquisition of GDT by BSX may be a blow to ANPI’s royalty stream, which it receives from BSX, as there is a possibility that BSX may shift from a Paclitaxil-coated stent to an Everolimus-coated stent.
ANPI’s acquisition of AMI has substantially increased and diversified revenue, reducing the reliance on Taxus related revenues. / Non-effective AMI’s acquisition could pose a significant threat to company’s operations.
Note: ANPI’s fiscal year coincides with the calendar year.
Revenue
ANPI’s revenue is reported through two main segments: (1) Royalty Revenues, including the BSX partnership, through which the company earns substantial revenues and presents a solid base for cash generation; and (2) Medical Products, including the recently acquired AMI products and the paclitaxel Vascular Wrap business, which have the potential to deliver growth in the near future. As a part of revenue expansion and diversification, ANPI acquired American Medical Instruments Holdings, Inc. (AMI).
Total Revenue Synopsis: According to the Zacks Digest Report and the company, 1Q07 revenue was $75.5 million, up 80.5% YoY. The company reported 1Q07 net product sales of $42.5 million, derived principally from sales of various single use medical device product lines and sales of medical device components to third parties.
According to the Zacks digest report and the company, 1Q07 royalty revenue was $33 million, including $31.8 million of royalty revenue derived from sales of paclitaxel-eluting coronary stent systems by Boston Scientific Corporation (BSC).
FY ends December / 2006A / 1Q07A / 2Q07E / 3Q07E / 4Q07E / 2007E / 2008E / 2009ETotal Revenue / $311.1 / $75.6 / $75.9 / $79.8↓ / $85.8↓ / $319.5↓ / $344.4↓ / $363.9↓
Digest High / $319.2 / $76.0 / $79.8 / $83.5 / $90.4 / $338.0 / $377.3↓ / $404.6↓
Digest Low / $304.8 / $75.5 / $74.4 / $76.5 / $82.5↓ / $309.2 / $304.7 / $323.1
2007 Revenue guidance: During the 1Q07 earnings call, the company decreased its royalty revenue guidance from a range of $135-$140 million to $130-$135 million for 2007. The downward revision in the royalty revenue was based on 1Q07 results for paclitaxel-eluting stent sales as announced by Boston Scientific in its first quarter earnings release on April 23, 2007. The company maintained its product sales guidance range of $190-$210 million. The company also expects product sales between $44 and $45 million for 2Q07 and expects OEM sales of medical device components to third parties to stabilize in early 2007, recovering from weaker orders from selected customers in 2006.
Drug-Eluting Stent
ANPI has pioneered in the identification of paclitaxel’s anti-proliferative cellular pathway blocking properties. In partnership with BSX, Angiotech launched its DES in 1Q04. The DES quickly grabbed a substantial market share in the U.S. at the expense of the other U.S. player, Cordis, a subsidiary of J&J. At present, ANPI/BSX is enjoying a majority stake of U.S. DES market. The Taxus Express 2 and Taxus Liberte coronary stent systems are the initial product lines incorporating the technology, and are sold by BSX, which has exclusive technology license in the paclitaxel-eluting coronary stent field.
On April 3, 2007, ANPI along with its corporate partner Boston scientific Corporation announced that Boston Scientific has received approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) to market its Taxus Express2 paclitaxel-eluting coronary stent system in Japan. On May 8, 2007, ANPI, along with its corporate partner Boston Scientific Corporation announced the launch of its Taxus Express2 paclitaxel-eluting coronary stent system in Japan.
The data from the COURAGE trial, was released on March 26, 2007, at ACC. The Clinical Outcomes Utilizing Revascularization and Aggressive Drug Evaluation (COURAGE) trial, a five-year, 2,287 patient study that compared percutaneous coronary intervention (PCI) plus optimal medical therapy against optimal medical therapy alone, showed that PCI plus optimal medical therapy did not reduce the risk of death and myocardial infarction (MI) in patients with stable coronary heart disease when compared to patients receiving optimal medical therapy alone. While PCI showed no benefit in death and MI over medical therapy alone, the study showed a clear benefit in angina relief that the majority of patients participating in the PCI group of the study received bare-metal stents (BMS), while few patients received drug-eluting stents, as DES were not approved until the final six months of the study. The company does not expect that the data from this study will have a major impact on the DES market place.
Boston Scientific held an analyst day on March 26, 2007, and provided some details regarding recent trial results and its clinical pipeline. The company also provided a business update. The company estimates that it captured a 55% market share in the U.S. for the first two months of 2007. It continues to see the market as stable, with a U.S. market penetration of DES in the 70%–71% range. The company estimates that the current market penetration of DES in Europe is in the range of 40%–41% and in Japan, it is around 70%, and sees potential for further upside. In terms of future milestones, the company continues to expect the launch of Taxus Express2 in Japan in 2H07, to obtain approvability status for Taxus Liberté in early 2H07 and to begin enrolment for Taxus Element in 2Q07.
2006A / 2007E / 2008E / 2009E / Growth (%)DES Royalties / $159.5M / $117.0M / $90.8M / $52.7M / -21.7%
Taxus Liberte paclitaxel-eluting stent system is the third generation stent platform that uses thinner struts, continuous cell architecture, and offers improved deliverability. The Liberte stent was launched in 18 countries in January, 2005. The company also stated that third generation Liberte received CE Mark approval in Europe. Liberte is expected to be easier to deploy as compared to first generation Taxus.
In May 2007, at the EuroPCR meeting in Barcelona no significant news was provided for the DES market. The meeting focused on two most relevant studies related to Abbott's Xience V stent and Medtronic's Endeavor. Additional SPIRIT data was also released and showed similar results to those seen at ACC with Xience V outperforming Taxus in a number of areas. Significantly, there was no statistical difference between the two stents with respect to late stent thrombosis. The most relevant data will be the diabetic subgroup, which will not be presented until later this year. Medtronic announced further positive data for its Endeavor stent in the RESOLUTE trial, which showed the product to be safe with no incidence of LST. Finally, J&J confirmed that the DES market has seen additional softening following the COURAGE study.
On November 16, 2006, Johnson & Johnson (JNJ) had announced a definitive agreement to acquire Conor Medsystem (CONR), a competing drug eluting stent (DES) company, for $1.4 billion in cash. On May 7, 2007, Conor announced that its CoStar stent failed to meet its primary endpoint of non-inferiority of MACE rates at eight-months against the Taxus stent in the CoStar II trial. As a result, J&J has said that it will not file for approval in the US and that it will withdraw the stent from the EU where it has launched. One firm (CORMARK Securities INC.) views this as positive for Angiotech because it will reduce the competition for the company.
On December 8, 2006, the FDA panel reached a consensus on the on label use of stents, stating that the benefits of stents outweighed the risks of late stent thrombosis. However, on the issue of off label use, the panel believed that there was not enough data to make clear recommendations. In the end the panel was hesitant to attempt to restrict the use of DES off-label and there were no changes made to the current labeling.
Comparison of Taxus Stent with Other Stents
On March 24, 2007, clinical results from the SPIRIT III trial were presented for the first time at the 2007 Cardiology (ACC) medical conference in New Orleans. SPIRIT III is the US pivotal prospective, randomized, single-blind trial comparing the safety and efficacy of Abbott’s Xience V/Promus everolimus-eluting coronary stent versus the Taxus Express 2 paclitaxel-eluting coronary stent system. The SPIRIT III trial results showed Xience’s superiority to Taxus on the primary endpoint of angiographic in-segment late-loss and noninferiority on the secondary clinical endpoint of target vessel failure (TVF).
The trial also showed a reduction in angiographic follow-up diameter stenosis, with a strong trend toward lower binary restenosis rates for Xience versus Taxus, which resulted in a significant reduction in in-stent volume obstruction without excess late-acquired malapposition. On the safety side, both stents had similar death, myocardial infarction and stent thrombosis rates; however, Xience showed a strong trend (while not statistically significant) toward reducing ischemia-driven target lesion revascularization coupled with a very statistically significant 44% reduction in major adverse cardiac events (MACE) at 9 months.
Considering the data of the SPIRIT III most analysts feel that these new products would put pressure on the DES market. They believe that uncertainties related to the DES market place will continue in the near term given that a market recovery has yet to occur. With the entrance of new competitors, the potential redistribution of market share is still unclear.
ANPI announced the results from the independent, multi-center Stent registry of the effect of Taxus stent over Cypher stent. It was found that among insulin-treated diabetics, the results demonstrated a numerical trend toward improved survival and lower overall Major Adverse Cardiac Events (MACE) rate for patients who received a Taxus stent system versus those who received a Cypher stent system. Among diabetic patients, the Taxus stent system was used for more complex lesions. Even though Taxus was used in more complex cases, the results were in favor of Taxus over Cypher in each of the study’s MACE categories for insulin-treated diabetics.
Recent publications have reported increased risk of developing late thrombosis associated with the use of DES compared to bare metal stents. Based on the study, one firm (B. of America) believes that some physicians are switching away from Taxus and using other competitive stents such as Cypher, which has not yet shown a statistically significant increase in late stent thrombosis and is perceived to be a safer although less deliverable stent.
AMI and Other Medical Products
The AMI acquisition has significantly increased and diversified ANPI’s revenue base, providing it with global manufacturing, marketing and sales capabilities and a portfolio of medical device products that it may combine with its drugs, drug delivery, and surface modification material and other medical biomaterials to create new medical device and pharmaceutical product offerings. Angiotech has broken the AMI business (now the Medical Products segment) down into five verticals: Aesthetics, Biopsy, Wound Closure, Vascular, and Ophthalmology. Angiotech expects the aesthetics product lines acquired through AMI to be a key growth driver during 2007. According to one firm (B. of America), by combining ANPI’s R&D and technology prowess with AMI’s product portfolio, the company has managed to create a robust pipeline of products to help the company diversify its revenue stream away from its current heavy reliance on Taxus.
2006A / 2007E / 2008E / 2009E / Growth (%)Product Sales / $140.0M / $195.2M↓ / $244.2M↓ / $306.2M↓ / 251.0%↓
ANPI is developing diverse products to support revenue expansion. But analysts consider the paclitaxel vascular wrap as the most promising product. On December 20, 2005, ANPI had announced that its vascular wrap paclitaxel-eluting mesh/Lifespan vascular graft has received the designation of a ‘device’ from the Office of Combination Products at the FDA.
On March 19, 2007, ANPI announced the initiation of its US pivotal study evaluating the safety and efficacy of its vascular wrap product, now branded as the VaxSys Synergy product, in hemodialysis patients who require vascular access via the placement of arteriovenous grafts. The VaxSys Synergy product includes ANPI’s vascular wrap (a biodegradable paclitaxel-eluting mesh implant) and its VaxSys ePTFE vascular graft. The pivotal trial is a randomized, placebo-controlled, two-arm study expected to involve about 530 patients across 50 centers in the U.S. The primary objective of the study is to demonstrate that the potency of the VaxSys Synergy product is superior to the potency of the VaxSys ePTFE graft alone within one year following vascular access surgery. Subjects will also be followed over a four-year period to confirm the long-term safety of the study device. However, ANPI anticipates filing for US regulatory approval after completion of the primary one-year follow-up period. Furthermore, the company expects the study should be completed by 1Q09, after which it would expect to be able to file for US marketing approval. ANPI has filed for market approval of its VaxSys Synergy product in the EU, for patients suffering from advanced peripheral arterial disease (PAD), and upon sanction expects its launch in 2H07.