Private equity firms pull out of Angiotech financing agreement

By Brenda Bouw, The Canadian Press

VANCOUVER, B.C. - Private equity firms Ares Management and New Leaf Venture Partners have pulled out of a plan to invest $200 million to $300 million in a restructuring of the Canadian medical device maker Angiotech Pharmaceuticals Inc. (TSX: ANP.TO).

The Vancouver-based company had warned the firms in September that it was finding terms of the financing arrangement that would have repackaged its assets into a new subsidiary difficult to meet amid a worldwide credit crunch.

Angiotech said in a statement Friday the company and its board have been looking for financing alternatives to address working capital needs and a potential cash crunch "likely to arise in the near term relating to the company's current balance sheet structure."

As part of this process, Angiotech has hired U.S. equity fund the Blackstone Group to help the company evaluate alternatives for its business and capital structure.

These include attracting new financing and investment, a further restructuring of the company's bond debt and other measures.

A refinancing could be critical to Angiotech's future, given that the company has seen ever-dwindling revenues from its partnership with U.S.-based Boston Scientific Corp. (NYSE: BSX) in the production of the Taxus drug-eluting stents.

Scotia Capital analyst John Maletic said the announcement wasn't a surprise and that hiring Blackstone "is the prudent thing to do."

"They have a very precarious few quarter ahead of them," said Maletic, adding the company's survival going forward depends on its Taxus royalties.

He said there needs to be a plan in place in case the royalties drop.

Options range from financing to finding a strategic partner such as another medical device player, Maletic said.

Angiotech announced plans in July to create the new subsidiary, which would not include assets related to the Taxus stent used in heart surgery to prop open coronary arteries.

The coating process developed by Angiotech reduced the failure rate of stents, but concerns emerged in 2006 that drug-coated stents carry a higher risk of rare instances of potentially fatal blood clots.

Amid falling Taxus sales, Angiotech began to diversify, acquiring American Medical Instruments Holdings last year, which increased its debt, and later Quill Medical Inc., a developer of technology used in cosmetic surgery and wound closure.

Angiotech plans a number of reductions, including postponement of the launch of a central venous catheter and the closure of research and manufacturing facilities in Rochester, N.Y., and office and laboratory space in Vancouver, North Bend, Wash., and Hearndon, Va.

There also will be other unspecified job reductions in the company's 1,500-person workforce.