 |
Search -
Finance Home -
Yahoo! -
Help |  |
|
Search -
Finance Home -
Yahoo! -
Help | |
|
Quotes & Info
|
| AGAM > SEC Filings for AGAM > Form 10-Q on 13-Nov-2009 | All Recent SEC Filings |
13-Nov-2009
Quarterly Report
Overview
We are a leading innovator and manufacturer of medical devices for the minimally invasive treatment of structural heart defects and vascular diseases, which we market under the AMPLATZER brand. We were founded in 1995 to capitalize on the attributes of nitinol to make occlusion devices for the transcatheter treatment of structural heart defects, and our AMPLATZER occlusion devices initially focused on the treatment of these defects. We received a CE Mark in Europe for our occlusion devices and related delivery systems in 1998. In 2001, we received U.S. regulatory approval to commercialize our AMPLATZER Septal Occluder, which addresses one of the largest treatment areas of the structural heart defect market. We received U.S. regulatory approval to commercialize our AMPLATZERDuct Occluder device in 2003 and our AMPLATZERMuscular VSD Occluder device in 2007.
Our AMPLATZER occlusion devices utilize our expertise in braiding nitinol and designing transcatheter delivery systems. Historically, the majority of our sales were to interventional cardiologists to treat a range of structural heart defects. We have leveraged our core competencies in braiding nitinol and designing transcatheter delivery systems to develop products for the treatment of certain vascular diseases. Our vascular products are generally sold through a separate sales force targeted at interventional radiologists and vascular surgeons. Our first products in this area, which we launched in the United States in September 2003 and in Europe in January 2004, are vascular plugs for the closure of abnormal blood vessels that develop outside the heart. Three additional plugs have been approved in Europe. One additional plug has been approved in the U.S. with two more under review for approval.
Recent Acquisitions
Effective January 1, 2009, we began direct distribution in Canada, Portugal, France, Belgium and the Netherlands as we purchased on such date the distribution rights, inventory and intangible assets from our distributors in these countries. The aggregate purchase price of these acquisitions totaled $10.8 million, consisting of cash payments of $6.1 million, the discounted value of $1.4 million in additional guaranteed payments and the discounted value of up to $3.3 million in additional contingent payments if certain revenue goals are achieved. On April 1, 2009, we paid our former French distributor $1.4 million in such additional guaranteed payments.
Effective January 1, 2009, we began direct distribution in Italy as a result of our purchase on January 8, 2009 of certain distribution rights, inventory, equipment, intangible assets and goodwill from our former Italian distributor. The aggregate purchase price was $41.0 million, consisting of cash payments of $26.6 million, the discounted value of $9.2 million in additional guaranteed payments and the discounted value of up to $5.2 million in additional contingent payments if certain revenue goals are achieved during the first three years following completion of the acquisition. In addition, on April 1, 2009, we paid our former Italian distributor $2.0 million in other contingent payments for non-revenue based performance.
On January 5, 2009, in order to finance, in part, the acquisition of the assets of our former Italian distributor, AGA Medical issued to one of the WCAS Stockholders for an aggregate purchase price of $15.0 million (1) $15.0 million in aggregate principal amount of the 2009 notes, and (2) 1,879 shares of Series B preferred stock.
Use of Constant Currency
As exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a constant currency basis in addition to reported results helps improve investors' ability to
understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
Critical Accounting Policies
For a discussion of critical accounting policies affecting us, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" of our Registration Statement on Form S-1, filed on October 20, 2009. Except for the contingent consideration policy as noted below, there have been no material changes to the Company's critical accounting policies and estimates
Contingent Consideration
Contingent consideration is recorded at the acquisition-date estimated fair value of the contingent milestone for all acquisitions subsequent to January 1, 2009. The fair value of the contingent milestone consideration is remeasured at the estimated fair value at each reporting period with the change in fair value included in our consolidated statements of operations.
Results of Operations
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Net sales. Net sales for the three months ended September 30, 2009 increased 14.9% to $50.2 million from $43.6 million for the same period in 2008. Excluding the effects of currency exchange rates, net sales would have increased $7.5 million, or 17.1%. Our family of AMPLATZER Septal Occluder devices represented 55.0% and 58.2% of product sales for the three months ended September 30, 2009 and 2008, respectively. AMPLATZER PFO Occluder devices represented 14.4% and 10.8% of product sales for the three months ended September 30, 2009 and 2008, respectively. The AMPLATZER Vascular devices represented 7.2% and 5.8% of product sales for the three months ended September 30, 2009 and 2008, respectively All other devices represented 11.9% and 13.2% of product sales for the three months ended September 30, 2009 and 2008, respectively, and accessories, including delivery systems, represented 11.5% and 12.0% of product sales for the three months ended September 30, 2009 and 2008, respectively. Net sales of structural heart products for the three months ended September 30, 2009 increased 13.9% compared to the same period last year. U.S. and international structural heart sales increased 0.8% and 23.4%, respectively. Growth of our vascular products was 43.5% for the three months ended September 30, 2009 compared to the same period last year. U.S. and international vascular sales increased 49.1% and 37.7%, respectively. Of the total $6.6 million increase in net sales, $5.3 million was derived from international product sales and $1.3 million was derived from U.S. product sales. This represented an increase of 20.5% and 7.0% respectively over the same period in 2008. The increases in international and U.S. product sales are primarily due to an increase of $6.9 million derived from higher average selling prices, mainly as a result of the acquisition of distribution rights from former distributors in January 2009 and the continued expansion of our direct sales force in several European countries, and to a lesser extent as a result of changes to product mix, and an increase of $0.6 million derived from higher sales volume of devices and accessories. These increases were partially offset by the unfavorable impact of $0.9 million on our international product sales due to the appreciation of the U.S. dollar against foreign currencies compared to the same period in 2008 and by decreases in freight revenue, restocking fees and adjustments to sales return reserves. U.S. net sales and international net sales represented 38.4% and 61.6%, respectively, of our net sales for the three months ended September 30, 2009, compared to 41.3% and 58.7%, respectively, for the three months ended September 30, 2008. International direct net sales represented 67.1% and 40.6% of total international net sales for the three months ended September 30, 2009 and 2008, respectively. The
increase in international net sales as a percentage of net sales, and the increased percentage of international direct sales within international net sales are mainly attributable to higher average selling prices, smaller average order sizes, and timing of sales to our direct customers compared to our former distributors.
Cost of goods sold. Cost of goods sold for the three months ended September 30, 2009 decreased 0.9% to $6.6 million from $6.7 million for the same period in 2008. This decrease in cost of goods sold was due in part to a repurchase of $0.5 million of inventory from our converted distributors during the same period in 2008. As a percentage of net sales, cost of goods sold for the three months ended September 30, 2009 decreased to 13.2% from 15.3% for the same period in 2008. Excluding the higher cost of purchased inventory in 2008, cost of goods sold as a percentage of net sales for September 30, 2008 was 14.1% compared to 13.2% for the three months ended September 30, 2009. Gross margins increased to 86.8% for the three months ended September 30, 2009 from 84.7% for the three months ended September 30, 2008. Excluding the higher costs of purchased inventory in the three months ended September 30, 2008 of $0.5 million, gross margins improved from 85.9% for the three months ended September 30, 2008 to 86.8% for the three months ended September 30, 2009.
Selling, general and administrative. Selling, general and administrative expenses for the three months ended September 30, 2009 increased 62.0% to $25.4 million from $15.7 million for the same period in 2008. This increase was primarily due to a $4.8 million increase in costs related to expanding our direct sales force to cover converted distributor territories in several European countries, a $3.3 million increase in legal expenses associated with litigation and patent defense costs and a $1.6 million increase in ongoing investments in domestic and international corporate infrastructure. As a percentage of net sales, our selling, general and administrative expenses for the three months ended September 30, 2009 increased to 50.7% compared to 36.0% for the same period in 2008.
Research and development. Research and development expenses for the three months ended September 30, 2009 increased 11.5% to $8.4 million from $7.6 million for the same period in 2008. This increase was primarily attributable to a $0.6 million increase in headcount and feasibility testing to support both our pre-clinical and development efforts. As a percentage of net sales, our research and development expenses for the three months ended September 30, 2009 decreased to 16.8% from 17.3% for the same period in 2008.
Amortization of intangible assets. Amortization expenses for the three months ended September 30, 2009 increased 27.7% to $5.1 million compared to $4.0 million for the same period in 2008. As a percentage of net sales, amortization of intangible assets for the three months ended September 30, 2009 increased to 10.1% from 9.1% for the same period in 2008. The increase is attributable to the intangible assets purchased as part of our January 2009 acquisition of distribution rights from some of our former distributors in Europe.
Change in purchase consideration. Change in purchase consideration for the three months ended September 30, 2009 included a benefit of $0.4 million derived from a reduction in the fair value of contingent payment obligations resulting from the acquisition of distribution rights from former distributors in Canada, Italy and Portugal based on actual and forecasted revenue assumptions for 2009.
Investment income (loss). Investment income for the three months ended September 30, 2009 increased to $0.0 million from a loss of ($0.3) million for the same period in 2008. The loss for the three months ended September 30, 2008 reflected the Company's prorated share of the losses incurred in its investment in a privately held company that was focused on pre-clinical studies relating to the development of minimally invasive devices to treat structural heart defects.
Interest income. Interest income for the three months ended September 30, 2009 decreased to $20,000 from $68,000 for the same period in 2008, mainly as a result of reduced levels of cash and short-term investment balances.
Interest expense. Interest expense for the three months ended September 30, 2009 was $4.0 million and remained relatively unchanged compared to the same period in 2008. Interest expense reflects our lower average interest rate for the three months ended September 30, 2009, which was partially offset by additional borrowings under our revolving credit agreement and the issuance of the 2009 notes, as well as the addition of accreted interest charges on future guaranteed obligations payable to the distributors acquired in January 2009 as part of expanding our direct sales force in several European countries compared to the same period for the prior year.
Other income, net. Other income, net for the three months ended September 30, 2009 increased to $0.3 million from a loss of ($19,000) for the same period in 2008 primarily as a result of an increase in foreign exchange gains.
Income tax expense (benefit). Income tax (benefit) for the three months ended September 30, 2009 increased to ($0.9) million from ($0.4) million for the same period in 2008. The results were impacted by lower pre-tax income and the reduction of our liability for unrecognized tax benefits as a result of statute of limitations expiration.
Net income (loss). Net income for the three months ended September 30, 2009 of $2.2 million decreased from net income of $5.9 million for the same period in 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Net sales. Net sales for the nine months ended September 30, 2009 increased 16.1% to $144.5 million from $124.5 million for the same period in 2008. Our family of AMPLATZER Septal Occluder devices represented 55.3% and 58.8% of product sales for the nine months ended September 30, 2009 and 2008, respectively. AMPLATZER PFO Occluder devices represented 14.9% and 12.1% of product sales for the nine months ended September 30, 2009 and 2008, respectively. The AMPLATZER Vascular devices represented 7.0% and 5.9% of product sales for the nine months ended September 30, 2009 and 2008, respectively All other devices represented 11.1% and 11.7% of product sales for the nine months ended September 30, 2009 and 2008, respectively, and accessories, including delivery systems, represented 11.7% and 11.4% of product sales for the nine months ended September 30, 2009 and 2008, respectively. Net Sales of structural heart products for the nine months ended September 30, 2009 increased 14.3% compared to the same period last year. U.S. and international structural heart sales increased 4.2% and 21.3%, respectively. Growth of our vascular products was 37.7% for the nine months ended September 30, 2009 compared to the same period last year. U.S. and international vascular sales for increased 38.5% and 36.7%, respectively. Of the total $20.1 million increase in net sales, $14.8 million was derived from increased international product sales and $5.3 million was derived from increased U.S. product sales . This represented an increase of 20.1% and 10.4% respectively over the same period in 2008. The increases in international and U.S. product sales are primarily due to an increase of $19.7 million derived from higher average selling prices, mainly as a result of the acquisition of distribution rights from former distributors in January 2009 and the continued expansion of our direct sales force in several European countries, which allowed our company to sell directly to its customers and therefore increase its average selling prices internationally, and to a lesser extent, as a result of change to product mix, and an increase of $4.8 million derived from higher sales volume of devices and accessories during the nine months ended September 30, 2009. These increases were partially offset by the unfavorable impact of $4.4 million on our international product sales due to the appreciation of the U.S. dollar against foreign currencies and by decreases in freight revenue, restocking fees and adjustments to sales return reserves. U.S. net sales and international net sales represented 38.8% and 61.2%, respectively, of our net sales for the nine months ended September 30, 2009, compared to 40.8% and 59.2%, respectively, for the same period in 2008. International direct net sales represented 68.3% and 40.8% of total international net sales for the nine months ended September 30, 2009 and 2008, respectively. The increase in international net sales as a percentage of net sales, and the increased percentage of international direct sales within international net sales are mainly attributable to higher average selling prices, smaller average order sizes, and timing of sales to our direct customers compared to our former distributors.
Cost of goods sold. Cost of goods sold for the nine months ended September 30, 2009 increased 23.5% to $23.6 million from $19.1 million for the same period in 2008. This increase in cost of goods sold was attributable primarily to an increase of $2.9 million as a result of the repurchase of inventory from former distributors ($3.7 million impact in the nine months ended September 30, 2009 versus $0.9 million impact in the same period in 2008) and from higher volume of units sold. Excluding the $2.9 million attributable to higher cost of repurchased inventory, cost of goods sold as a percentage of net sales for the nine months ended September 30, 2009 would have been 13.7% compared to 14.6% for the same period in 2008. Gross margins decreased to 83.7% for the nine months ended September 30, 2009 from 84.6% for the nine months ended September 30, 2008. Excluding the $2.9 million higher cost of repurchased inventory, gross margins for the nine months ended September 30, 2009 improved to 86.3% from 85.4% during the same period in 2008.
Selling, general and administrative. Selling, general and administrative expenses for the nine months ended September 30, 2009 increased 51.5% to $71.9 million from $47.5 million for the same period in 2008. This increase was primarily due to a $12.2 million increase in costs related to expanding our direct sales force in several European countries, a $6.3 million increase in legal expenses associated with litigation and patent defense and a $5.9 million increase in ongoing investments in domestic and international corporate infrastructure. Our investments in corporate infrastructure include customer service, finance, information systems, human resources, regulatory and legal. We have increased our international direct sales force over the past three years, which subsequently caused an increase in the number of employees and infrastructure required to support our operations. In addition, we have added similar infrastructure at our U.S. headquarters to support larger U.S. and international operations. As a percentage of net sales, our selling, general and administrative expenses for the nine months ended September 30, 2009 increased to 49.7% compared to 38.1% for the same period in 2008.
Research and development. Research and development expenses for the nine months ended September 30, 2009 increased 4.8% to $24.9 million from $23.8 million for the same period in 2008. This increase was primarily attributable to a $1.8 million increase in headcount and feasibility testing to support both our pre-clinical and development efforts, partially offset by a reduction in expenses related to clinical trial patient recruitment during the nine months ended September 30, 2009. As a percentage of net sales, our research and development expenses for the nine months ended September 30, 2009 decreased to 17.2% from 19.1% for the same period in 2008.
Amortization of intangible assets. Amortization expenses for the nine months ended September 30, 2009 increased 28.3% to $15.0 million compared to $11.7 million for the same period in 2008. As a percentage of net sales, amortization of intangible assets for the nine months ended September 30, 2009 increased to 10.4% from 9.4% for the same period in 2008. The increase is attributable to the intangible assets purchased as part of expanding our direct sales force in several European countries.
Change in purchase consideration. Change in purchase consideration for the nine months ended September 30, 2009 included a benefit of $1.1 million derived from a reduction in the fair value of contingent payment obligations resulting from the acquisition of distribution rights from former distributors in Canada, Italy and Portugal based on actual and forecasted revenue assumptions for 2009.
Investment income (loss). Investment (loss) for the nine months ended September 30, 2009 increased to $(2.4) million from $(0.9) million for the same period in 2008, reflecting our write-off in 2009 of our investment in a privately held early stage company that was focused on pre-clinical studies relating to the development of minimally invasive devices to treat structural heart defects
Interest income. Interest income for the nine months ended September 30, 2009 decreased to $80,000 from $176,000 for the same period in 2008, mainly as a result of reduced levels of cash and short-term investment balances.
Interest expense. Interest expense for the nine months ended September 30, 2009 decreased 3.7% to $12.1 million from $12.6 million for the same period in 2008. This decrease in interest expense reflects our lower average interest rate for the nine months ended September 30, 2009, which was partially offset by additional borrowings under our revolving credit agreement and the issuance of the 2009 notes, as well as the addition of accreted interest charges on future guaranteed obligations payable to the distributors acquired in January 2009 as part of expanding our direct sales force in several European countries.
Other income, net. Other income, net for the nine months ended September 30, 2009 increased to $1.6 million from $0.3 million for the same period in 2008, mainly as a result of an increase of foreign exchange gains.
Income tax expense (benefit). Income tax (benefit) for the nine months ended September 30, 2009 increased to ($0.6) million from an expense of $1.1 million for the same period in 2008, based on lower pre-tax income, purchase accounting related to the January 2009 acquisitions of distribution rights from former distributors, the assertion of permanently reinvested earnings in foreign subsidiaries and the write-off in 2009 of our investment in a privately held early stage company that was focused on pre-clinical studies relating to the development of
minimally invasive devices to treat structural heart defects and the reduction of our liability for unrecognized tax benefits as a result of statute of limitations expiration.
Net income (loss). Net income (loss) for the nine months ended September 30, 2009 of $(2.0) million decreased from net income of $8.2 million for the same period in 2008. Strong sales growth was offset by patent litigation expenses and significant investments made in both domestic and international infrastructure and personnel to support the January 2009 acquisition of distribution rights from some of our former distributors in Europe.
Liquidity and Capital Resources
Our principal sources of liquidity are existing cash, internally generated cash flow and borrowings under our senior secured credit facility. We believe that these sources will provide sufficient liquidity for us to meet our liquidity requirements for the next 12 months. Our principal liquidity requirements are to service our debt and to meet our working capital, research and development, including clinical trials, and capital expenditure needs. We may, however, require additional liquidity as we continue to execute our business strategy. We anticipate that to the extent that we require additional liquidity, it will be funded through the incurrence of indebtedness, equity financings or a combination of these potential sources of liquidity. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to fund our capital requirements is also dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control.
Cash Flows
Cash Flows Provided By Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2009 decreased to $6.8 million from $11.0 million for the same period in 2008. This decrease was primarily attributable to the following changes in cash flows for the nine months ended September 30, 2009 compared to the same period in 2008: a $13.4 million increase in accounts receivable (mainly attributable to our acquisitions of distribution rights from former distributors in Italy, France, Portugal, Poland, Canada and the Netherlands in January 2009), a $10.2 million decrease in net income, a $1.1 million benefit in change in purchase consideration (resulting from a reduction in the fair value of contingent payment obligations derived from the acquisition of distribution rights from former distributors in Canada, Italy and Portugal), a $1.2 million increase in accrued expenses and a $0.4 million decrease in prepaid and other expenses, which were partially offset by a $5.1 million increase in depreciation and amortization (resulting from increases in intangible assets resulting from our acquisitions of distribution rights from former distributors in Europe in January 2009), a $3.6 million increase in trade accounts payable (partially as a result of higher legal fees incurred during the period), a $2.4 million decrease in inventory, a charge of $2.0 million in connection with the FCPA settlement during 2008, a $1.4 million increase in losses on our equity investment related to a privately held early-stage company that was focused on pre-clinical studies relating to the development of minimally invasive devices to treat structural heart defects (primarily the result of the impairment and write-off of this investment during March 2009), a $0.6 million increase in stock-based compensation relating to issuances of stock options, a $0.4 million increase in reserves for customer returns (primarily as a result of higher sales volumes including an increase of $4.8 million in net sales derived from higher sales volumes of devices and accessories units) and a $0.1 million increase in income tax receivable.
Cash Flows Used In Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2009 increased to $45.0 million from $11.4 million for the same period in 2008. This increase compared to the prior year period was primarily attributable to the following changes in cash flows for the nine months ended September 30, 2009 compared to the same period in 2008: $31.0 million of increased acquisitions of distribution rights from former distributors and a $3.5 million increase in purchases of property and equipment, which was partially offset by a . . .
|
|
