Angiotech to Establish Separate Operating and Royalty Businesses



    Ares Management and New Leaf Venture Partners Commit To Purchase
    Convertible Notes in New Subsidiary of $200 to $300 Million

    Transaction Proceeds to be Used to Reduce Angiotech Debt

    VANCOUVER, July 7 /CNW/ - Angiotech Pharmaceuticals, Inc. (NASDAQ:   ANPI,
TSX: ANP), a global specialty pharmaceutical and medical device company, today
announced that Angiotech's Board of Directors has authorized a transaction to
create a new subsidiary, Angiotech Pharmaceutical Interventions, Inc. ("API").
Angiotech will contribute to API certain business assets and intellectual
property, which include primarily business assets of Angiotech other than the
intellectual property and royalty revenue related to the TAXUS(R) coronary
stent system. The Company has entered into a note purchase agreement with Ares
Management and New Leaf Venture Partners, under which the investors will
purchase between $200 and $300 million, at the Company's option, of
convertible notes issued by API that will be convertible into a significant
minority equity interest in API. Angiotech and its shareholders will benefit
from the future performance of API based on retaining a significant continuing
equity interest in the newly formed subsidiary. The net proceeds from the
issuance of the convertible notes will be used to reduce Angiotech's existing
debt, pursuant to tender offers announced and commenced concurrent with this
announcement. The transaction is subject to approval of the Company's
shareholders and other customary closing conditions.
    "We are pleased to announce a transaction today that we believe offers
significant immediate value and risk mitigation for our shareholders and
bondholders, while retaining significant participation in API for our
shareholders," said Dr. William Hunter, President and Chief Executive Officer
of Angiotech. "We are excited to work with our new partners at Ares and New
Leaf, who offer us considerable capital resources and business experience, to
execute our strategy of developing drug-device combinations, locally
deliverable drugs, or other novel technologies that improve the outcomes of
surgical or other medical interventions."
    "This transaction offers Angiotech the opportunity for meaningful
reduction of debt and interest expense, and allows us to raise a total amount
of proceeds greater than would have been reasonably achievable through the
consolidated company's capital alternatives," said Thomas Bailey, Chief
Financial Officer of Angiotech. "After considering a wide range of strategic
alternatives with the assistance of our advisors, our Board determined that
this transaction establishes a more flexible capital structure to support our
various business and product development initiatives."
    "We are pleased, together with New Leaf, to have the opportunity to work
with Angiotech to establish and capitalize API," said Bennett Rosenthal,
Senior Partner of Ares Management. "The combination of our firms' significant
capital resources, financial expertise and health care investing experience
make us ideal partners for API. We are all tremendously excited about the
market potential and growth trajectory of the company's various product
opportunities."
    "New Leaf and Ares believe that Angiotech has a very attractive portfolio
of marketed products and pipeline programs, and that this transaction puts the
Company in the best position to support these assets with the investments
needed to maximize their long term potential," said Ron Hunt, Managing
Director of New Leaf Venture Partners, LLC.

    Transaction Highlights

    
    -   Raises substantial proceeds in equity-linked security targeted to
        reduce cash pay debt. The proposed transaction enables Angiotech to
        raise a sizable amount of gross proceeds in the form of convertible
        securities that will bear non-cash interest payable in kind, and will
        be convertible into shares of Angiotech's newly formed subsidiary,
        API. The net proceeds that the Company elects to raise will be
        utilized to reduce selected principal amounts of the two cash pay
        debt securities of Angiotech currently outstanding, significantly
        reducing Angiotech's cash interest expense and thereby improving
        interest coverage and debt ratios.

    -   Retain majority API stake for Angiotech shareholders. This
        transaction leaves a pro forma API initial ownership stake of between
        52% and 68% for Angiotech's existing shareholders (measured
        accounting for the convertible notes on an "if converted" basis at
        closing). Importantly, Angiotech's existing shareholders will
        continue to participate meaningfully in the success of the various
        API businesses and product opportunities, including API's proprietary
        Quill SRS(TM) technology and its recently approved
        5-flourouracil-eluting central venous catheter.

    -   Mitigates risks related to Angiotech's drug-eluting stent royalty
        revenue and cash flows. The debt and cash interest expense reduction
        that may be achieved, combined with the significant implied equity
        value of Angiotech's ownership stake in API, should improve
        Angiotech's ability to continue to meet its debt obligations should
        royalties received from its partner Boston Scientific Corporation
        ("BSC") decline from current levels as a result of additional
        competitive entrants into the market for drug-eluting stents.

    -   Unlock and capture value embedded in Angiotech's non-TAXUS assets.
        The conversion ratio of the securities issued implies a total equity
        value for API of $625 million, assuming $75 million in cash and cash
        equivalents at API at closing and no debt, other than the guarantees
        of the remaining amounts of Angiotech's two existing debt issues. The
        proposed transaction at this value enables Angiotech to raise a
        significant amount of capital to address the Company's current
        capital structure issues with more limited dilution than would likely
        be possible if Angiotech were to attempt to raise similar amounts of
        capital using security structures available to Angiotech on a
        consolidated basis.

    -   Flexible transaction size to optimize use of capital. Angiotech
        expects to raise a minimum of US$200 million in gross proceeds
        through this transaction. Depending upon the interest level in the
        contemplated tender offers for Angiotech's two outstanding debt
        issues, the Company may elect to raise up to US$300 million. This
        transaction structure allows Angiotech the flexibility to elect to
        raise a variable amount of capital, at the Company's option,
        depending on the expected cost of retiring selected amounts of each
        outstanding debt issue.

    -   Align capitalization with business risk, strategy and structures. By
        forming and capitalizing API, Angiotech has established a plan to
        achieve a more equity oriented capital structure for its operating
        businesses, more consistent with its original strategy and with peer
        companies in the life sciences industry. With the opportunity to
        pursue an initial public offering of API in the future, or other
        financial and strategic alternatives together with Ares and New Leaf,
        API will have improved financial flexibility, enabling API to better
        capitalize on its various business and product development
        opportunities. In addition, by selectively reducing cash pay debt,
        Angiotech expects the remaining royalty revenue derived from its
        partners BSC and Cook Group Incorporated ("Cook") will be adequate to
        service any remaining debt. The various assets, including the royalty
        business and API equity stake, owned by Angiotech will also allow
        continued exploration of additional financing and strategic
        alternatives to potentially further reduce or eliminate remaining
        Angiotech debt.

    Transaction Description and Plan

    -   Transaction Process. In late 2007 and early 2008, Angiotech
        management and its Board of Directors discussed and reviewed various
        financial and strategic alternatives, with the goal of evaluating and
        pursuing selected opportunities to reduce debt, mitigate certain
        risks and improve shareholder value. As a result of this review,
        Angiotech conducted a process, together with its financial and legal
        advisors, in which multiple potential investors were contacted to
        evaluate an investment in API. Angiotech received and evaluated
        multiple proposals over the past several months, and ultimately
        concluded negotiations with Ares and New Leaf.

    -   Formation of API. API has been established as a Delaware corporation,
        with principal executive offices in Vancouver, British Columbia.
        Immediately prior to the close of the transaction, Angiotech and API
        will enter into agreements to transfer to API certain assets and
        liabilities of Angiotech, which primarily include the various
        operating business assets and product development programs of
        Angiotech, and exclude (i) intellectual property and royalty revenue
        related to BSC's TAXUS paclitaxel-eluting coronary stent system; (ii)
        potential royalty and other income from certain other uses of
        paclitaxel licensed to BSC and Cook (including uses relating to
        Cook's ZILVER(R) PTX paclitaxel-eluting peripheral vascular stent);
        (iii) potential royalty and other income from certain other uses of
        paclitaxel licensed to Broncus Technologies Incorporated ("Broncus")
        relating to the Exhale(R) paclitaxel-eluting lung stent; and (iv)
        certain other assets and liabilities not related to the ongoing
        business of API. The business of Angiotech prior to the transaction
        consists primarily of the business assets to be transferred to API,
        and the license agreements with BSC, Cook and Broncus. For the year
        ended December 31, 2007, Angiotech had $288 million in revenue, $111
        million of which was royalty revenue derived mainly from BSC, and
        $177 million of which was product and royalty revenue derived from
        the assets to be transferred to API.

    -   Financing Transaction. The Company has entered into a Note Purchase
        Agreement, providing for the issuance and sale of between
        $200 million and $300 million of convertible notes to Ares Management
        and New Leaf Venture Partners. The convertible notes will have an
        initial conversion price of $20 per share, and each $1,000 principal
        amount of convertible notes will be convertible into 50 shares of
        API, implying an initial equity value for API of $625 million
        assuming $75 million in cash and cash equivalents at API at closing
        and no debt, other than the guarantees of remaining amounts of
        Angiotech's two existing debt issues. The convertible notes will be
        convertible into 32% to 48% of the common stock of API, depending
        upon the final initial transaction size, calculated on an "if
        converted" basis and without taking into account any future dilution
        resulting from additional pay in kind convertible notes, or any
        incentives to be issued to API employees under plans to be
        established for API. The notes will bear interest at a weighted
        average rate that will equate to 7.75% per annum, and will be payable
        semiannually in kind in additional convertible notes. The notes are
        convertible into API common stock at any time after September 30,
        2009, or upon the occurrence of certain qualified transactions,
        including an initial public offering of API that attains certain
        valuation thresholds, a sale or disposition of API or a change in
        control, sale or disposition of Angiotech while Angiotech retains a
        majority interest in API.

    -   Tender Offers. Under the terms of the transaction, API will pay the
        net proceeds from the sale of convertible notes to Angiotech. The net
        proceeds will be used to consummate tender offers to repurchase
        portions of Angiotech's Senior Floating Rate Notes due 2013 and its
        7.75% Senior Subordinated Notes due 2014, each as tendered by holders
        in response to tender offers that Angiotech expects to close
        simultaneously with the transaction. As of June 30, 2008, Angiotech
        had an outstanding principal balance of $575 million under the
        Existing Notes.

    -   Remaining Angiotech Debt. Remaining debt at Angiotech upon closing
        will be serviced primarily by cash flows generated from royalties
        derived from the assets to be retained by Angiotech, including any
        royalties received from BSC, Cook or Broncus. In addition,
        Angiotech's remaining debt obligations will continue to be subject to
        a guarantee by API.

    -   Board of Directors and Management. The Board of Directors of
        Angiotech is expected to remain as comprised prior to the close of
        the transaction. William Hunter and Thomas Bailey will remain in
        their current positions as CEO and CFO of Angiotech respectively. The
        Board of Directors of API is expected to include three members
        appointed by Angiotech's Board of Directors, three members selected
        by Ares, and a new, independent director to be selected by Angiotech.
        Substantially all of the executive officers, management and employees
        of Angiotech will continue in similar capacities with API, with the
        exception of David Hall, Angiotech's Chief Compliance Officer, who is
        expected to be named to the position of President of Angiotech upon
        the close of the transaction.

    -   Future Potential Transactions, Strategic Alternatives. It is
        anticipated that Angiotech may pursue additional transactions in the
        future, including an initial public offering of API or a sale or
        securitization of API or of Angiotech's other assets, including
        potentially its royalty businesses, which may serve to further reduce
        Angiotech debt or that may realize additional value for Angiotech
        shareholders.

    -   Tax impact of the transaction, or future transactions. The initial
        transaction is not expected to result in material tax consequences
        for Angiotech, or Angiotech shareholders. Future tax consequences
        will depend upon the type and timing of any transaction or type of
        disposition of any of Angiotech's assets pursued, if any, and the
        valuation achieved in such transaction or transactions.

    -   Conditions and Anticipated Close. An independent Special Committee of
        the Board of Directors of Angiotech has recommended that the Board
        (a) approve the transaction, and (b) recommend that the shareholders
        vote in favor of the transaction. The transaction is subject to the
        approval of Angiotech's shareholders, and other customary conditions.
        The transaction is expected to be completed later in the third
        quarter or early in the fourth quarter of 2008.
    

    Goldman, Sachs & Co. is serving as Angiotech's financial advisor and
Sullivan & Cromwell LLP and Borden Ladner Gervais LLP are serving as its legal
advisors. Merrill Lynch Canada Inc. is serving as financial advisor to the
Special Committee of the Board of Directors of Angiotech, and Lawson Lundell
LLP is serving as the legal advisor to the Special Committee.
    Proskauer Rose LLP is serving as legal advisor to Ares Management, and
Latham & Watkins LLP is serving as legal advisor to New Leaf Venture Partners.

    Conference Call Information

    A conference call to discuss this transaction will be held today, Monday,
July 7, 2008 at 5:30 AM PT (8:30 AM ET).

    Dial-in information:
    North America (toll free): (800) 638-4930
    International: (617) 614-3944

    Enter passcode: 83196265
    A replay archive of the conference call will be available until July 14
by calling (888) 286-8010 (North America) or (617) 801-6888 (International)
and entering passcode 57624159.
    A live webcast will be available to all interested parties through the
Investors section of Angiotech's website at www.angiotech.com

    Cautionary Statement Regarding Forward-Looking Statements
    ---------------------------------------------------------
    Statements contained in this press release that are not based on
historical fact, including without limitation statements containing the words
"believes", "may", "plans", "will", "estimate", "continue", "anticipates",
"intends", "expects" and similar expressions, constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995 and forward-looking information within the meaning of
applicable Canadian securities laws. All such statements are made pursuant to
the "safe harbor" provisions of applicable securities legislation.
Forward-looking statements may involve, but are not limited to, comments with
respect to our objectives and priorities for the second half of 2008 and
beyond, our strategies or future actions, our targets, expectations for our
financial condition and the results of, or outlook for, our operations,
research, development, product and drug development and our plans and
anticipated effects of the transaction described in this press release. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements.
    Many such risks, uncertainties and other factors are taken into account
as part of our assumptions underlying these forward-looking statements and
include, among others, the following: the inability to consummate the
transaction described in this press release or that the transaction will not
provide the anticipated benefits described in this press release; general
economic and business conditions, both nationally and in the regions in which
we operate; market demand; technological changes that could impact our
existing products or our ability to develop and commercialize future products;
competition; existing governmental regulations and changes in, or the failure
to comply with, governmental regulations; adverse results or unexpected delays
in pre-clinical and clinical product development processes; adverse findings
related to the safety and/or efficacy of our products or products sold by our
partners; decisions, and the timing of decisions, made by health regulatory
agencies regarding approval of our technology and products; the requirement
for substantial funding to conduct research and development and to expand
manufacturing and commercialization activities or consummate acquisitions; and
any other factors that may affect performance. In addition, our business is
subject to certain operating risks that may cause the actual results expressed
or implied by the forward-looking statements in this press release to differ
materially from our actual results. These operating risks include: our ability
to attract and retain qualified personnel; our ability to successfully
complete pre-clinical and clinical development of our products; changes in
business strategy or development plans; our failure to obtain patent
protection for discoveries; loss of patent protection resulting from
third-party challenges to our patents; commercialization limitations imposed
by patents owned or controlled by third parties; our ability to obtain rights
to technology from licensors; liability for patent claims and other claims
asserted against us; our ability to obtain and enforce timely patent and other
intellectual property protection for our technology and products; the ability
to enter into, and to maintain, corporate alliances relating to the
development and commercialization of our technology and products; market
acceptance of our technology and products; our ability to successfully
manufacture, market and sell our products; the continued availability of
capital to finance our activities; and any other factors referenced in our
other filings with the SEC. For a more thorough discussion of the risks
associated with our business, see the "Risk Factors" section in our annual
report for the year ended December 31, 2007 filed with the SEC on Form 40-F
and our quarterly report for the three months ended March 31, 2008 filed with
the SEC on Form 10-Q.
    Given these uncertainties, assumptions and risk factors, readers are
cautioned not to place undue reliance on such forward-looking statements.
Except as required by law, we disclaim any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained in this press release to reflect future
results, events or developments.

    Additional Information and Where to Find It
    -------------------------------------------
    This communication may be deemed to be solicitation material in respect
of the proposed investment of Ares Corporate Opportunities Fund III, L.P., New
Leaf Ventures I, L.P. and New Leaf Ventures II, L.P. in Angiotech
Pharmaceuticals, Inc.'s ("Angiotech") subsidiary, Angiotech Pharmaceutical
Interventions, Inc. In connection with the proposed investment, Angiotech
intends to file relevant materials with the SEC, including a proxy statement
on Schedule 14A. SHAREHOLDERS OF ANGIOTECH ARE URGED TO READ ALL RELEVANT
DOCUMENTS FILED WITH THE SEC, INCLUDING ANGIOTECH'S PROXY STATEMENT, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain the documents free of
charge at the SEC's web site, http://www.sec.gov, and Angiotech shareholders
will receive information at an appropriate time on how to obtain
transaction-related documents for free from Angiotech. Such documents are not
currently available.

    Participants in Solicitation
    ----------------------------
    Angiotech and its directors, executive officers and other members of
management and employees may be deemed to be participants in the solicitation
of proxies from the holders of Angiotech common shares in respect of the
proposed transaction. Information about the directors and executive officers
of Angiotech is set forth in Angiotech's Annual Report on Form 40-F for the
most recently ended fiscal year, which was filed with the SEC on March 31,
2008. Investors may obtain additional information regarding the interest of
such participants by reading the proxy statement regarding the acquisition
when it becomes available.

    About Angiotech

    Angiotech Pharmaceuticals, Inc. is a global specialty pharmaceutical and
medical device company with over 1,500 dedicated employees. Angiotech
discovers, develops and markets innovative treatment solutions for diseases or
complications associated with medical device implants, surgical interventions
and acute injury. To find out more about Angiotech (NASDAQ:   ANPI, TSX: ANP),
please visit our website at www.angiotech.com.

    About Ares Management LLC

    Founded in 1997 by a group of experienced investment professionals, Ares
manages investment capital in private equity, capital markets (principally
leveraged loans, high-yield bonds, and distressed debt), and private debt
(primarily through Ares Capital Corporation (Nasdaq:   ARCC), a publicly-traded
specialty finance company). Through these three complementary lines of
business, Ares has the ability to provide capital to companies at any place in
the capital structure and at any stage of development. Ares is an SEC
registered investment advisor and has grown committed capital under management
from approximately $3.8 billion of committed capital in 2003 to in excess of
$25 billion as of mid-2008. As of June 2008, Ares (based in Los Angeles,
California) has more than 240 employees with offices in Los Angeles, New York
and London. For more information, visit the Ares website at www.aresmgmt.com.

    About New Leaf Venture Partners

    NLV Partners is a life science-dedicated venture capital firm with
offices in Menlo Park and New York. Founded by an experienced team of venture
capitalists with deep healthcare industry experience, NLV Partners invests
primarily in companies focused on clinical-stage biopharmaceutical products,
early-stage medical devices, and molecular diagnostics. NLV Partners manages
over $1.3 billion of assets, including NLV-I, NLV-II and the healthcare
technology portfolio of Sprout Group. For further information, visit the NLV
Partners website at www.nlvpartners.com.





For further information:

For further information: Sage Baker, Investor Relations and Corporate
Communications, Angiotech Pharmaceuticals, Inc., (604) 221-6933,
sbaker@angio.com; Deirdre Neary, Investor Relations and Corporate
Communications, Angiotech Pharmaceuticals, Inc., (604) 222-7056,
dneary@angio.com; Steve Frankel, Joele Frank, Wilkinson Brimmer Katcher,
Office (212) 355-4449 x 119, Cell (917) 952-0676, sfrankel@joelefrank.com,
www.joelefrank.com

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Angiotech Pharmaceuticals, Inc.

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