SurModics' Q1 sales, earnings plummet

SurModics Inc. (NSDQ:SRDX) posted first-quarter sales of $9.2 million for the three months ended Dec. 31, 2009, down 80.7 percent compared with $47.7 million during the same period last year. Net income fell 93 percent to $1.9 million, compared with $27.1 million during Q1 2009:

Press Release

SurModics Reports First Quarter 2010 Results

Strong Operating Cash Flow and Continued Diversification

EDEN PRAIRIE, Minn., Jan 27, 2010 (BUSINESS WIRE) — SurModics, Inc. (Nasdaq: SRDX), a leading provider of drug delivery and
surface modification technologies to the healthcare industry, today
reported financial results for the first quarter ended December 31, 2009.

First Quarter Summary:

• GAAP results:
  • Revenue of $17.4 million

  • Operating income of $2.8 million

  • Net income of $1.9 million
  • Diluted EPS of $0.11
• Revenue by market:
  • Therapeutic:
    • Cardiovascular – $10.7 million, up 9% sequentially

    • Ophthalmology – $2.5 million, up 35% sequentially

    • Other Markets – $1.9 million, down 35% sequentially
  • Diagnostic – $2.3 million, down 51% sequentially
• Non-GAAP results (including $3.5 million up-front license fee from
  Genentech):
  • Adjusted total revenue of $21.0 million
  • Adjusted operating income of $6.4 million
  • Adjusted net income of $4.2 million
  • Adjusted diluted EPS of $0.24
• Operating cash flow of $8.2 million
• Cash and investments of $51.5 million; no debt
• Signed Ophthalmic License and Development Agreement with Roche and
  Genentech regarding Lucentis(TM) (ranibizumab injection)
• SurModics’ customer OrbusNeich initiated a first in man clinical trial
  with a new drug-eluting stent employing our SynBiosys biodegradable
  polymer

• Completed new cGMP facility for manufacturing and development in
  Birmingham, Alabama

• Six new licenses with SurModics customers
• One new customer product class introduced by our customers

“SurModics continued to make important progress in a number of key areas
during our first quarter of fiscal 2010, including our ophthalmology,
SurModics Pharmaceuticals and cardiovascular businesses,” said Bruce
Barclay, president and CEO. “The most significant accomplishment of the
quarter was signing our drug delivery license and development agreement
with Genentech in October. In addition, our licensed partner OrbusNeich
initiated a first in man clinical trial with a new drug eluting stent
employing our SynBiosys biodegradable polymer. Recently, we also
officially opened our new cGMP facility in Alabama, which will be a
vital component of our long-term growth. The new facility supports our
drug delivery customers in the pharmaceutical, biotech, and medical
device industries. And as a testament to our financial strength, we
accomplished these results while preserving a strong balance sheet and
generating solid operating cash flow.”

On a GAAP basis, revenue for the first quarter of fiscal 2010 was $17.4
million, compared with $63.2 million in the year earlier period. Fiscal
2009 results include recognition of previously deferred revenue totaling
approximately $35 million and a $9 million termination fee, both in
connection with Merck’s termination of our agreements with them.
Operating income was $2.8 million, compared with $42.7 million in the
prior-year period. Net income was $1.9 million, compared with $27.1
million in the same period last year. Diluted earnings per share was
$0.11, compared with $1.53 in the first quarter of fiscal 2009.

Non-GAAP results are summarized in the supplemental tables included in
this press release. Excluding the $9 million Merck termination payment
and Abbott royalties from the first quarter of fiscal 2009, non-GAAP
revenue increased 21% from the first quarter of fiscal 2009 to the first
quarter of fiscal 2010.

SurModics’ pipeline continues to represent significant potential. The
Company added six new licenses in the first quarter, against its goal of
signing 18 new licenses in fiscal 2010, including the new SurModics
Pharmaceuticals license with Roche and Genentech. One of SurModics’
customers launched a new product class in the marketplace during the
quarter, as the Company works toward its goal of 10 launches in fiscal
2010. As of December 31, 2009, SurModics’ customers had 104 licensed
product classes generating royalty revenue, compared with 99 in the
prior-year period; the total number of licensed product classes not yet
launched was 108, up from 107 in the prior-year period; and major
non-licensed opportunities totaled 80, compared with 87 a year ago. In
total, SurModics now has a portfolio of 188 potential commercial
products in development diversified across multiple clinical indications
and technology platforms.

SurModics’ cash and investment balance totaled $51.5 million as of
December 31, 2009, with no debt. Operating cash flow for the quarter was
$8.2 million, compared with $17.4 million in the first quarter of fiscal
2009, which included the $9 million termination payment from Merck.

“SurModics has preserved its excellent financial condition through
continued generation of strong operating cash flow and by maintaining a
healthy balance sheet with zero debt,” said Phil Ankeny, senior vice
president and chief financial officer. “Given our optimism in the
Company’s potential for long-term growth, we will continue to leverage
our strong balance sheet and invest in our business. We have maintained
our disciplined deployment of capital with a goal of enhancing
shareholder value, principally in the areas of facilities-related and
corporate development investments, as well as share repurchases.”