SurModics, Inc. Reports Strong Second Quarter Results; 59% Increase in Net Income on a 31% Revenue Gain; Record Six-Month Revenue and Net Income

April 21, 2004 at 4:01 PM EDT

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--April 21, 2004--SurModics, Inc. (Nasdaq:SRDX), a leading provider of surface modification and drug delivery solutions to the medical device industry, today reported strong financial results for the fiscal second quarter ended March 31, 2004.

Revenue for the second quarter of fiscal 2004 increased 31% to $12.7 million from $9.7 million in fiscal 2003. Operating income grew 67% to $6.7 million from $4.0 million in the prior-year period. Net income increased 59% to $4.4 million, from $2.8 million in the same period last year. Diluted earnings per share rose 67% to $.25, from $.15 in fiscal 2003. Second quarter revenues and diluted earnings per share also increased sequentially from $12.1 million and $.23 per share, respectively, in the fiscal first quarter.

For the first six months of fiscal 2004, revenue increased 40% to $24.8 million from $17.8 million in fiscal 2003, and operating income rose 89% to $13.0 million, from $6.8 million in the prior-year period. Net income increased 72% to $8.5 million, or $.48 per diluted share, from $4.9 million, or $.28 per diluted share, in the first half of fiscal 2003. All of these six-month figures are records.

"SurModics generated substantial growth in both revenue and earnings over prior-year periods," said Dale Olseth, Chairman and CEO. The company reported $8.9 million in royalties and license fees, setting a quarterly record. A significant contributor to the company's second quarter results continued to be royalty revenue from sales of the CYPHER drug-eluting stent from Johnson & Johnson's Cordis division. Cordis reported CYPHER sales of $532 million worldwide for the calendar 2004 first quarter, compared with $550 million in the calendar 2003 fourth quarter.

According to Bruce Barclay, President and COO, who joined SurModics December 1, 2003, "In addition to posting strong financial results, SurModics took several important steps in the second quarter to position the company for long-term growth. We announced a corporate reorganization intended to sharpen our focus on customer needs and accelerate our technology leadership. In addition, we hired Steve Keough as vice president and chief intellectual property counsel."

"SurModics' employees have made significant progress continuing to improve the quality and quantity of the projects in our pipeline," added Barclay. At March 31, SurModics' customers had 72 coated products generating royalty revenue, compared with 68 in the prior-year period; the total number of licensed products yet to be launched rose to 63, from 54 a year ago and 64 in the first quarter; and major non-licensed opportunities jumped to 57, from 19 a year ago and 33 in the first quarter. In total, the company now has 120 potential commercial products in development. Each of the four markets SurModics is focusing on is represented in these opportunities.

In addition, during the second quarter, SurModics made an equity investment in InnoRx, an early-stage company developing a novel drug delivery platform for the ophthalmology industry. "SurModics believes the opportunity in ophthalmology and the collaboration with InnoRx could become significant," commented Barclay. According to market research compiled by Eugene de Juan, Jr., M.D., professor of ophthalmology at the Keck School of Medicine of the University of Southern California and Chairman of InnoRx, the combined markets for age-related macular degeneration and diabetic macular edema alone could potentially reach $2.5 to $7.0 billion within five to six years.

"The InnoRx drug delivery platform is being developed to address these eye conditions, and SurModics' drug delivery polymer technology is being utilized to control the release of drugs into the eye for InnoRx's product," said de Juan. "Intended physician and patient benefits of this new therapy are improved patient compliance and reduced side effects. InnoRx's drug delivery platform has several competitive advantages. First, because it is administered in a single, minimally invasive, in-clinic procedure, it eliminates the need for frequent injections into the eye. Second, the platform offers the ability to develop different versions of the product that incorporate different drugs or that target different indications. Lastly, if complications arise, the device can be simply removed."

Operating expenses rose 5% from the second quarter of last year, as the company maintains prudent expense management. Investment in R&D continues, representing the majority of the overall expense growth.

According to Olseth, "SurModics is in excellent financial condition." The company's balance sheet remains strong, with $101.7 million of total assets, $95.3 million in shareholders' equity and no debt. As of March 31, the company had a cash and investment balance of $49.0 million.

The company's second quarter results do not include any adjustments related to its Bloomington manufacturing facility; management does not believe that an impairment against book value has occurred. On March 31, SurModics said it would investigate selling or leasing the facility. The company will continue to evaluate this situation as additional information becomes available.

Live Webcast

SurModics will host a Webcast at 5:00 p.m. ET (4:00 p.m. CT) today to discuss the quarterly results. To access the Webcast, go to the investor relations portion of the company's web site,, and click on the second quarter webcast icon. If you do not have access to the Internet and want to listen to an audio replay of the second quarter conference call, dial 800-405-2236 and enter conference call ID # 576226. The audio replay will be available beginning at 6:00 p.m. CT on Wednesday, April 21, until 5:00 p.m. CT on Wednesday, April 28.

About SurModics, Inc.

SurModics, Inc., a leading provider of surface modification and drug delivery solutions, licenses its proprietary technologies to medical device, diagnostics, and biotechnology companies around the world. A significant portion of SurModics' revenue is generated through royalties on the sale of coated products. SurModics' Internet address is

Forward-Looking Statements

Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and SurModics intends that such forward looking statements be subject to the safe harbor created thereby. Factors that may cause actual results to differ from the forward-looking statements include those described in the "Risk Factors" and other sections of SurModics' filings with the Securities and Exchange Commission. SurModics does not undertake an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                           SurModics, Inc.
                          Income Statements
                (In thousands, except per share data)

                                   Three Months Ended Six Months Ended
                                       March 31,         March 31,
                                   ------------------ ----------------
                                     2004     2003     2004     2003
                                   ------------------ ----------------
                                      (Unaudited)       (Unaudited)

  Royalties and license fees         $8,944   $4,899  $17,572  $8,779
  Product sales                       2,803    2,893    5,403   5,932
  Research & development                991    1,950    1,850   3,079
                                   --------- -------- -------- -------
     Total revenue                   12,738    9,742   24,825  17,790

Operating expenses:
  Product                               752      783    1,488   1,371
  Research & development              3,124    2,926    6,270   5,586
  Sales & marketing                     639      534    1,182   1,071
  General & administrative            1,545    1,507    2,920   2,915
                                   --------- -------- -------- -------
     Total operating expenses         6,060    5,750   11,860  10,943
                                   --------- -------- -------- -------
Income from operations                6,678    3,992   12,965   6,847

Investment income                       270      414      566   1,037
                                   --------- -------- -------- -------
Net income before income taxes        6,948    4,406   13,531   7,884

Income tax provision                 (2,576)  (1,656)  (5,048) (2,963)
                                   --------- -------- -------- -------
Net income                           $4,372   $2,750   $8,483  $4,921
                                   ========= ======== ======== =======

Basic net income per share            $0.25    $0.16    $0.49   $0.28
                                   ========= ======== ======== =======

Diluted net income per share          $0.25    $0.15    $0.48   $0.28
                                   ========= ======== ======== =======

Weighted average shares outstanding
  Basic                              17,483   17,326   17,468  17,305
  Diluted                            17,775   17,803   17,774  17,813

                           SurModics, Inc.
                       Condensed Balance Sheets
                            (in thousands)

                                               March 31, September 30,
                                                 2004        2003
                                               --------- -------------
Assets                                               (Unaudited)

Current assets:
  Cash & investments                             $9,564        $6,647
  Accounts receivable                             9,775         9,145
  Inventories                                     1,044           863
  Other current assets                            1,369         1,104
                                               --------- -------------
    Total current assets                         21,752        17,759

Property & equipment, net                        32,957        33,936
Long-term investments                            39,450        39,164
Other assets                                      7,546         6,949
                                               --------- -------------
  Total assets                                 $101,705       $97,808
                                               ========= =============

Liabilities & Stockholders' Equity

Total current liabilities                        $4,778       $10,027

Other liabilities                                 1,658         1,667

Total stockholders' equity                       95,269        86,114
                                               --------- -------------
  Total liabilities & stockholders' equity     $101,705       $97,808
                                               ========= =============

CONTACT: SurModics, Inc., Eden Prairie; Philip D. Ankeny, 952-829-2700

SOURCE: SurModics, Inc.