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SurModics Reports Fourth Quarter and Fiscal Year 2005 Results; Eighth Consecutive Year of Record Revenue Since 1998 IPO

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)--Oct. 26, 2005--SurModics, Inc. (Nasdaq:SRDX), a leading provider of surface modification and drug delivery technologies to the healthcare industry, today reported financial results for the fourth quarter and fiscal year ended September 30, 2005.

Fourth Quarter Highlights:
--------------------------

--  Fourth quarter revenue of $16.1 million, up 19%

--  Including a certain charge (detailed below):

    --  Operating income of $6.3 million
    --  Net income of $4.8 million
    --  Diluted EPS of $0.25

--  Excluding the charge:

    --  Operating income of $8.8 million; operating margin of 55%
    --  Record net income of $6.4 million
    --  Record diluted EPS of $0.33

Fiscal Year 2005 Highlights:
----------------------------

--  Record revenue for fiscal year 2005 of $62.4 million, up 25% from
    fiscal 2004

--  Revenue has grown at 30% compounded annually since 1998 IPO

--  Including certain charges (detailed below):

    --  Operating income of $3.0 million
    --  Net loss of $8.2 million
    --  Diluted EPS of ($0.45)

--  Excluding the charges:

    --  Record operating income of $35.7 million; operating margin of
        57%
    --  Record net income of $23.6 million
    --  Record diluted EPS of $1.27

--  Cordis represented 46% of total revenue, down from 52% of total
    revenue in fiscal year 2004, despite year-over-year growth in
    CYPHER revenue

--  Non-Cordis revenue growth of 41% year-over-year vs. Cordis revenue
    growth of 11%

--  Five new licenses signed in the fourth quarter, reaching fiscal
    year record of 20 new licenses

"Fiscal year 2005 was a year of exceptional performance by our employees," said Bruce Barclay, President and CEO. "A year ago, we outlined a new strategy and revenue growth plan, with the goal of maintaining sustainable growth. Throughout the year, we focused on execution and implementation of this strategy, which strongly contributed to the revenue growth enjoyed in all three of our business segments. Further, we have increased our focus on bringing valuable technology to our customers, both through internal development and by accessing technologies from third parties. In total, we spent 26% of revenue on R&D in fiscal 2005, with fully 68% of our operating expenses, excluding product costs and certain charges, going towards R&D. Lastly, we filed a record 51 patent applications during the year, which will help us protect our unique position in the market."

"Despite record levels of R&D spending," continued Barclay, "we continue to maintain our focus on profitability. Our operating margin (excluding certain charges) was 57% for fiscal year 2005. We are pleased with the results reported by Cordis Corporation, a Johnson & Johnson company, on its CYPHER Sirolimus-eluting Coronary Stent. J&J reported U.S. CYPHER sales of $347 million for the September quarter, equating to a 46% market share, up from the previous quarter's 41% share. While we are proud of our association with Cordis on their CYPHER stent, strategically we are diversifying our business. And our diversification efforts are producing results. Despite 11% growth in revenue from Cordis in fiscal 2005, the percentage of total revenue derived from Cordis has decreased from 52% in fiscal year 2004 to 46% in fiscal year 2005. Finally, we continue to expand our customer base, signing a record 20 new licenses during the fiscal year, which brings to 76 the number of customers who have licensed our technologies."

Fiscal year 2005 revenue was a record $62.4 million, a 25% increase over fiscal year 2004 revenue of $49.7 million. The company recorded a non-cash impairment charge of $2.5 million in the fourth quarter of fiscal year 2005 related to the sale of the company's contract manufacturing facility in Bloomington, Minnesota. In addition, during the second quarter of fiscal year 2005, the company recorded a $30.3 million charge for in-process research and development (IPR&D) in connection with its acquisition of InnoRx, Inc., which was completed in January 2005. Including these charges, the company reported operating income of $3.0 million and a net loss of $8.2 million, or ($.45) per diluted share for the year. Excluding the charges, operating income grew 33% to a record $35.7 million, from $27.0 million in the prior-year period; while net income increased 34% to a record $23.6 million, from $17.6 million last year; and diluted earnings per share was a record $1.27, compared with $0.99 in fiscal 2004.

Revenue for the fourth quarter of fiscal year 2005 was $16.1 million, an increase of 19% from $13.5 million in the fourth quarter of fiscal year 2004. Including the non-cash asset impairment charge previously described, the company reported operating income of $6.3 million and net income of $4.8 million, or $0.25 per diluted share. Excluding the charge, operating income grew 6% to $8.8 million, from $8.3 million in the prior-year period; net income increased 18% to a record $6.4 million, from $5.4 million in the same period last year; and diluted earnings per share was a record $0.33, compared with $.30 in the fourth quarter of fiscal year 2004.

SurModics signed five new licenses in the fourth quarter, bringing the fiscal year total to a record 20, significantly ahead of SurModics' goal of 12 new licenses in fiscal year 2005. During the fiscal year, SurModics' customers introduced 7 new product classes. At September 30, a total of 80 coated products were on the market generating royalty revenue, compared with 77 in the prior-year period; the total number of licensed products not yet launched was 72, compared with 64 a year ago; and major non-licensed opportunities stood at 64, compared with 73 a year ago. In total, the company now has 136 potential commercial products in development with opportunities in each of SurModics' four focus markets - ophthalmology, cardiovascular, neurology and orthopedics.

SurModics' cash and investment balance grew to $73.3 million as of September 30, 2005. "We are pleased with our level of strategic deployment of cash in fiscal year 2005," said Phil Ankeny, CFO and Vice President of Business Development. "During the year, we acquired InnoRx, licensed technology from Rutgers, and made strategic investments in CardioMind, OctoPlus and ThermopeutiX. These strategic investments may have the potential to bring tremendous value to our customers and shareholders over the long term."

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, www.surmodics.com, and click on the Fourth Quarter Webcast icon. If you do not have access to the Internet and want to listen to the audio, dial 800-240-6709. A replay of the fourth quarter conference call will be available by dialing 800-405-2236 and entering conference call ID 11042230. The audio replay will be available beginning at 6:00 p.m. CT on Wednesday, October 26, until 6:00 p.m. CT on Friday, November 4.

About SurModics, Inc.

SurModics, Inc. is a leading provider of surface modification technologies, in the areas of biocompatibility, site-specific drug delivery, biological cell encapsulation, and medical diagnostics. SurModics partners with the world's foremost medical device, pharmaceutical and life science companies to bring innovation together for better patient outcomes. A significant portion of SurModics' revenue is generated by royalties from the sale of commercial products resulting from its corporate relationships. Recent collaborative efforts include the implementation of the SurModics' BRAVO(TM) drug delivery polymer matrix as a key component of the CYPHER Sirolimus-eluting Coronary Stent from Cordis Corporation, a Johnson & Johnson company. SurModics is headquartered in Eden Prairie, MN and more information about the company can be found at www.surmodics.com. The content of SurModics' web site is not part of this release or part of any filings the company makes with the SEC.

Safe Harbor for 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. 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.
                       Statements of Operations
                 (In thousands, except per share data)

                                   Year Ended      Three Months Ended
                                  September 30,       September 30,
                               ------------------- -------------------
                                 2005      2004      2005      2004
                               ------------------- -------------------
                                   (Unaudited)         (Unaudited)

Revenue:
  Royalties and license fees    $47,582   $34,836   $12,530    $9,758
  Product sales                   9,403    10,478     2,419     2,268
  Research & development          5,396     4,424     1,141     1,443
                               --------- --------- --------- ---------
     Total revenue               62,381    49,738    16,090    13,469

Operating expenses:
  Product                         2,855     3,035       764       735
  Research & development         16,072    12,633     4,334     3,087
  Sales & marketing               1,209     1,683       299       283
  General & administrative        6,496     5,416     1,860     1,069
  Asset impairment charge         2,487    16,497     2,487        --
  Purchased In-Process R&D       30,277        --        --        --
                               --------- --------- --------- ---------
     Total operating expenses    59,396    39,264     9,744     5,174
                               --------- --------- --------- ---------
Income from operations            2,985    10,474     6,346     8,295

Investment income                 1,365     1,178       609       288
                               --------- --------- --------- ---------
Net income before income taxes    4,350    11,652     6,955     8,583

Income tax provision            (12,596)   (4,410)   (2,162)   (3,205)

                               --------- --------- --------- ---------
Net income (loss)               ($8,246)   $7,242    $4,793    $5,378
                               ========= ========= ========= =========

Basic net income (loss) per
 share                            ($.45)    $0.41      $.26     $0.31
                               ========= ========= ========= =========

Diluted net income (loss) per
 share                            ($.45)    $0.41      $.25     $0.30
                               ========= ========= ========= =========

Weighted average shares
 outstanding
  Basic                          18,131    17,501    18,490    17,530
  Diluted                        18,131    17,800    19,016    17,836

Fiscal year 2004 results previously reported have been restated to
show the impact of accounting for InnoRx under the equity method.
Prior to completing the acquisition of InnoRx in January 2005, the
company accounted for its investment in InnoRx under the cost method.



                            SurModics, Inc.
                   Comparative Analysis of Earnings
                 (In thousands, except per share data)


                                   Year Ended      Three Months Ended
                                  September 30,       September 30,
                               ------------------- -------------------
                                 2005      2004      2005      2004
                               ------------------- -------------------
                                                       (Unaudited)

Income from operations (GAAP)    $2,985   $10,474    $6,346    $8,295

Add: Purchased In-Process R&D   $30,277        --        --        --
Add: Asset impairment charge     $2,487   $16,497    $2,487        --
Comparative income from
 operations                     $35,749   $26,971    $8,833    $8,295

Diluted net income (loss) per
 share (GAAP)                     ($.45)    $0.41      $.25     $0.30

Add: Net impact of Purchased
 In-Process R&D                   $1.63        --        --        --
Add: Net impact of asset
 impairment charge                 $.09     $0.58      $.08        --
Comparative diluted net income
 per share                        $1.27      $.99      $.33     $0.30

Fiscal year 2004 results previously reported have been restated to
show the impact of accounting for InnoRx under the equity method.
Prior to completing the acquisition of InnoRx in January 2005, the
company accounted for its investment in InnoRx under the cost method.

Certain information in the attached financial release may be
considered non-GAAP Financial Information as contemplated by SEC
Regulation G. Accordingly, we are providing the preceding table, which
reconciles results to their corresponding GAAP based operating results
presented under our Statements of Operations, in the accompanying
press release.

Management believes the presentation of these non-GAAP financial
results provides useful information to investors regarding our results
of operations, as these non-GAAP financial measures allow investors to
better evaluate ongoing business performance and factors that
influenced performance during the periods under report. Management
also uses these non-GAAP measures internally to monitor performance of
the business. These non-GAAP financial measures should be considered
in addition to, and not a substitute for, financial measures prepared
in accordance with GAAP.



                           SurModics, Inc.
                       Condensed Balance Sheets
                            (in thousands)

                                           September 30, September 30,
                                               2005          2004
                                           ------------- -------------
Assets
------

Current assets:
  Cash & investments                            $24,445       $19,215
  Accounts receivable                            10,996         8,130
  Inventories                                     1,091         1,040
  Other current assets                            5,072         1,184
                                           ------------- -------------
     Total current assets                        41,604        29,569

Property & equipment, net                        14,832        15,738
Long-term investments                            48,874        44,088
Other assets                                     18,915        20,192

                                           ------------- -------------
  Total assets                                 $124,225      $109,587
                                           ============= =============

Liabilities & Stockholders' Equity
----------------------------------

Total current liabilities                        $5,123       $11,789

Other liabilities                                 3,521         3,488

Total stockholders' equity                      115,581        94,310

                                           ------------- -------------
  Total liabilities & stockholders' equity     $124,225      $109,587
                                           ============= =============

Fiscal year 2004 results previously reported have been restated to
show the impact of accounting for InnoRx under the equity method.
Prior to completing the acquisition of InnoRx in January 2005, the
company accounted for its investment in InnoRx under the cost method.

CONTACT: SurModics, Inc.
Phil Ankeny, 952-829-2700

SOURCE: SurModics, Inc.