EDEN PRAIRIE, Minn., Jul 28, 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 third quarter ended June 30, 2010.

Third Quarter Summary:

• GAAP results:
  • Revenue of $18.6 million, up 1% sequentially
  • Operating income of $2.2 million
  • Asset and investment impairment charges of $2.8 million
  • Net loss of $0.9 million
  • Diluted EPS of ($0.05)
• Revenue summary:
  • Royalties and license fees of $9.3 million, up 20% sequentially
  • Record product sales of $5.8 million, up 9% sequentially
  • R&D revenue of $3.5 million, down 34% sequentially
• Revenue by market:
  • Therapeutic:
    • Cardiovascular - $11.0 million, up 19% sequentially
    • Ophthalmology - $1.1 million, down 68% sequentially
    • Other Markets - $3.3 million, up 13% sequentially
  • Diagnostic - $3.2 million, up 14% sequentially
• Non-GAAP results (excluding asset and investment impairment charges):
  • Adjusted operating income of $2.4 million
  • Adjusted net income of $1.8 million
  • Adjusted diluted EPS of $0.11
• Operating cash flow of $4.4 million
• Cash and investments of $54.8 million; no debt
• 5 new licenses with SurModics customers
• 2 new customer product classes introduced by our customers

"SurModics' third quarter financial results were mixed. Royalties and license fees continue to benefit from our diverse portfolio of licensed customers. Product sales were particularly strong, posting a new quarterly record. However, our quarterly revenue performance was adversely impacted by decreased R&D revenue compared with the second quarter, reflecting a period of relatively slower activity that occurs periodically during our long-range customer development programs," said Phil Ankeny, interim CEO, senior VP and CFO. "On the earnings front, third quarter results were negatively impacted by asset and investment impairment charges. Excluding these non-cash charges, however, non-GAAP EPS was $0.11, compared with non-GAAP EPS of $0.10 in the second quarter."

Sequential Comparison
On a GAAP basis, revenue for the third quarter of fiscal 2010 was $18.6 million, compared with $18.4 million in the second quarter. The Company reported operating income of $2.2 million, compared with an operating loss of $1.0 million in the second quarter; a net loss of $0.9 million, compared with a net loss of $0.4 million in the second quarter; and diluted loss per share of ($0.05), compared with diluted loss per share of ($0.02) in the second quarter of fiscal 2010.

Results for the third quarter of fiscal 2010 included a $2.6 million non-cash investment impairment charge in connection with the Company's portfolio of strategic investments, as well as a $0.2 million non-cash asset impairment charge associated with fixed assets. Excluding these charges, non-GAAP results for the third quarter were as follows: operating income was $2.4 million, in line with the second quarter; net income was $1.8 million, compared with $1.7 million in the second quarter; and diluted earnings per share was $0.11, compared with $0.10 in the second quarter.

Year-over-Year Comparison
On a GAAP basis, revenue for the third quarter of fiscal 2010 was $18.6 million, compared with $18.2 million in the year earlier period. The Company reported operating income of $2.2 million, compared with $4.7 million in the prior-year period; net loss of $0.9 million, compared with net income of $3.5 million in the same period last year; and diluted loss per share of ($0.05), compared with diluted earnings per share of $0.20 in the third quarter of fiscal 2009.

Other Highlights
SurModics' pipeline continues to represent important potential. The Company added five new licenses in the third quarter, for a fiscal year-to-date total of 16 against its goal of signing 18 new licenses in fiscal 2010. SurModics' customers launched two new product classes in the marketplace during the quarter, for a fiscal year-to-date total of 7 against its goal of 10 launches in fiscal 2010. As of June 30, 2010, SurModics' customers had 104 licensed product classes generating royalty revenue, compared with 105 in the prior-year period; the total number of licensed product classes not yet launched was 110, up from 105 in the prior-year period; and major non-licensed opportunities totaled 72, compared with 87 a year ago. In total, SurModics now has a portfolio of 182 potential commercial products in development across multiple clinical indications and technology platforms.

Cash and investments at the end of the third quarter totaled $54.8 million, compared with $51.8 million at the end of the second quarter. Operating cash flow for the quarter was $4.4 million, compared with $7.9 million in the third quarter of fiscal 2009; for the first nine months of fiscal year 2010, operating cash flow was $16.7 million, as the Company continues to generate cash.

"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," continued Ankeny. "Given our optimism in the Company's potential for long-term growth, we will continue to deploy our capital in a manner that maximizes our ability to better serve our customers, support our strategic initiatives and add value for our shareholders."

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 website at www.surmodics.com, and click on the third quarter webcast icon. If you do not have access to the Internet and want to listen to the audio by phone, dial 866-328-4270. A replay of the third quarter conference call will be available by dialing 800-406-7325 and entering conference call ID 4330268. The audio replay will be available beginning at 7:00 p.m. CT on Wednesday, July 28, until 7:00 p.m. CT on Wednesday, August 4.

About SurModics, Inc.
SurModics' vision is to extend and improve the lives of patients through technology innovation. The Company partners with the world's foremost medical device, pharmaceutical and life science companies to develop and commercialize innovative products that result in improved diagnosis and treatment for patients. Core offerings include: drug delivery technologies (coatings, microparticles, nanoparticles, and implants); surface modification coating technologies that impart lubricity, prohealing, and biocompatibility capabilities; and components for in vitro diagnostic test kits and specialized surfaces for cell culture and microarrays. SurModics is headquartered in Eden Prairie, Minnesota and its SurModics Pharmaceuticals subsidiary is located in Birmingham, Alabama. For more information about the Company, visit www.surmodics.com. The content of SurModics' website is not part of this release or part of any filings the Company makes with the SEC.

Safe Harbor for Forward-Looking Statements
This press release contains forward-looking statements. Statements that are not historical or current facts, including statements about beliefs and expectations, such as our expectations about our pipeline, our ability to achieve our fiscal 2010 company goals, our optimism for the long term, and our continued use of our balance sheet and investment in our business, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including the following: (1) our reliance on third parties (including our customers and licensees) and their failure to successfully develop, obtain regulatory approval for, market and sell products incorporating our technologies may adversely affect our business operations, our ability to realize the full potential of our pipeline, and our ability to achieve our fiscal 2010 corporate goals; (2) costs or difficulties relating to the integration of the businesses of SurModics Pharmaceuticals and BioFX Laboratories, and the drug delivery assets and collaborative programs acquired from PR Pharmaceuticals, Inc., with SurModics' business may be greater than expected and may adversely affect the Company's results of operations and financial condition; (3) developments in the regulatory environment, as well as market and economic conditions, may adversely affect our business operations and profitability; and (4) other factors identified under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2009, and updated in our subsequent reports filed with the SEC. These reports are available in the Investors section of our website at www.surmodics.com and at the SEC website at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Use of Non-GAAP Financial Information
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, SurModics is reporting non-GAAP financial results including non-GAAP revenue, non-GAAP income from operations, non-GAAP net income and non-GAAP diluted net income per share. We believe that these non-GAAP measures provide meaningful insight into our operating performance excluding certain event-specific charges and as it relates to our accounting treatment for contracts with significant deferred revenue, such as the agreement with Genentech, and provide an alternative perspective of our results of operations. We believe that our non-GAAP recognition of up-front license fees, which are recognized as deferred revenue under GAAP, provides a relevant perspective of how our activities in a period may generate cash. We use these non-GAAP measures to assess our operating performance and as an input in determining payouts under our executive compensation programs. We believe that presentation of these non-GAAP measures allows investors to review our results of operations from the same perspective as management and our board of directors. We believe these non-GAAP measures facilitate investors' analysis and comparisons of our current results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that research analysts frequently use. The method we use to produce non-GAAP results is not in accordance with GAAP and may differ from the methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding GAAP measures, but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures have limitations in that they do not reflect certain items that may have a material impact on our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with GAAP and the reconciliation of the supplemental non-GAAP financial measures to the comparable GAAP results provided for certain periods presented, which are attached to this release.

SOURCE: SurModics, Inc.

SurModics, Inc.
Phil Ankeny, interim CEO, Senior VP and CFO, 952-829-2700