Minnesota |
41-1356149 |
|||||
(State of Other
Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
|||||
9924 West
74th Street Eden Prairie, Minnesota (Address of Principal Executive Offices) |
55344 (Zip Code) |
Page No. |
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---|---|---|---|---|---|---|---|---|---|---|
Part
I |
||||||||||
Item
1. |
Business |
3 | ||||||||
Item
2. |
Properties |
20 | ||||||||
Item
3. |
Legal Proceedings |
20 | ||||||||
Item
4. |
Submission of Matters to a Vote of Security Holders |
20 | ||||||||
Executive Officers |
21 | |||||||||
Part
II |
||||||||||
Item
5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
24 | ||||||||
Item
6. |
Selected Financial Data |
25 | ||||||||
Item
7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation |
25 | ||||||||
Item
7A. |
Quantitative and Qualitative Disclosures About Market Risk |
32 | ||||||||
Item
8. |
Financial Statements and Supplementary Data |
33 | ||||||||
Item
9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
33 | ||||||||
Item
9A. |
Controls and Procedures |
33 | ||||||||
Item
9B. |
Other Information |
35 | ||||||||
Part
III |
||||||||||
Item
10. |
Directors and Executive Officers of the Registrant |
36 | ||||||||
Item
11. |
Executive Compensation |
36 | ||||||||
Item
12. |
Security Ownership of Certain Beneficial Owners and Management |
36 | ||||||||
Item
13. |
Certain Relationships and Related Transactions |
36 | ||||||||
Item
14. |
Principal Accounting Fees and Services |
36 | ||||||||
Part
IV |
||||||||||
Item
15. |
Exhibits, Financial Statement Schedules |
37 |
• |
Drug Delivery, creating and supporting site specific drug delivery polymers and coating technologies for use in drug/device combination products in our chosen markets, such as drug-eluting stents for the treatment of vascular disease, ophthalmic implants, orthopedics, and wound treatment, among others. |
• |
Ophthalmology, developing drug delivery systems intended to enhance performance, safety, patient convenience and patient compliance for a variety of drugs and other bioactive agents that are being developed by the pharmaceutical and biotech sectors for the treatment of serious eye diseases. |
• |
Hydrophilic Technologies, specializing in advanced lubricity (slippery) coatings that can enhance the function of medical devices, facilitating and easing their placement and maneuverability in the body. |
• |
Regenerative Technologies, developing platforms intended to augment or replace tissue/organ function (e.g., cell encapsulation applications), or to modify medical devices to facilitate tissue/organ recovery through natural repair mechanisms (e.g., hemo/biocompatible coatings). |
• |
Diagnostics and Drug Discovery, consisting of our biosciences group (including the genomics and slide technologies licensed to GE Healthcare), stabilization business and diagnostic format intellectual property (currently licensed to Abbott Laboratories and used in strep, pregnancy and other test kits). The Diagnostics business unit is also responsible for our collaboration with the Donaldson Company in the area of synthetic cell culture products. |
• |
Orthopedics, developing innovative solutions for orthopedics patients using proven SurModics technologies, and creating new technology solutions for existing patient care needs in the orthopedics field. |
• |
Flexibility. Coatings can be applied to many different kinds of surfaces and can immobilize a variety of chemical, pharmaceutical and biological agents, which allow customers to be innovative in the design of their products without significantly changing the dimensions or physical properties of the device. |
• |
Multiple Surface Properties. The surface modification process can be tailored to provide customers with the ability to improve the performance of their devices by choosing the specific coating properties desired for particular applications. Our surface modification technologies also can be combined to deliver multiple surface-enhancing characteristics on the same device. |
• |
Ease of Use. Unlike other coating processes, the PhotoLink coating process is relatively simple and is easily integrated into the customer’s manufacturing process. In addition, it does not subject the coated products to harsh chemical or temperature conditions, produces no hazardous byproducts, and does not require lengthy processing or curing time. Further, the coatings are compatible with generally accepted sterilization processes, so the surface attributes are not lost when the medical device is sterilized. |
• |
Lubricity. Low friction or lubricious coatings reduce the force and time required for insertion, navigation and removal of devices in vascular, neurological and urogenital applications. Lubricity also reduces tissue irritation and damage caused by products such as catheters, guidewires and endoscopy devices. Based on internal and customer testing, when compared with uncoated surfaces, our PhotoLink coatings have reduced the friction on surfaces by more than 90%, depending on the substrate being coated. |
• |
Wettability. PhotoLink hydrophilic coatings have been shown in internal and customer tests to accelerate liquid flow rates on normally hydrophobic (water repelling) materials by up to 75%. For example, some rapid point-of-care diagnostic tests, such as home monitoring or physician monitoring of glucose levels in diabetics, are currently done by pricking a patient’s finger and placing a drop of blood onto a polymer strip which is then inserted into a blood glucose reader. We believe that the time it takes for the blood to flow up the strip to provide a readout can be dramatically reduced and the consistency can be greatly improved with the use of PhotoLink technology. |
• |
Hemo/biocompatibility. Hemocompatible/biocompatible coatings help reduce adverse reactions that may be created when a device is inserted into the body and comes in contact with blood. Heparin has been used for decades as an injectable drug to reduce blood clotting in patients. PhotoLink reagents can be used to immobilize heparin on the surface of medical devices, thereby inhibiting blood clotting on the device surface, minimizing patient risk and enhancing the performance of the device. We have also developed synthetic, non-biological coatings that provide medical device surfaces with improved blood compatibility without the use of heparin. These coatings prevent undesirable cells and proteins that lead to clot formation from adhering to the device surface. These coatings may also reduce fibrous encapsulation. |
• |
Prohealing. We are developing biologically based extracellular matrix (ECM) protein coatings that may accelerate blood clotting in a controlled fashion, thereby minimizing thromboembolism (blood clots that detach from the device surface and travel downstream). Moreover, these coatings may improve device-site healing through specific protein-cell interactions. Such surfaces may be useful for endovascular grafts and neuroaneurysm devices where it is important to seal off blood clots before serious life threatening |
complications can occur. Certain ECM proteins specifically stimulate the migration and proliferation of endothelial cells (cells that line blood vessels). Covalently attaching the appropriate ECM proteins to stent surfaces with PhotoLink coatings may signal endothelial cells to migrate to the surface where they can rapidly form a stable endothelial lining. Thus, the overgrowth of unwanted cells that lead to narrowing of the stented vessel (restenosis) may be prevented. |
• |
Drug Delivery. We provide drug delivery polymer matrix coating technology to enable controlled, site specific delivery of therapeutic agents. Our proprietary polymer reagents and coating methods do not require light activation (i.e., they are non-PhotoLink methods), to create biodurable coatings which serve as reservoirs for therapeutic drugs. The drugs can then be released from the coating on a controlled basis. When a drug-eluting stent is implanted into a patient, the drug releases from the surface of the stent into the blood vessel wall where it can act to inhibit unwanted tissue growth, thereby reducing the occurrence of restenosis. Cordis Corporation, a division of Johnson & Johnson, is currently selling a drug-eluting stent incorporating SurModics technology in Europe, the U.S. and Japan. In addition to our biodurable polymer technologies, we offer a number of biodegradable polymer technologies. We also believe that drug-eluting devices have significant potential in the ophthalmology market, where drug-eluting ophthalmic implants can provide sustained release of drugs using minimally invasive procedures. |
• |
Tissue Engineering. Studies have shown that attachment of extracellular matrix proteins and peptides onto surfaces of implantable medical devices improves host cell attachment, growth and subsequent tissue integration. Company studies have shown that biomedical implants (such as vascular grafts and ocular implants) coated with photoreactive collagen and other proteins may improve attachment, cell growth and acceptance by surrounding tissues. We have developed several coating and matrix technologies for tissue engineering applications, such as naturally biodegradable matrix forming polymers to provide scaffolds for cells, proteins, and genes for a variety of applications. For example, biocompatible coatings that form a semipermeable barrier may be used to encapsulate transplant cells, rendering them invisible to a patient’s immune system. Accordingly, we have licensed technology to and have made an investment in Novocell, Inc., which is pursuing a treatment for diabetes by implanting encapsulated islet cells. Novocell received FDA approval of its IND application and expects to commence the first-in-man Phase I/II trial in December 2005. |
• |
Biomolecule Immobilization. During a DNA gene analysis, typically thousands of different probes need to be placed in a pattern on a surface, called a DNA microarray. These microarrays are used by the pharmaceutical industry to screen for new drugs, by genome mappers to sequence human, animal or plant genomes, or by diagnostic companies to search a patient sample for disease causing bacteria or viruses. However, DNA does not readily adhere to most surfaces. We have developed a slide coating that specifically and covalently attaches DNA, resulting in highly sensitive DNA microarray assays. GE Healthcare has licensed our technology in this area and sells genomics slides under the trade name CodeLink. |
Market Segment Served |
Desired Surface Property and Examples of Applications |
|||||
---|---|---|---|---|---|---|
Interventional cardiology and vascular access |
Lubricity: catheters, guidewires Hemocompatibility: vascular stents, catheters, distal protection devices Site specific drug/biologics delivery: vascular stents, catheters Prohealing: vascular stents, vascular grafts |
|||||
Cardiac
rhythm management |
Lubricity: pacemaker and defibrillator leads, electrophysiology devices Hemocompatibility: electrophysiology devices |
|||||
Cardiothoracic surgery |
Prohealing: heart valves, septal defect repair devices Hemocompatibility: minimally invasive bypass devices, vascular grafts, ventricular assist devices |
|||||
Interventional neurology and neurosurgery |
Lubricity: catheters, guidewires |
|||||
Urology
and gynecology |
Lubricity: urinary catheters, incontinence devices, ureteral stents, fertility devices |
|||||
Ophthalmology |
Site specific drug/biologics delivery: drug delivery implants |
|||||
Orthopedics |
Cell growth and tissue integration: bone and cartilage growth Infection resistance: orthopedic implants Site specific drug/biologics delivery: orthopedic implants |
• |
the Company’s significant dependence upon Cordis, which causes our financial results and stock price to be subject to factors affecting Cordis and its Cypher stent program, including among others, the rate of market penetration by Cordis, the timing of market introduction of competing products, product safety or efficacy concerns and intellectual property litigation generally and specifically the litigation involving Boston Scientific Scimed, Inc. and Cordis in the U.S. District Court for the District of Delaware in which each was reported in June and July 2005 to have infringed the patent rights of the other; |
• |
frequent intellectual property litigation in the medical device industry that may directly or indirectly adversely affect our customers’ ability to market their products incorporating our technologies; |
• |
our ability to protect our own intellectual property; |
• |
healthcare reform efforts and reimbursement rates for medical device products that may adversely affect our customers’ ability to cost effectively market and sell devices incorporating our technologies; |
• |
the Company’s ability to attract new licensees and to enter into agreements for additional product applications with existing licensees, the willingness of potential licensees to sign license agreements under the terms offered by the Company, and the Company’s ability to maintain satisfactory relationships with its licensees; |
• |
the Company’s ability to increase the number of market segments and applications that use its coating technologies through its sales and marketing and research and development efforts; |
• |
the Company’s ability to facilitate through strategic investment and research and development support the creation of new medical device market segments and applications that incorporate its coating technologies; |
• |
market acceptance of products sold by customers incorporating our technologies and the timing of new product introductions by licensees; |
• |
market acceptance of products sold by customers’ competitors and the timing and pricing of new product introductions by customers’ competitors; |
• |
the difficulties and uncertainties associated with the lengthy and costly new product development and foreign and domestic regulatory approval processes, such as delays, difficulties or failures in achieving acceptable clinical results or obtaining foreign or FDA marketing clearances, which may result in lost market opportunities or postpone or preclude product commercialization by licensees; |
• |
efficacy or safety concerns with respect to products marketed by us and our licensees, whether scientifically justified or not, that may lead to product recalls, withdrawals or declining sales; |
• |
the ability to secure raw materials for reagents the Company sells; |
• |
the Company’s ability to manage successfully clinical trials and related foreign and domestic regulatory processes for the I-vation intravitreal implant or other acquired products from InnoRx under development by the Company’s ophthalmology division, whether delays, difficulties or failures in achieving acceptable |
clinical results or obtaining foreign or FDA marketing clearances postpone or preclude product commercialization of the intravitreal implant or other acquired products, and whether the intravitreal implant and any other acquired products remain viable commercial prospects; |
• |
product liability claims not covered by insurance; |
• |
the development of new products or technologies by competitors, technological obsolescence and other changes in competitive factors; |
• |
the trend of consolidation in the medical device industry, resulting in more significant, complex and long term contracts than in the past and potentially greater pricing pressures; |
• |
the Company’s ability to identify suitable businesses to acquire or with whom to form strategic relationships to expand its technology development and commercialization, its ability to successfully integrate the operations of companies it may acquire from time to time and its ability to create synergies from acquisitions and other strategic relationships; |
• |
the Company’s ability to successfully internally perform certain product development activities and governmental and regulatory compliance activities with respect to acquired technology, including InnoRx technology, which activities the Company has not previously undertaken in any significant manner; |
• |
economic and other factors over which the Company has no control, including changes in inflation and consumer confidence; |
• |
acts of God or terrorism which impact the Company’s personnel or facilities; and |
• |
other factors described below in “Risk Factors.” |
• |
an inability to assimilate acquired operations, personnel, technology, information systems, and internal control systems and products; |
• |
diversion of management’s attention; |
• |
difficulties and uncertainties in transitioning the business relationships from the acquired entity to us; and |
• |
the loss of key employees of acquired companies. |
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Bruce J
Barclay |
49 | President and Chief Executive Officer |
||||||||
Aron B.
Anderson, Ph.D |
42 | Vice President and Chief Scientific Officer |
||||||||
Philip D.
Ankeny |
42 | Chief Financial Officer, and Vice President, Business Development |
||||||||
Douglas P.
Astry |
53 | General Manager, Diagnostics and Drug Discovery |
||||||||
Lise W.
Duran, Ph.D |
50 | Vice President and General Manager, Regenerative Technologies |
||||||||
Steven J.
Keough |
50 | Vice President and Chief Intellectual Property Counsel and General Manager, Orthopedics |
||||||||
Paul A.
Lopez |
49 | Vice President, and President, Ophthalmology Division |
||||||||
Loren R.
Miller |
40 | Vice President and Controller |
||||||||
Dale R.
Olseth |
75 | Executive Chairman |
||||||||
Charles W.
Olson |
41 | Vice President U.S. Sales, and General Manager, Hydrophilic Technologies |
||||||||
David S.
Wood |
49 | Vice President and General Manager, Drug Delivery |
||||||||
Gregory T.
Yung |
56 | Vice President, Worldwide Marketing and International Sales |
ITEM
5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Fiscal Quarter ended: |
High |
Low |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
September 30,
2005 |
45.50 | 35.40 | ||||||||
June 30,
2005 |
46.13 | 31.85 | ||||||||
March 31,
2005 |
34.75 | 28.08 | ||||||||
December 31,
2004 |
32.90 | 23.80 | ||||||||
September 30,
2004 |
24.94 | 21.32 | ||||||||
June 30,
2004 |
25.20 | 19.00 | ||||||||
March 31,
2004 |
24.08 | 18.60 | ||||||||
December 31,
2003 |
28.30 | 20.10 |
Fiscal Year |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands, except per share data) |
2005 |
2004** |
2003 |
2002 |
2001 |
||||||||||||||||||
Income
Statement Data: |
|||||||||||||||||||||||
Total
revenue |
$ | 62,381 | $ | 49,738 | $ | 43,232 | $ | 29,488 | $ | 22,693 | |||||||||||||
Operating
income |
2,985 | 10,474 | 20,640 | 10,709 | 7,566 | ||||||||||||||||||
Net income
(loss) |
(8,246 | ) | 7,242 | 13,936 | 7,796 | 5,109 | |||||||||||||||||
Diluted net
income (loss) per share |
(.45 | ) | .41 | .78 | .44 | .29 | |||||||||||||||||
Pro forma
amounts assuming the accounting change* was applied retroactively: |
|||||||||||||||||||||||
Net income
(loss) |
(8,246 | ) | 7,242 | 13,936 | 7,796 | 6,814 | |||||||||||||||||
Diluted net
income (loss) per share |
(.45 | ) | .41 | .78 | .44 | .38 | |||||||||||||||||
Balance Sheet
Data: |
|||||||||||||||||||||||
Cash and
short-term investments |
$ | 24,445 | $ | 19,215 | $ | 6,647 | $ | 13,149 | $ | 14,840 | |||||||||||||
Total
assets |
124,225 | 109,587 | 97,808 | 77,248 | 60,583 | ||||||||||||||||||
Retained
earnings |
27,915 | 36,161 | 28,918 | 14,982 | 7,186 | ||||||||||||||||||
Total
stockholders’ equity |
115,581 | 94,310 | 86,114 | 69,995 | 55,700 | ||||||||||||||||||
Pro forma
amounts assuming the accounting change* was applied retroactively: |
|||||||||||||||||||||||
Retained
earnings |
27,915 | 36,161 | 28,918 | 14,982 | 7,186 | ||||||||||||||||||
Total
stockholders’ equity |
115,581 | 94,310 | 86,114 | 69,995 | 55,700 |
* |
Effective October 1, 2000, we adopted Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements.” As a result of adopting SAB 101, we recorded a cumulative effect of a change in accounting principle related to license fees recognized in prior years in the amount of $1,705,000, net of tax of $1,000,000, or $.09 per diluted share. |
** |
In connection with our InnoRx acquisition, we retroactively adjusted our previously reported results to show the impact of accounting for InnoRx under the equity method. The net impact was an approximate $194,000 reduction in net income for fiscal year 2004. |
ITEM
7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION. |
(Dollars in thousands) |
Fiscal Year 2005 |
Fiscal Year 2004 |
Increase |
% Increase |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: |
||||||||||||||||||
Drug
Delivery |
$ | 29,678 | $ | 25,690 | $ | 3,988 | 16 | % | ||||||||||
Hydrophilic
and Other |
19,065 | 15,527 | 3,538 | 23 | % | |||||||||||||
Diagnostics |
13,638 | 8,521 | 5,117 | 60 | % | |||||||||||||
Total
revenue |
$ | 62,381 | $ | 49,738 | $ | 12,643 | 25 | % |
(Dollars in thousands) |
Fiscal year 2004 |
Fiscal year 2003 |
Increase (Decrease) |
% Increase (Decrease) |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue: |
||||||||||||||||||
Drug
Delivery |
$ | 25,690 | $ | 20,168 | $ | 5,522 | 27 | % | ||||||||||
Hydrophilic
and Other |
15,527 | 12,380 | 3,147 | 25 | % | |||||||||||||
Diagnostics |
8,521 | 10,684 | (2,163 | ) | (20 | %) | ||||||||||||
Total
revenue |
$ | 49,738 | $ | 43,232 | $ | 6,506 | 15 | % |
Maturity by Fiscal Year |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual obligations |
Total |
2006 |
2007 |
2008 |
2009 |
2010 |
Thereafter |
|||||||||||||||||||||||
(in
millions) |
||||||||||||||||||||||||||||||
Other
long-term liabilities reflected on balance sheet under GAAP |
$ | 2.0 | — | $ | 1.0 | $ | 1.0 | — | — |
— |
||||||||||||||||||||
Total |
$ | 2.0 | — | $ | 1.0 | $ | 1.0 | — | — |
— |
ITEM
9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
(a) |
Management’s Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2005. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report below. |
(b) |
Attestation Report of the Independent Registered Public Accounting Firm. |
3. |
Changes in Internal Controls |
(a) |
1. Financial statements The following statements are included in this report on the pages indicated: |
Page (s) |
||||||
---|---|---|---|---|---|---|
Report of
Independent Registered Public Accounting Firm |
F-1 | |||||
Balance
Sheets |
F-2 | |||||
Statements of
Operations |
F-3 | |||||
Statements of
Stockholders’ Equity |
F-4 | |||||
Statements of
Cash Flows |
F-5 | |||||
Notes to
Financial Statements |
F-6–F-15 |
Dated: December 14,
2005By: |
/s/ Bruce J Barclay Bruce J Barclay Chief Executive Officer |
Signature |
Title |
Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
/s/ Bruce J
Barclay Bruce J Barclay |
President and Chief Executive Officer (principal executive officer) |
December
14, 2005 |
||||||||
/s/ Philip D.
Ankeny Philip D. Ankeny |
Chief Financial Officer (principal financial officer) and Vice President |
December
14, 2005 |
||||||||
/s/ Loren R.
Miller Loren R. Miller |
Vice
President and Controller (principal accounting officer) |
December
14, 2005 |
||||||||
/s/ Dale R.
Olseth Dale R. Olseth |
Executive Chairman, Director |
December
14, 2005 |
||||||||
/s/ Jose H.
Bedoya Jose H. Bedoya |
Director |
December
14, 2005 |
||||||||
/s/ John W.
Benson John W. Benson |
Director |
December
14, 2005 |
||||||||
/s/ Gerald B.
Fischer Gerald B. Fischer |
Director |
December
14, 2005 |
||||||||
/s/ Kenneth H.
Keller Kenneth H. Keller |
Director |
December
14, 2005 |
||||||||
/s/ David A.
Koch David A. Koch |
Director |
December
14, 2005 |
||||||||
/s/ Kendrick
B. Melrose Kendrick B. Melrose |
Director |
December
14, 2005 |
||||||||
/s/ John A.
Meslow John A. Meslow |
Director |
December
14, 2005 |
(thousands, except share data) |
2005 |
2004 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
||||||||||
Current
Assets |
||||||||||
Cash and cash
equivalents |
$ | 3,921 | $ | 2,709 | ||||||
Short-term
investments |
20,524 | 16,506 | ||||||||
Accounts
receivable, net of allowance for doubtful accounts of $40 as of September 30, 2005 and 2004 |
10,996 | 8,130 | ||||||||
Income taxes
receivable |
3,640 | — | ||||||||
Inventories |
1,091 | 1,040 | ||||||||
Deferred tax
asset |
353 | 379 | ||||||||
Prepaids and
other |
1,079 | 805 | ||||||||
Total current
assets |
41,604 | 29,569 | ||||||||
Property and
Equipment, net |
14,832 | 15,738 | ||||||||
Long-Term
Investments |
48,874 | 44,088 | ||||||||
Deferred Tax
Asset |
2,868 | 5,579 | ||||||||
Other Assets,
net |
16,047 | 14,613 | ||||||||
Total
Assets |
$ | 124,225 | $ | 109,587 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
||||||||||
Current
Liabilities |
||||||||||
Accounts
payable |
$ | 1,163 | $ | 683 | ||||||
Accrued
liabilities — |
||||||||||
Compensation |
1,629 | 894 | ||||||||
Accrued
income taxes payable |
— | 3,827 | ||||||||
Accrued
other |
1,917 | 5,857 | ||||||||
Deferred
revenue |
414 | 528 | ||||||||
Total current
liabilities |
5,123 | 11,789 | ||||||||
Deferred
Revenue, less current portion |
1,521 | 1,488 | ||||||||
Other Long-Term
Liabilities |
2,000 | 2,000 | ||||||||
Total
liabilities |
8,644 | 15,277 | ||||||||
Commitments and
Contingencies (Note 6) |
||||||||||
Stockholders’ Equity |
||||||||||
Series A
preferred stock — $.05 par value, 450,000 shares authorized, no shares issued and outstanding |
— | — | ||||||||
Common stock
— $.05 par value, 45,000,000 shares authorized 18,535,761 and 17,536,656 shares issued and outstanding |
927 | 877 | ||||||||
Additional
paid-in capital |
89,721 | 57,849 | ||||||||
Unearned
compensation |
(2,621 | ) | (632 | ) | ||||||
Accumulated
other comprehensive income (loss) |
(360 | ) | 56 | |||||||
Retained
earnings |
27,914 | 36,160 | ||||||||
Total
stockholders’ equity |
115,581 | 94,310 | ||||||||
Total
Liabilities and Stockholders’ Equity |
$ | 124,225 | $ | 109,587 |
(thousands, except net income per share) |
2005 |
2004 |
2003 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue |
||||||||||||||
Royalties and
license fees |
$ | 47,582 | $ | 34,836 | $ | 25,833 | ||||||||
Product
sales |
9,403 | 10,478 | 11,804 | |||||||||||
Research and
development |
5,396 | 4,424 | 5,595 | |||||||||||
Total
revenue |
62,381 | 49,738 | 43,232 | |||||||||||
Operating
Costs and Expenses |
||||||||||||||
Product |
2,855 | 3,035 | 2,649 | |||||||||||
Research and
development |
16,072 | 12,633 | 12,000 | |||||||||||
Sales and
marketing |
1,209 | 1,683 | 2,014 | |||||||||||
General and
administrative |
6,496 | 5,416 | 5,929 | |||||||||||
Asset
impairment charge |
2,487 | 16,497 | — | |||||||||||
Purchased
in-process research & development |
30,277 | — | — | |||||||||||
Total
operating costs and expenses |
59,396 | 39,264 | 22,592 | |||||||||||
Income from
Operations |
2,985 | 10,474 | 20,640 | |||||||||||
Other Income,
net |
||||||||||||||
Investment
income |
1,967 | 1,185 | 1,398 | |||||||||||
Other income
(loss) |
(602 | ) | (7 | ) | 461 | |||||||||
Other income,
net |
1,365 | 1,178 | 1,859 | |||||||||||
Income Before
Income Taxes |
4,350 | 11,652 | 22,499 | |||||||||||
Income Tax
Provision |
(12,596 | ) | (4,410 | ) | (8,563 | ) | ||||||||
Net income
(loss) |
($8,246 | ) | $ | 7,242 | $ | 13,936 | ||||||||
Basic net
income (loss) per share |
($0.45 | ) | $ | 0.41 | $ | 0.80 | ||||||||
Diluted net
income (loss) per share |
($0.45 | ) | $ | 0.41 | $ | 0.78 | ||||||||
Weighted
Average Shares Outstanding |
||||||||||||||
Basic |
18,131 | 17,501 | 17,363 | |||||||||||
Dilutive
effect of outstanding stock options |
— | 299 | 474 | |||||||||||
Diluted |
18,131 | 17,800 | 17,837 |
Common Stock |
||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in thousands) |
Shares |
Amount |
Additional Paid-In Capital |
Unearned Compensation |
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings |
Total Stockholders’ Equity |
|||||||||||||||||||||||
Balance,
September 30, 2002 |
17,272 | $ | 864 | $ | 53,936 | $ | (460 | ) | $ | 673 | $ | 14,982 | $ | 69,995 | ||||||||||||||||
Components of
comprehensive income, net of tax: |
||||||||||||||||||||||||||||||
Net
income |
— | — | — | — | — | 13,936 | 13,936 | |||||||||||||||||||||||
Unrealized
holding losses on available-for-sale securities arising during the period |
— | — | — | — | (51 | ) | — | (51 | ) | |||||||||||||||||||||
Less
reclassification for gains included in net income, net of tax |
— | — | — | — | (285 | ) | — | (285 | ) | |||||||||||||||||||||
Comprehensive
income |
13,600 | |||||||||||||||||||||||||||||
Issuance of
common stock |
17 | 1 | 404 | — | — | — | 405 | |||||||||||||||||||||||
Common stock
options exercised, net |
149 | 7 | 765 | — | — | — | 772 | |||||||||||||||||||||||
Tax benefit
from exercise of stock options |
— | — | 1,186 | — | — | — | 1,186 | |||||||||||||||||||||||
Restricted
stock activity |
1 | — | 162 | (162 | ) | — | — | — | ||||||||||||||||||||||
Amortization
of unearned compensation |
— | — | — | 156 | — | — | 156 | |||||||||||||||||||||||
Balance,
September 30, 2003 |
17,439 | 872 | 56,453 | (466 | ) | 337 | 28,918 | 86,114 | ||||||||||||||||||||||
Components of
comprehensive income, net of tax: |
||||||||||||||||||||||||||||||
Net
income |
— | — | — | — | — | 7,242 | 7,242 | |||||||||||||||||||||||
Unrealized
holding losses on available-for-sale securities arising during the period |
— | — | — | — | (164 | ) | — | (164 | ) | |||||||||||||||||||||
Less
reclassification for gains included in net income, net of tax |
— | — | — | — | (117 | ) | — | (117 | ) | |||||||||||||||||||||
Comprehensive
income |
6,961 | |||||||||||||||||||||||||||||
Issuance of
common stock |
19 | 1 | 344 | — | — | — | 345 | |||||||||||||||||||||||
Common stock
options exercised, net |
63 | 3 | 350 | — | — | — | 353 | |||||||||||||||||||||||
Tax benefit
from exercise of stock options |
— | — | 325 | — | — | — | 325 | |||||||||||||||||||||||
Restricted
stock activity |
16 | 1 | 377 | (378 | ) | — | — | — | ||||||||||||||||||||||
Amortization
of unearned compensation |
— | — | — | 212 | — | — | 212 | |||||||||||||||||||||||
Balance,
September 30, 2004 |
17,537 | 877 | 57,849 | (632 | ) | 56 | 36,160 | 94,310 | ||||||||||||||||||||||
Components of
comprehensive loss, net of tax: |
||||||||||||||||||||||||||||||
Net
loss |
— | — | — | — | — | (8,246 | ) | (8,246 | ) | |||||||||||||||||||||
Unrealized
holding losses on available-for-sale securities arising during the period |
— | — | — | — | (481 | ) | — | (481 | ) | |||||||||||||||||||||
Less
reclassification for losses included in net income, net of tax |
— | — | — | — | 65 | — | 65 | |||||||||||||||||||||||
Comprehensive
loss |
— | — | — | — | — | — | (8,662 | ) | ||||||||||||||||||||||
Issuance of
common stock |
682 | 34 | 25,731 | — | — | — | 25,765 | |||||||||||||||||||||||
Common stock
options exercised, net |
244 | 12 | 2,310 | — | — | — | 2,322 | |||||||||||||||||||||||
Tax benefit
from exercise of stock options |
— | — | 1,258 | — | — | — | 1,258 | |||||||||||||||||||||||
Restricted
stock activity |
73 | 4 | 2,573 | (2,577 | ) | — | — | — | ||||||||||||||||||||||
Amortization
of unearned compensation |
— | — | — | 588 | — | — | 588 | |||||||||||||||||||||||
Balance,
September 30, 2005 |
18,536 | $ | 927 | $ | 89,721 | ($2,621 | ) | ($360 | ) | $ | 27,914 | $ | 115,581 |
For the Years Ended September 30 (in
thousands) |
2005 |
2004 |
2003 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating
Activities |
||||||||||||||
Net income
(loss) |
($8,246 | ) | $ | 7,242 | $ | 13,936 | ||||||||
Adjustments
to reconcile net income (loss) to net cash provided by operating activities — |
||||||||||||||
Depreciation
and amortization |
3,733 | 3,125 | 2,583 | |||||||||||
Loss (gain)
on InnoRx equity method and sales of investments |
602 | 7 | (461 | ) | ||||||||||
Asset
impairment charge |
2,487 | 16,497 | — | |||||||||||
Noncash
compensation |
588 | 212 | 156 | |||||||||||
Purchased
in-process research & development |
30,277 | — | — | |||||||||||
Deferred
tax |
5,143 | (5,640 | ) | 839 | ||||||||||
Tax benefit
from exercise of stock options |
1,258 | 325 | 1,186 | |||||||||||
Loss (gain)
on disposals of property and equipment |
(65 | ) | 22 | 1 | ||||||||||
Change in
operating assets and liabilities: |
||||||||||||||
Accounts
receivable |
(2,866 | ) | 1,015 | (3,639 | ) | |||||||||
Inventories |
(51 | ) | (177 | ) | (117 | ) | ||||||||
Accounts
payable and accrued liabilities |
912 | (966 | ) | 447 | ||||||||||
Income
taxes |
(7,467 | ) | 2,269 | 2,043 | ||||||||||
Deferred
revenue |
(81 | ) | (663 | ) | 202 | |||||||||
Prepaids and
other |
(274 | ) | (78 | ) | (124 | ) | ||||||||
Net cash
provided by operating activities |
25,950 | 23,190 | 17,052 | |||||||||||
Investing
Activities |
||||||||||||||
Purchases of
property and equipment |
(2,109 | ) | (5,474 | ) | (15,454 | ) | ||||||||
Purchases of
available-for-sale investments |
(98,716 | ) | (45,976 | ) | (42,896 | ) | ||||||||
Sales/maturities of available-for-sale investments |
88,955 | 27,092 | 35,885 | |||||||||||
Purchase of
equity in OctoPlus, Novocell and other |
(5,133 | ) | (302 | ) | (925 | ) | ||||||||
Purchase of
licenses |
(5,238 | ) | (64 | ) | (10 | ) | ||||||||
Investment in
and acquisition costs for InnoRx |
(5,181 | ) | (2,331 | ) | — | |||||||||
Repayment of
notes receivable |
— | 1,869 | (30 | ) | ||||||||||
Net cash used
in investing activities |
(27,422 | ) | (25,186 | ) | (23,430 | ) | ||||||||
Financing
Activities |
||||||||||||||
Issuance of
common stock |
2,684 | 698 | 1,178 | |||||||||||
Net cash
provided by financing activities |
2,684 | 698 | 1,178 | |||||||||||
Net increase
(decrease) in cash and cash equivalents |
1,212 | (1,298 | ) | (5,200 | ) | |||||||||
Cash and Cash
Equivalents |
||||||||||||||
Beginning of
year |
2,709 | 4,007 | 9,207 | |||||||||||
End of
year |
$ | 3,921 | $ | 2,709 | $ | 4,007 | ||||||||
Supplemental
Information |
||||||||||||||
Cash paid for
taxes |
$ | 13,780 | $ | 7,265 | $ | 4,327 | ||||||||
Noncash
transaction-purchase Abbott Laboratories sublicense |
— | $ | 7,020 | — | ||||||||||
Noncash
transaction-acquisition of property, plant, and equipment on account |
$ | 1,268 | $ | 248 | $ | 4,298 |
2005 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Original Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
||||||||||||||||
U.S.
government obligations |
$ | 32,392 | $ | 36 | ($256 | ) | $ | 32,172 | |||||||||||
Mortgage-backed securities |
15,782 | 37 | (157 | ) | 15,662 | ||||||||||||||
Asset-backed
securities |
10,744 | 3 | (81 | ) | 10,666 | ||||||||||||||
Municipal
bonds |
10,127 | 1 | (154 | ) | 9,974 | ||||||||||||||
Corporate
bonds |
927 | 1 | (4 | ) | 924 | ||||||||||||||
Total |
$ | 69,972 | $ | 78 | ($652 | ) | $ | 69,398 |
2004 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Original Cost |
Unrealized Gains |
Unrealized Losses |
Fair Value |
||||||||||||||||
Mortgage-backed securities |
$ | 28,035 | $ | 82 | ($ 56 | ) | $ | 28,061 | |||||||||||
U.S.
government obligations |
15,172 | 95 | (64 | ) | 15,203 | ||||||||||||||
Asset-backed
securities |
6,015 | 6 | (16 | ) | 6,005 | ||||||||||||||
Municipal
bonds |
9,949 | 57 | (31 | ) | 9,975 | ||||||||||||||
Corporate
bonds |
1,350 | — | — | 1,350 | |||||||||||||||
Total |
$ | 60,521 | $ | 240 | ($167 | ) | $ | 60,594 |
Original Cost |
Fair Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Debt securities
due within: |
||||||||||
One
year |
$ | 20,504 | $ | 20,524 | ||||||
One to five
years |
33,765 | 33,260 | ||||||||
Five years or
more |
15,703 | 15,614 | ||||||||
Total |
$ | 69,972 | $ | 69,398 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Proceeds from
sales |
$88,955 |
$27,092 |
$35,885 |
|||||||||||
Gross realized
gains |
$17 |
$187 |
$506 |
|||||||||||
Gross realized
losses |
($119) |
$0 |
($45) |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Raw
materials |
$ | 512 | $ | 634 | ||||||
Finished
products |
579 | 406 | ||||||||
Total |
$ | 1,091 | $ | 1,040 |
2005 |
2004 |
Useful life (in years) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Laboratory
fixtures and equipment |
$ | 9,550 | $ | 9,954 | 3 to 5 | |||||||||
Building and
improvements |
7,306 | 7,411 | 5 to 30 | |||||||||||
Building
subject to sale agreement |
6,650 | 8,955 | 5 to 30 | |||||||||||
Office
furniture and equipment |
2,718 | 3,152 | 3 to 5 | |||||||||||
Construction-in-progress |
2,456 | 127 | ||||||||||||
Less
accumulated depreciation and amortization |
(13,848 | ) | (13,861 | ) | ||||||||||
Property and
equipment, net |
$ | 14,832 | $ | 15,738 |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Abbott
license |
$ | 7,037 | $ | 7,020 | ||||||
Investment in
Novocell |
5,210 | 5,210 | ||||||||
Investment in
InnoRx |
— | 1,968 | ||||||||
Investment in
OctoPlus |
3,935 | — | ||||||||
Investment in
ThermopeutiX |
1,000 | — | ||||||||
Patents and
other |
732 | 599 | ||||||||
Less accumulated
amortization |
(1,867 | ) | (184 | ) | ||||||
Other assets,
net |
$ | 16,047 | $ | 14,613 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income
(loss) |
||||||||||||||
As
reported |
($8,246 | ) | $ | 7,242 | $ | 13,936 | ||||||||
Fair value
compensation expense, net of tax |
(2,746 | ) | (1,742 | ) | (1,574 | ) | ||||||||
Pro
forma |
($10,992 | ) | $ | 5,500 | $ | 12,362 | ||||||||
Basic net
income (loss) per share: |
||||||||||||||
As
reported |
($0.45 | ) | $ | 0.41 | $ | 0.80 | ||||||||
Fair value
compensation expense, net of tax |
(0.16 | ) | (0.10 | ) | (0.09 | ) | ||||||||
Pro
forma |
($0.61 | ) | $ | 0.31 | $ | 0.71 | ||||||||
Diluted net
income (loss) per share: |
||||||||||||||
As
reported |
($0.45 | ) | $ | 0.41 | $ | 0.78 | ||||||||
Fair value
compensation expense, net of tax |
(0.16 | ) | (0.10 | ) | (0.09 | ) | ||||||||
Pro
forma |
($0.61 | ) | $ | 0.31 | $ | 0.69 |
Outstanding
at September 30, 2002 |
55,000 | |||||
Granted |
5,000 | |||||
Canceled |
(4,000 | ) | ||||
Vested |
(8,000 | ) | ||||
Outstanding
at September 30, 2003 |
48,000 | |||||
Granted |
20,000 | |||||
Canceled |
(4,000 | ) | ||||
Vested |
(22,500 | ) | ||||
Outstanding
at September 30, 2004 |
41,500 | |||||
Granted |
73,500 | |||||
Canceled |
— | |||||
Vested |
(7,000 | ) | ||||
Outstanding
at September 30, 2005 |
108,000 |
Exercise Price Range |
Shares Outstanding at September 30, 2005 |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
Shares Exercisable at September 30, 2005 |
Weighted Average Exercise Price |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
$2.50–$ 8.44 | 151,575 | $ | 7.00 | 1.68 | 151,575 | $ | 7.00 | |||||||||||||||
$10.25–$21.82 | 311,240 | 21.19 | 5.69 | 81,400 | 20.26 | |||||||||||||||||
$22.46–$25.09 | 117,000 | 24.95 | 2.58 | 103,368 | 25.07 | |||||||||||||||||
$27.00–$29.89 | 669,950 | 29.38 | 6.03 | 60,020 | 29.32 | |||||||||||||||||
$30.13–$53.00 | 280,170 | 37.24 | 5.42 | 72,260 | 36.02 | |||||||||||||||||
1,529,935 | $ | 26.60 | 5.16 | 468,623 | $ | 20.62 |
2005 |
2004 |
2003 |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
Shares |
Weighted Average Exercise Price |
|||||||||||||||||||||
Outstanding,
beginning of year |
1,147,563 | $ | 20.12 | 982,965 | $ | 19.57 | 964,215 | $ | 14.86 | ||||||||||||||||||
Granted |
698,100 | 31.38 | 352,700 | 21.54 | 241,100 | 30.01 | |||||||||||||||||||||
Exercised |
(244,418 | ) | 9.58 | (62,052 | ) | 5.69 | (155,418 | ) | 6.30 | ||||||||||||||||||
Canceled |
(71,310 | ) | 27.54 | (126,050 | ) | 26.90 | (66,932 | ) | 20.26 | ||||||||||||||||||
Outstanding,
end of year |
1,529,935 | $ | 26.60 | 1,147,563 | $ | 20.12 | 982,965 | $ | 19.57 | ||||||||||||||||||
Exercisable,
end of year |
468,623 | $ | 20.62 | 568,367 | $ | 14.52 | 505,025 | $ | 11.61 | ||||||||||||||||||
Weighted
average fair value of options granted |
$ | 20.26 | $ | 14.57 | $ | 20.69 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current
provision: |
||||||||||||||
Federal |
$ | 7,059 | $ | 8,697 | $ | 6,524 | ||||||||
State and
foreign |
371 | 1,179 | 1,032 | |||||||||||
Total current
provision |
7,430 | 9,876 | 7,556 | |||||||||||
Deferred
provision (benefit): |
||||||||||||||
Federal |
4,592 | (4,827 | ) | 981 | ||||||||||
State |
574 | (639 | ) | 26 | ||||||||||
Total
deferred provision (benefit) |
5,166 | (5,466 | ) | 1,007 | ||||||||||
Total
provision |
$ | 12,596 | $ | 4,410 | $ | 8,563 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount at
statutory federal income tax rate |
$ | 1,513 | $ | 4,146 | $ | 7,870 | ||||||||
Change due
to: |
||||||||||||||
State
taxes |
496 | 351 | 676 | |||||||||||
Other |
(10 | ) | (87 | ) | 17 | |||||||||
Write-off of
in-process R&D |
10,597 | — | — | |||||||||||
Income tax
provision |
$ | 12,596 | $ | 4,410 | $ | 8,563 |
2005 |
2004 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Depreciable
assets |
$ | 1,584 | $ | 4,851 | ||||||
Deferred
revenue |
611 | 625 | ||||||||
Accruals and
reserves |
362 | 379 | ||||||||
Restricted stock
amortization |
273 | 149 | ||||||||
Equity
items |
(33 | ) | (33 | ) | ||||||
Other |
— | (13 | ) | |||||||
Net operating
loss |
424 | — | ||||||||
Total
deferred tax asset |
3,221 | 5,958 | ||||||||
Current deferred
tax asset |
353 | 379 | ||||||||
Noncurrent
deferred tax asset |
$ | 2,868 | $ | 5,579 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating
segment: |
||||||||||||||
Drug
Delivery |
$ | 29,678 | $ | 25,690 | $ | 20,168 | ||||||||
Hydrophilic
and Other |
19,065 | 15,527 | 12,380 | |||||||||||
Diagnostics |
13,638 | 8,521 | 10,684 | |||||||||||
Total
Revenue |
$ | 62,381 | $ | 49,738 | $ | 43,232 |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cordis
Corporation |
46 | % | 52 | % | 48 | % | ||||||||
Abbott
Laboratories |
14 | % | 8 | % | 10 | % | ||||||||
GE Healthcare
(formerly Amersham plc) |
6 | % | 7 | % | 13 | % |
2005 |
2004 |
2003 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Domestic |
85 | % | 79 | % | 66 | % | ||||||||
Foreign |
15 | % | 21 | % | 34 | % |
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal
Year 2005 |
||||||||||||||||||
Revenue |
$ | 14,069 | $ | 15,705 | $ | 16,518 | $ | 16,090 | ||||||||||
Income (loss)
from operations |
8,638 | (21,148 | ) | 9,148 | 6,346 | |||||||||||||
Net income
(loss) |
5,682 | (24,371 | ) | 6,095 | 4,793 | |||||||||||||
Net income
(loss) per share: |
||||||||||||||||||
Basic |
0.32 | (1.34 | ) | 0.33 | 0.26 | |||||||||||||
Diluted |
0.32 | (1.34 | ) | 0.32 | 0.25 | |||||||||||||
Fiscal
Year 2004 |
||||||||||||||||||
Revenue |
$ | 12,087 | $ | 12,738 | $ | 11,444 | $ | 13,469 | ||||||||||
Income (loss)
from operations |
6,287 | 6,678 | (10,787 | ) | 8,295 | |||||||||||||
Net income
(loss) |
4,111 | 4,305 | (6,551 | ) | 5,378 | |||||||||||||
Net income
(loss) per share: |
||||||||||||||||||
Basic |
0.24 | 0.25 | (0.37 | ) | 0.31 | |||||||||||||
Diluted |
0.23 | 0.24 | (0.37 | ) | 0.30 | |||||||||||||
Fiscal
Year 2003 |
||||||||||||||||||
Revenue |
$ | 8,048 | $ | 9,742 | $ | 12,819 | $ | 12,623 | ||||||||||
Income from
operations |
2,856 | 3,992 | 6,958 | 6,834 | ||||||||||||||
Net
income |
2,171 | 2,750 | 4,572 | 4,443 | ||||||||||||||
Net income
per share: |
||||||||||||||||||
Basic |
0.13 | 0.16 | 0.26 | 0.25 | ||||||||||||||
Diluted |
0.12 | 0.15 | 0.26 | 0.25 |
Exhibit |
||||||
---|---|---|---|---|---|---|
2.1 |
Agreement of Merger, dated January 18, 2005, with InnoRx, Inc. — incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K dated January 18, 2005, SEC File No. 0-23837. |
|||||
3.1 |
Restated Articles of Incorporation, as amended — incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form
10-QSB for the quarter ended December 31, 1999, SEC File No. 0-23837. |
|||||
3.2 |
Bylaws, as amended to date — incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1998, SEC File No. 0-23837. |
|||||
4.1 |
Rights Agreement, dated as of April 5, 1999, between the Company and Firstar Bank Milwaukee, NA., as Rights Agent, including as: Exhibit A
Statement of Designation of Series A Preferred Stock of the Company; Exhibit B Summary of Rights to Purchase Shares of Series A Preferred Stock; and
Exhibit C Form of Right Certificate — incorporated by reference to Exhibit 1 to the Company’s Registration of Securities on Form 8-A, SEC
File No. 0-23837. |
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10.1* |
Company’s Incentive 1987 Stock Option Plan, including specimen of Incentive Stock Option Agreement — incorporated by reference to
Exhibit 10.2 to the Company’s Registration Statement on form SB-2, Reg. No. 333-43217. |
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10.2* |
Company’s Incentive 1997 Stock Option Plan, including specimen of Incentive Stock Option Agreement — incorporated by reference to
Exhibit 10.3 to the Company’s Registration Statement on form SB-2, Reg. No. 333-43217. |
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10.3* |
Form
of Restricted Stock Agreement under 1997 Plan — incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on form
SB-2, Reg. No. 333-43217. |
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10.4* |
Form
of Non-qualified Stock Option Agreement under 1997 Plan — incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement
on form SB-2, Reg. No. 333-43217. |
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10.5 |
Form
of License Agreement — incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on form SB-2, Reg. No.
333-43217. |
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10.6* |
SurModics, Inc. Executive Income Continuation Plan — incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1999, SEC File No. 0-23837. |
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10.7 |
Adjusted License Agreement by and between the Company and Cordis Corporation effective as of January 1, 2003 — incorporated by reference
to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002, SEC File No. 0-23837. |
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10.8 |
Reagent Supply Agreement by and between the Company and Cordis Corporation effective as of January 1, 2003 — incorporated by reference to
Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002, SEC File No. 0-23837. |
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10.9* |
Form
of officer acceptance regarding employment/compensation.** |
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10.10* |
The
Company’s 2003 Equity Incentive Plan, including forms of incentive stock option, non-qualified stock option and restricted stock
agreements.** |
Exhibit |
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---|---|---|---|---|---|---|
10.11* |
Amendment (adopted November 15, 2005 by the board of directors and approved January 31, 2005, by shareholders) to the Company’s 2003
Equity Incentive Plan — incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2005, SEC File No. 0-23837. |
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10.12* |
The
Company’s 2005 Bonus Plan — incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2004, SEC File No. 0-23837. |
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10.13* |
The
Company’s Board Compensation Policy effective January 31, 2005, as modified November 14, 2005.** |
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10.14* |
Summary of Compensation Arrangements for Named Executive Officers of the Company.** |
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10.15* |
The
Company’s 2006 Bonus Plan — Executive Officers** |
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23.1. |
Consent of Deloitte & Touche LLP.** |
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24 |
Power of Attorney (included on signature page of this Form 10-K).** |
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31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.** |
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31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.** |
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32.1 |
Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.** |
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32.2 |
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.** |
* |
Management contract or compensatory plan or arrangement |
** |
Filed herewith |
Start
Date: |
A
mutually agreeable start date to be determined upon acceptance of this offer. |
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Division/Department: |
||||||
Title: |
||||||
Supervisor or
Manager: |
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Compensation: |
$ per month, paid semi-monthly on the 15th and last day of the
month. In addition, you will be eligible to participate in our Incentive
Compensation program. We will guarantee a first year deferred payment or bonus equal to % of
salary. |
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Stock Sign-on
Bonus: |
You
will receive shares of SurModics restricted stock. |
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Cash Sign-on
Bonus: |
You
will receive a one-time $ sign-on bonus, less applicable taxes, to be
paid within the first days of the start of your employment. If your employment terminates voluntarily
within years of your start date, you will be expected to repay %
of the sign-on bonus. |
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Stock
Options: |
Subject to SurModics Board of Directors approval and our Stock Plan, you will be granted a stock option for the purchase of
shares of SurModics’ stock having SurModics’ standard vesting schedule of 20% each
year for 5 years. As a corporate officer of SurModics, you are required to report any stock transactions to the U.S. Securities and Exchange Commission
according to SurModics policy and applicable law. |
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Restricted
Stock: |
Subject to SurModics Board of Directors approval and our Stock Plan, you will be granted
shares of restricted stock wherein the restrictions lapse on 20% of the each year for 5
years. |
Performance
Share Plan: |
Subject to SurModics Board of Directors approval and our Stock Plan, while an employee in good standing at SurModics, you will be entitled to
receive at total of at least shares of SurModics stock payable to you in amounts and upon
successful completion of milestones as agreed following commencement of your employment with SurModics. A minimum total of
shares per year will be based upon annual performance versus annual objectives, with the
balance of shares being weighted towards the achievement of the commercialization of products. |
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Severance: |
Should SurModics terminate your employment without cause at any time, you will be entitled to months of base salary. Any
such severance payment shall be your exclusive remedy for any such termination by SurModics. |
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Board
Memberships: |
You
will be permitted to remain on the Board of Directors of
, should you choose, absent a conflict and so long as
the time commitment required is reasonable based upon your obligations as an employee of SurModics. Any other corporate Boards you may wish to join
will be subject to prior approval of SurModics, which approval will not be unreasonably withheld. |
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Relocation: |
SurModics will provide up to a maximum of $ for your
relocation expenses. The relocation allowance covers moving costs, expenses incurred in selling your home and the purchase of a new home, travel
expenses, gross-up of taxes and miscellaneous costs associated with relocation. The relocation reimbursement will be made at a time mutually agreeable
to you and the Company. If, for any reason, your relocation expenses exceed the maximum allowance, we will authorize additional reimbursements on a
case-by-case basis. |
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Status: |
Exempt |
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Benefits: |
You
will be eligible for all benefits presently provided by SurModics, in accordance with eligibility and Company policy. Company policy is subject to
change at the discretion of management, and as such there could be changes in the benefit policies at some future date. A list of employee benefit
costs is enclosed. |
1. |
Invention and Non-Disclosure Agreement |
2. |
Employment Eligibility Verification (I-9) |
Vesting Date |
Cumulative Percentage of Shares |
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---|---|---|---|---|---|---|
Vesting Date |
Cumulative Percentage of Shares |
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---|---|---|---|---|---|---|
Vesting Date |
Cumulative Percentage of Shares |
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---|---|---|---|---|---|---|
Named Executive Officer |
|
Base Salary |
||||
---|---|---|---|---|---|---|
Dale R. Olseth1 |
$ | 175,000 | ||||
Bruce J Barclay2 |
$ | 325,000 | ||||
Philip D. Ankeny |
$ | 193,209 | ||||
Steven J. Keough |
$ | 207,504 | ||||
David S. Wood |
$ | 214,200 | ||||
Lise W. Duran |
$ | 139,920 |
B. |
Business Unit or Department objectives |
CEO |
FY 2006 Revenue |
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Level I |
|
Level II |
|
Level III |
|||||||||||||
FY |
Level I |
12 | % | 16 | % | 24 | % | ||||||||||||
2006 |
Level II |
16 | % | 28 | % | 32 | % | ||||||||||||
EPS |
Level III |
24 | % | 32 | % | 40 | % |
Senior Staff |
FY 2006 Revenue |
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(excluding CEO) |
Level I |
|
Level II |
|
Level III |
|
|||||||||||||
FY |
Level I |
9 | % | 12 | % | 18 | % | ||||||||||||
2006 |
Level II |
12 | % | 21 | % | 24 | % | ||||||||||||
EPS |
Level III |
18 | % | 24 | % | 30 | % |
IV. |
No bonus payout unless both Revenue and EPS meet at least Level I corporate objective, whether or not Business Unit or Department objectives are met. |
V. |
Composition of Total Bonus Payout |
Example: |
If corporate Level II revenue and Level III EPS are met, then Senior Staff member gets 24% corporate bonus. If all Business Unit/Department goals are also met for such Senior Staff member, then that person gets an additional 8% bonus, for a total bonus payout of 32% (75% corporate, 25% Business Unit) |
1. |
I have reviewed this report on Form 10-K of SurModics, Inc.; |
2 |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
1. |
I have reviewed this report on Form 10-K of SurModics, Inc.; |
2 |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |