SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 19, 2006

SurModics, Inc.

(Exact name of Registrant as Specified in its Charter)

Minnesota
(State or Other Jurisdiction of Incorporation)

0-23837 (Commission File Number)		41-1356149 (IRS Employer Identification No.)

9924 West 74^th Street
Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices and Zip Code)

(952) 829-2700
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

		o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
		o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
		o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
		o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02 Results of Operations and Financial Condition.

     On July 19, 2006, SurModics, Inc. issued a press release announcing the results for the quarter and nine months ended June 30, 2006. The copy of the full text of the press release is furnished as Exhibit 99.1 to this report.

Item 9.01 Financial Statements and Exhibits.

     (a) Financial Statements: None.

     (b) Pro forma financial information: None

     (c) Exhibits: 99.1 Press Release dated July 19, 2006.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

EXHIBIT INDEX
to
FORM 8-K

SURMODICS, INC.

Date of Report:		Commission File No.:
July 19, 2006		0-23837

Exhibit No.		ITEM
99.1		Press Release dated July 19, 2006.

Exhibit 99.1

SurModics Reports Third Quarter 2006 Results

EDEN PRAIRIE, Minnesota — July 19, 2006 — SurModics, Inc. (Nasdaq: SRDX), a leading provider of surface modification and drug delivery technologies to the healthcare industry, today reported financial results for the third fiscal quarter ended June 30, 2006.

Third Quarter Highlights:

•		Record revenue of $18.1 million, up 10% year-over-year
•		Record revenue in all three operating segments
•		Record non-Cordis revenue
•		GAAP results:

	•		Record operating income of $9.5 million
	•		Record net income of $6.4 million
	•		Record diluted EPS of $0.34

•

Non-GAAP results (excluding non-cash equity compensation expense):

	•		Record operating income of $11.1 million (61% operating margin)
	•		Record net income of $7.4 million
	•		Record diluted EPS of $0.39

•

Five new licenses signed with SurModics customers, representing four of SurModics’ six business units

•

Six new product classes launched by our customers

•

8th consecutive quarter of record non-GAAP net income

•

9th consecutive quarter with non-Cordis revenue exceeding Cordis revenue

“SurModics is pleased to report strong financial and operating results for the third quarter of fiscal year 2006, achieving record revenue and earnings,” said Bruce Barclay, President and CEO. “We delivered broad-based revenue growth, setting new records in each of our three operating segments — Drug Delivery, Hydrophilic and Other, and Diagnostics and Drug Discovery. In addition to strong CYPHER sales, we also delivered record non-Cordis revenue in the quarter.”

“Our exceptional team of SurModics employees once again attained several significant operating milestones during the quarter,” continued Barclay. “Working in concert with the

Donaldson Company, we completed a significant agreement with Corning Life Sciences to market and distribute jointly developed synthetic extracellular matrix cell culture products. Our ophthalmology division signed its first license agreement, granting Bausch & Lomb access to our Genistein technology. Moreover, we announced additional customers using our hydrophilic coating technology on their DES delivery systems. In addition, we signed an agreement to jointly develop a drug-eluting prostatic stent with AbbeyMoor Medical.”

Revenue in the Hydrophilic and Other segment achieved the highest year-over-year growth rate of the company’s three operating segments. “We are pleased with the results we have achieved,” commented Barclay. “Our strong competitive position in the hydrophilic marketplace has allowed us to build a broad and growing base of customers currently using our advanced lubricity coating technologies to enhance their medical devices. Further, the trend toward minimally invasive procedures has increased demand for hydrophilic coatings in the marketplace, favorably positioning us for sustained success.”

Revenue for the third quarter of fiscal 2006 was $18.1 million, an increase of 10% from $16.5 million in the year earlier period. On a GAAP basis, operating income was a record $9.5 million; net income was a record $6.4 million; and diluted earnings per share was a record $0.34. Results include expensing of stock options, as required by SFAS No. 123(R).

On a non-GAAP basis, operating income grew 19% to a record $11.1 million, from $9.3 million in the prior-year period. The operating margin for the quarter was 61%. Net income increased 20% to a record $7.4 million, from $6.2 million in the same period last year. Diluted earnings per share was a record $0.39, an 18% increase from $0.33 in the third quarter of fiscal 2005. Non-GAAP results exclude non-cash compensation charges. Please see our financial tables and the footnotes for a detailed explanation and reconciliation of GAAP and non-GAAP figures.

For the first nine months of fiscal year 2006, revenue was a record $52.3 million, an increase of 13% from $46.3 million in the year earlier period. On a GAAP basis, operating income was $27.0 million; net income was $14.0 million; and diluted earnings

per share was $0.75; these figures were all records. On a non-GAAP basis, operating income grew 15% to a record $31.4 million, from $27.3 million in the prior-year period. Net income increased 21% to a record $21.2 million, from $17.5 million in the same period last year. Diluted earnings per share was a record $1.12, an 18% increase compared with $0.95 for the first nine months of fiscal 2005. Non-GAAP results exclude non-cash compensation charges, the non-cash IPR&D charge in connection with the Company’s acquisition of InnoRx, Inc. in January 2005, and a non-cash impairment loss on our investment in Novocell. Please see our financial tables and the footnotes for a detailed explanation and reconciliation of GAAP and non-GAAP figures.

SurModics continues to expand its portfolio of pipeline projects. The company signed five new licenses in the third quarter, for a total of 16 to date in fiscal year 2006, already exceeding its goal of 15 for the fiscal year. As further evidence of the broad-based strength of our business, we signed licenses in four of our six business units. Additionally, during the quarter our customers launched 6 new product classes containing SurModics’ technologies. The company has 158 potential commercial products in development, up from 118 in the prior year period, representing each of the company’s four focus markets — Cardiovascular, Neurology, Ophthalmology and Orthopedics, with potential for both near-term and longer-term revenue growth.

“SurModics remains in excellent financial condition,” said Phil Ankeny, Senior Vice President and Chief Financial Officer. “Our balance sheet remains strong, with a cash and investment balance of $96.7 million and no debt as of June 30, 2006. Operating cash flow for the third quarter was $8.9 million. We continue to evaluate opportunities to put our strong balance sheet to work.”

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 webcast icon. A replay of the third quarter conference call will be available by dialing 800-405-2236 and entering conference call ID 11064452. The audio replay will be available beginning at 6:00 p.m. CT on Wednesday, July 19, until 6:00 p.m. CT on Wednesday, July 26.

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. Recent collaborative efforts include the implementation of SurModics’ Bravo™ drug delivery polymer matrix as a key component of the first-to-market drug-eluting coronary stent. SurModics is also active in the ophthalmology market with a sustained drug delivery system that is currently in human trials for treatment of retinal disease. A significant portion of SurModics’ revenue is generated by royalties earned from the sale of our customers’ commercial products. SurModics is headquartered in Eden Prairie, MN. 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.

Contact

Phil Ankeny, Senior Vice President and Chief Financial Officer
(952) 829-2700

(Unaudited)

		Three Months Ended
		June 30, 2006
		GAAP (1)				Adjustments				Non-GAAP (2)
Revenue:
Royalties and license fees		$	13,948							$	13,948
Product sales			2,659								2,659
Research & development			1,532								1,532
Total revenue			18,139								18,139
Operating expenses:
Product			891				(29	)			862
Research & development			5,281				(714	)			4,567
Sales & marketing			348				(55	)			293
General & administrative			2,156				(808	)			1,348
Total operating expenses			8,676				(1,606	)			7,070
Income from operations			9,463				1,606				11,069
Investment income			1,102								1,102
Income before income taxes			10,565				1,606				12,171
Income tax provision			(4,207	)			(532	)			(4,739	)
Net income		$	6,358							$	7,432
Basic net income per share		$	0.34							$	0.40
Diluted net income per share		$	0.34							$	0.39
Weighted average shares outstanding
Basic			18,570								18,570
Diluted			18,725								19,013

		Three Months Ended
		June 30, 2005
		GAAP (1)				Adjustments				Non-GAAP (2)
Revenue:
Royalties and license fees		$	12,694							$	12,694
Product sales			2,663								2,663
Research & development			1,161								1,161
Total revenue			16,518								16,518
Operating expenses:
Product			743								743
Research & development			4,494								4,494
Sales & marketing			341								341
General & administrative			1,792				(161	)			1,631
Total operating expenses			7,370				(161	)			7,209
Income from operations			9,148				(161	)			9,309
Investment income			469								469
Income before income taxes			9,617								9,778
Income tax provision			(3,522	)			(59	)			(3,581	)
Net income		$	6,095							$	6,197
Basic net income per share		$	.33							$	0.34
Diluted net income per share		$	.32							$	0.33
Weighted average shares outstanding
Basic			18,322								18,322
Diluted			18,928								18,928

		Nine Months Ended
		June 30, 2006
		GAAP (1)				Adjustments								Non-GAAP (2)
Revenue:
Royalties and license fees		$	39,514											$	39,514
Product sales			7,913												7,913
Research & development			4,884												4,884
Total revenue			52,311												52,311
Operating expenses:
Product			2,441				(80	)  (3)							2,361
Research & development			14,935				(1,938	)  (3)							12,997
Sales & marketing			1,052				(133	)  (3)							919
General & administrative			6,887				(2,207	)  (3)							4,680
Total operating expenses			25,315				(4,358	)							20,957
Income from operations			26,996				4,358								31,354
Investment income			2,782												2,782
Impairment loss on investment			(4,651	)			4,651	(4)							-
Income before income taxes			25,127				9,009								34,136
Income tax provision			(11,087	)			(1,860	)  (5)							(12,947	)
Net income		$	14,040											$	21,189
Basic net income per share		$	0.76											$	1.15
Diluted net income per share		$	0.75											$	1.12
Weighted average shares outstanding
Basic			18,494												18,494
Diluted			18,681												18,940

		Nine Months Ended
		June 30, 2005
		GAAP (1)				Adjustments				Non-GAAP (2)
Revenue:
Royalties and license fees		$	35,052							$	35,052
Product sales			6,984								6,984
Research & development			4,255								4,255
Total revenue			46,291								46,291
Operating expenses:
Product			2,092								2,092
Research & development			11,739								11,739
Sales & marketing			909								909
General & administrative			4,635				(405	)  (3)			4,230
Purchased in-process R&D			30,277				(30,277	)  (4)			-
Total operating expenses			49,652				(30,682	)			18,970
Income (loss) from operations			(3,361	)			30,682				27,321
Investment income			756								756
Income (loss) before income taxes			(2,605	)			30,682				28,077
Income tax provision			(10,433	)			(153	)			(10,586	)
Net income (loss)			($13,038	)						$	17,491
Basic net income (loss) per share			($.72	)						$	0.97
Diluted net income (loss) per share			($.72	)						$	0.95
Weighted average shares outstanding
Basic			18,008								18,008
Diluted			18,008								18,461

SurModics, Inc.
Condensed Balance Sheets
(In thousands)

		June 30,				September 30,
		2006				2005
		(Unaudited)
Assets
Current assets:
Cash & investments		$	50,596			$	24,445
Accounts receivable			11,863				10,996
Inventories			1,115				1,091
Other current assets			2,079				5,072
Total current assets			65,653				41,604
Property & equipment, net			11,776				14,832
Long-term investments			46,095				48,874
Other assets			20,877				18,915
Total assets		$	144,401			$	124,225
Liabilities & Stockholders’ Equity
Total current liabilities		$	5,613			$	5,123
Other liabilities			2,582				3,521
Total stockholders’ equity			136,206				115,581
Total liabilities & stockholders’ equity		$	144,401			$	124,225

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

Management believes the presentation of these non-GAAP financial results, in connection with the results of the fiscal quarter ended June 30, 2006, provide 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 period under report, including when comparing against prior periods. 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.

# # #