e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-23837
SurModics, Inc.
(Exact name of registrant as specified in its Charter)
|
|
|
MINNESOTA
|
|
41-1356149 |
(State of incorporation)
|
|
(I.R.S. Employer Identification No.) |
9924 West 74th Street
Eden Prairie, Minnesota 55344
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (952) 829-2700
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2).
Yes o No þ
The number of shares of the registrants common stock, $.05 par value per share, outstanding as of
July 31, 2008 was 18,073,323.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SurModics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
(In thousands, except share and per share data) |
|
2008 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,658 |
|
|
$ |
13,812 |
|
Short-term investments |
|
|
10,612 |
|
|
|
12,496 |
|
Accounts receivable, net of allowance for doubtful
accounts of $40 as of June 30, 2008 and September
30, 2007 |
|
|
24,736 |
|
|
|
16,138 |
|
Inventories |
|
|
2,973 |
|
|
|
2,497 |
|
Deferred tax asset |
|
|
1,127 |
|
|
|
1,116 |
|
Income taxes receivable |
|
|
509 |
|
|
|
|
|
Prepaids and other |
|
|
1,290 |
|
|
|
1,836 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
54,905 |
|
|
|
47,895 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
34,461 |
|
|
|
19,738 |
|
Restricted cash |
|
|
1,640 |
|
|
|
|
|
Long-term investments |
|
|
45,748 |
|
|
|
43,917 |
|
Deferred tax asset |
|
|
12,820 |
|
|
|
5,908 |
|
Intangible assets, net |
|
|
16,402 |
|
|
|
18,399 |
|
Goodwill |
|
|
18,053 |
|
|
|
15,686 |
|
Other assets |
|
|
11,224 |
|
|
|
19,788 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
195,253 |
|
|
$ |
171,331 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,330 |
|
|
$ |
2,541 |
|
Accrued liabilities |
|
|
4,650 |
|
|
|
4,187 |
|
Accrued income taxes payable |
|
|
|
|
|
|
6,227 |
|
Deferred revenue |
|
|
6,025 |
|
|
|
5,586 |
|
Other current liabilities |
|
|
278 |
|
|
|
1,311 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
13,283 |
|
|
|
19,852 |
|
Deferred revenue, less current portion |
|
|
33,251 |
|
|
|
20,305 |
|
Other long-term liabilities |
|
|
3,281 |
|
|
|
252 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
49,815 |
|
|
|
40,409 |
|
|
|
|
|
|
|
|
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; 18,197,179 and 18,164,980 shares issued
and outstanding |
|
|
910 |
|
|
|
909 |
|
Additional paid-in capital |
|
|
78,853 |
|
|
|
76,670 |
|
Accumulated other comprehensive (loss) income |
|
|
(1,577 |
) |
|
|
1,723 |
|
Retained earnings |
|
|
67,252 |
|
|
|
51,620 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
145,438 |
|
|
|
130,922 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
195,253 |
|
|
$ |
171,331 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
3
SurModics, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands, except per share data) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties and license fees |
|
$ |
13,587 |
|
|
$ |
13,416 |
|
|
$ |
40,574 |
|
|
$ |
39,664 |
|
Product sales |
|
|
4,447 |
|
|
|
2,947 |
|
|
|
14,354 |
|
|
|
9,054 |
|
Research and development |
|
|
6,242 |
|
|
|
1,399 |
|
|
|
18,884 |
|
|
|
3,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
24,276 |
|
|
|
17,762 |
|
|
|
73,812 |
|
|
|
51,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs |
|
|
1,773 |
|
|
|
1,217 |
|
|
|
5,902 |
|
|
|
3,396 |
|
Research and development |
|
|
10,511 |
|
|
|
6,200 |
|
|
|
30,415 |
|
|
|
17,124 |
|
Selling, general and administrative |
|
|
4,808 |
|
|
|
2,827 |
|
|
|
15,559 |
|
|
|
7,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
17,092 |
|
|
|
10,244 |
|
|
|
51,876 |
|
|
|
28,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
7,184 |
|
|
|
7,518 |
|
|
|
21,936 |
|
|
|
23,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
677 |
|
|
|
1,211 |
|
|
|
2,681 |
|
|
|
3,731 |
|
Other income (loss) |
|
|
(51 |
) |
|
|
(10 |
) |
|
|
849 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
626 |
|
|
|
1,201 |
|
|
|
3,530 |
|
|
|
3,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7,810 |
|
|
|
8,719 |
|
|
|
25,466 |
|
|
|
27,414 |
|
Income tax provision |
|
|
(3,010 |
) |
|
|
(3,132 |
) |
|
|
(9,913 |
) |
|
|
(10,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,800 |
|
|
$ |
5,587 |
|
|
$ |
15,553 |
|
|
$ |
17,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.27 |
|
|
$ |
0.31 |
|
|
$ |
0.86 |
|
|
$ |
0.95 |
|
Diluted net income per share |
|
$ |
0.26 |
|
|
$ |
0.31 |
|
|
$ |
0.85 |
|
|
$ |
0.95 |
|
Weighted average shares outstanding |
|
Basic |
|
|
18,073 |
|
|
|
17,815 |
|
|
|
18,058 |
|
|
|
18,116 |
|
Dilutive effect of outstanding stock options |
|
|
249 |
|
|
|
153 |
|
|
|
315 |
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
18,322 |
|
|
|
17,968 |
|
|
|
18,373 |
|
|
|
18,249 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
4
SurModics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
June 30, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,553 |
|
|
$ |
17,253 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,501 |
|
|
|
2,923 |
|
(Gain) loss on equity method investments and sales of investments |
|
|
(807 |
) |
|
|
29 |
|
Amortization of premium (discount) on investments |
|
|
36 |
|
|
|
(1,354 |
) |
Stock-based compensation |
|
|
7,181 |
|
|
|
5,035 |
|
Deferred taxes |
|
|
(4,339 |
) |
|
|
(106 |
) |
Excess tax benefits from exercise of stock options |
|
|
(936 |
) |
|
|
|
|
Loss on disposals of property and equipment |
|
|
65 |
|
|
|
370 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(8,598 |
) |
|
|
4,033 |
|
Inventories |
|
|
(476 |
) |
|
|
(307 |
) |
Accounts payable and accrued liabilities |
|
|
(369 |
) |
|
|
(701 |
) |
Income taxes |
|
|
(3,945 |
) |
|
|
(2,393 |
) |
Deferred revenue |
|
|
13,151 |
|
|
|
(683 |
) |
Prepaids and other |
|
|
1,583 |
|
|
|
(502 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
22,600 |
|
|
|
23,597 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(16,849 |
) |
|
|
(2,018 |
) |
Purchases of available-for-sale investments |
|
|
(13,601 |
) |
|
|
(131,971 |
) |
Sales/maturities of available-for-sale investments |
|
|
21,459 |
|
|
|
146,208 |
|
Purchases of held-to-maturity investments |
|
|
(6,485 |
) |
|
|
|
|
Business acquisitions |
|
|
(2,996 |
) |
|
|
|
|
Purchase of licenses and patents |
|
|
(1,225 |
) |
|
|
(1,224 |
) |
Investment in other strategic assets |
|
|
(2,513 |
) |
|
|
(2,147 |
) |
Collection of notes receivable |
|
|
5,870 |
|
|
|
395 |
|
Cash restricted for land purchase |
|
|
(1,640 |
) |
|
|
|
|
Other investing activities |
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(18,209 |
) |
|
|
9,243 |
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Excess tax benefits from exercise of stock options |
|
|
936 |
|
|
|
|
|
Issuance of common stock |
|
|
2,955 |
|
|
|
2,399 |
|
Repurchase of common stock |
|
|
(6,717 |
) |
|
|
(35,030 |
) |
Purchase of common stock to fund employee taxes |
|
|
(1,495 |
) |
|
|
|
|
Repayment of notes payable |
|
|
(224 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(4,545 |
) |
|
|
(32,631 |
) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents: |
|
|
(154 |
) |
|
|
209 |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
13,812 |
|
|
|
3,751 |
|
|
|
|
|
|
|
|
End of period |
|
$ |
13,658 |
|
|
$ |
3,960 |
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
18,093 |
|
|
$ |
12,606 |
|
Noncash transaction acquisition of property, plant, and equipment on account |
|
$ |
469 |
|
|
$ |
330 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
5
SurModics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Period Ended June 30, 2008
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of
America and reflect all adjustments, consisting solely of normal recurring adjustments, needed to
fairly present the financial results for the periods presented. These financial statements include
some amounts that are based on managements best estimates and judgments. These estimates may be
adjusted as more information becomes available, and any adjustment could be significant. The impact
of any change in estimates is included in the determination of earnings in the period in which the
change in estimate is identified. The results of operations for the three-month and nine-month
periods ended June 30, 2008 are not necessarily indicative of the results that may be expected for
the entire 2008 fiscal year.
In July 2007, the Company acquired Brookwood Pharmaceuticals, Inc. (Brookwood), from
Southern Research Institute, for $40 million in cash at closing and up to an additional $22 million
in cash upon the successful achievement of specified milestones. In the second quarter of fiscal
2008, a milestone was achieved and $2 million of additional purchase price was recorded as an
increase to goodwill with payment of the liability made in the third quarter. Brookwood specializes
in proprietary injectable microparticles and implants to provide sustained delivery of drugs being
developed by leading pharmaceutical, biotechnology and medical device clients. This acquisition is
helping the Company broaden its technology offerings to customers, diversifying the range of
markets in which the Company participates, expanding the Companys customer base, and enhancing the
pipeline of potential revenue generating opportunities.
In August 2007, the Company acquired BioFX Laboratories, Inc. (BioFX), a leading provider of
substrates to the in vitro diagnostics industry, for $11.3 million in cash at closing and up to an
additional $11.4 million in cash upon the successful achievement of specified revenue targets. In
the first quarter of fiscal 2008, a milestone was achieved and $1.1 million of additional purchase
price was recorded as an increase to goodwill with payment of the liability made in the third
quarter. BioFX is a leading manufacturer of substrates, a critical component of diagnostic test
kits used to detect and signal that a certain chemical reaction has taken place. The acquisition of
BioFX is broadening the Companys product portfolio in the in vitro diagnostics market.
The operating results for the Brookwood and BioFX businesses are included in the consolidated
results of operations from the dates of acquisition.
In accordance with the rules and regulations of the United States Securities and Exchange
Commission, the Company has omitted footnote disclosures that would substantially duplicate the
disclosures contained in the audited consolidated financial statements of the Company. These
unaudited condensed consolidated financial statements should be read together with the audited
consolidated financial statements for the year ended September 30, 2007, and footnotes thereto
included in the Companys Form 10-K as filed with the United States Securities and Exchange
Commission on December 14, 2007.
(2) New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157). This
statement establishes a framework for measuring fair value and requires enhanced disclosures about
fair value measurements. SFAS No. 157 applies to fair value measurements required by existing
accounting pronouncements and does not require any new fair value measurements. SFAS No. 157 is
effective for the Company in fiscal 2009. FASB Staff Position No. FAS 157-2 provides a deferral of
SFAS No. 157 provisions for non-financial assets and liabilities until fiscal 2010. The Company has
not determined the impact, if any, the adoption of this statement will have on its consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many
financial assets and financial liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected will be reported in earnings. SFAS No. 159 is
effective for
6
the Company in fiscal 2009. The Company is currently evaluating the impact of SFAS No. 159 on
its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)),
which establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and measurement of goodwill
acquired in a business combination. SFAS No. 141(R) is effective for the Company in fiscal 2010.
Earlier adoption is prohibited and once adopted SFAS No. 141(R) will impact recognition and
measurement of future business combinations.
No other
new accounting pronouncement issued or effective has had, or is
expected to have, a material impact on the Companys
consolidated financial statements.
(3) Inventories
Inventories are principally stated at the lower of cost or market using the specific
identification method and include direct labor, materials and overhead. Inventories consisted of
the following components (in thousands) :
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Raw materials |
|
$ |
1,363 |
|
|
$ |
1,241 |
|
Finished products |
|
|
1,610 |
|
|
|
1,256 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,973 |
|
|
$ |
2,497 |
|
|
|
|
|
|
|
|
(4) Restricted Cash
The Company has entered into an agreement to purchase an undeveloped parcel of land, as
described in Note 12. To secure the performance of its obligations under the purchase agreement,
the Company delivered a standby letter of credit in the amount of $1.6 million. This letter of
credit is fully collateralized by restricted cash that the Company deposited with the issuing
institution.
(5) Other Assets
Other assets consist principally of strategic investments. The Company accounts for its
strategic investments under the cost method, except for its investments in Paragon Intellectual
Properties, LLC (Paragon), Paragons subsidiary, Apollo Therapeutics, LLC, and Brookwoods
investment in Aeon Biosience, Inc. (included in the Other category in the table below), which are
accounted for under the equity method. In addition, the investment in OctoPlus is accounted for as
an available-for-sale investment, which is reported at fair value with unrealized gains and losses
reported as a separate component of stockholders equity. Other assets consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2008 |
|
|
2007 |
|
Investment in OctoPlus |
|
$ |
3,421 |
|
|
$ |
8,762 |
|
Long-term portion of note receivable |
|
|
|
|
|
|
5,158 |
|
Investment in Paragon and subsidiary |
|
|
5,626 |
|
|
|
3,632 |
|
Investment in ThermopeutiX |
|
|
1,185 |
|
|
|
1,185 |
|
Investment in Novocell |
|
|
559 |
|
|
|
559 |
|
Other |
|
|
433 |
|
|
|
492 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
11,224 |
|
|
$ |
19,788 |
|
|
|
|
|
|
|
|
The Company recognized revenue of $510,000 and $210,000 for the three-month periods ended June
30, 2008 and 2007, respectively, and recognized revenue of $3.0 million and $335,000 for the
nine-month periods ended June 30, 2008 and 2007, respectively, from activity with companies in
which it had a strategic investment.
In September 2005, the Company entered into an agreement to sell a contract manufacturing
facility and 27 acres of land located in Bloomington, Minnesota. The terms of the sale agreement
included a $100,000 cash down payment and a note receivable of $6.9 million, which was
collateralized by the property. The terms of the note called for monthly installment payments of
principal and interest at 6% with the remaining amount due and payable in September 2010. On January 14,
2008, the outstanding balance (including principal and accrued interest) of $5.8 million was repaid
to the Company in its entirety.
7
(6) Intangible Assets
Intangible assets consist principally of acquired patents and technology, customer
relationships, licenses, and trademarks. The Company recorded amortization expense related to
intangible assets of $742,000, and $443,000 for the three months ended June 30, 2008 and 2007,
respectively. The Company recorded amortization expense related to intangible assets of $2,223,000,
and $1,337,000 for the nine months ended June 30, 2008 and 2007, respectively.
In September 2004, the Company made a commitment to purchase for $7.0 million certain
additional sublicense rights and the accompanying future royalty revenue streams under certain
sublicenses through an amendment to the Companys diagnostic format patent license with Abbott
Laboratories. Prior to such amendment, the Company was receiving only a portion of the royalties
under such sublicenses. The first $5.0 million installment was paid in fiscal 2005, and an
additional $1.0 million installment was paid in fiscal 2007. The remaining $1.0 million installment
was paid in the third quarter of fiscal 2008.
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life |
|
|
June 30, |
|
|
September 30, |
|
|
|
(in years) |
|
|
2008 |
|
|
2007 |
|
Customer lists |
|
|
9-11 |
|
|
$ |
7,340 |
|
|
$ |
7,340 |
|
Abbott license |
|
|
4 |
|
|
|
7,037 |
|
|
|
7,037 |
|
Core technology |
|
|
8-18 |
|
|
|
6,930 |
|
|
|
6,933 |
|
Patents and other |
|
|
7-20 |
|
|
|
2,217 |
|
|
|
1,988 |
|
Trademarks |
|
|
|
|
|
|
580 |
|
|
|
580 |
|
Less accumulated amortization of intangible assets |
|
|
|
|
|
|
(7,702 |
) |
|
|
(5,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
$ |
16,402 |
|
|
$ |
18,399 |
|
|
|
|
|
|
|
|
|
|
|
|
Based on the intangible assets in service as of June 30, 2008, estimated amortization expense
for each of the next five years ending June 30 is as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
2,134 |
|
2010 |
|
|
1,299 |
|
2011 |
|
|
1,299 |
|
2012 |
|
|
1,299 |
|
2013 |
|
|
1,299 |
|
(7) Stock-based Compensation
The Companys stock-based compensation expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Product costs |
|
$ |
44 |
|
|
$ |
27 |
|
|
$ |
131 |
|
|
$ |
79 |
|
Research and development |
|
|
867 |
|
|
|
1,322 |
|
|
|
2,743 |
|
|
|
2,729 |
|
Selling, general and administrative |
|
|
919 |
|
|
|
816 |
|
|
|
4,307 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,830 |
|
|
$ |
2,165 |
|
|
$ |
7,181 |
|
|
$ |
5,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, approximately $16.7 million of total unrecognized compensation costs
related to non-vested awards is expected to be recognized over a weighted average period of
approximately 2.1 years.
8
Stock Option Plans
The Company accounts for stock-based compensation in accordance with SFAS No. 123(R), Share
Based Payment (SFAS 123(R)), which requires all share-based payments, including grants of stock
options, to be recognized in the income statement as an operating expense, based on their fair
values, over the requisite service period.
The Company uses the Black-Scholes option pricing model to determine the weighted average fair
value of options. The weighted average per-share fair values of options granted during the
three-month periods ended June 30, 2008 and 2007 were $13.72 and $16.41, respectively. The weighted
average per-share fair values of options granted during the nine-month periods ended June 30, 2008
and 2007 were $18.46 and $16.55, respectively. The assumptions used as inputs in the model were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Risk-free interest rates |
|
|
2.9 |
% |
|
|
4.6 |
% |
|
|
3.2 |
% |
|
|
4.6 |
% |
Expected life (years) |
|
|
4.1 |
|
|
|
5.0 |
|
|
|
5.1 |
|
|
|
5.7 |
|
Expected volatility |
|
|
33.9 |
% |
|
|
40.9 |
% |
|
|
39.7 |
% |
|
|
48.7 |
% |
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
The risk-free interest rate assumption was based on yields for U.S. Treasury bonds with
maturities similar to those of the expected term of the award. The expected life of options granted
is determined based on the Companys experience. Expected volatility is based on the Companys
stock price movement over a period approximating the expected term. Based on managements judgment,
dividend rates are expected to be zero for the expected life of the options. The Company also
estimates forfeitures of options granted, which is based on historical experience.
The Companys Incentive Stock Options (ISO) are granted at an exercise price of at least
100% of the fair market value of the common stock of the Company (Common Stock) on the date of
the grant or 110% with respect to optionees who own more than 10% of the total combined voting
power of all classes of stock. ISOs expire in seven years or upon termination of employment and
are exercisable at a rate of 20% per year commencing one year after the date of grant. Nonqualified
stock options (NQSO) are granted at fair market value on the date of grant. NQSOs expire in 7 to
10 years or upon termination of employment or service as a Board member. Board member options are
20% immediately vested with the remainder exercisable at rates of 20% per year commencing one year
after date of grant. Employee options are exercisable at rates of 20% per year from the date of
grant, or ranging from 20% to 33% per year commencing one year after the date of grant depending on
the particular award granted.
Restricted Stock Awards
The Company has entered into restricted stock agreements with certain key employees, covering
the issuance of Common Stock (Restricted Stock). Under SFAS No.123(R), these shares are
considered to be non-vested shares. The Restricted Stock will be released to the key employees if
they are employed by the Company at the end of the vesting period. The stock-based compensation
table above includes Restricted Stock expenses of $474,000 and $1,680,000 for the three-month and
nine-month periods ended June 30, 2008, respectively, and $292,000 and $848,000 for the three-month
and nine-month periods ended June 30, 2007, respectively.
Performance Share Awards
The Company has entered into performance share agreements with certain key employees, covering
the issuance of Common Stock (Performance Shares). The Performance Shares vest upon the
achievement of certain performance objectives, which must be achieved during the performance
period. Compensation is recognized in each period based on managements best estimate of the
achievement level of the grants specified performance objectives and the resulting vesting
amounts. For the three-month and nine-month periods ended June 30, 2008, the Company recognized
$867,000 and $1,175,000 and associated with the fair value of performance share awards vested or
expected to vest, respectively. For the three-month and nine-month periods ended June 30, 2007, the
Company recognized $667,000 and $805,000 of stock-based compensation expense related to these
awards, respectively. The stock-based compensation table above includes the Performance Share
expenses.
9
1999 Employee Stock Purchase Plan
Under the 1999 Employee Stock Purchase Plan (Stock Purchase Plan), the Company is authorized
to issue up to 200,000 shares of common stock. All full-time and part-time employees can choose to
have up to 10% of their annual compensation withheld to purchase the Companys common stock at
purchase prices that are 85% of the average closing price as defined in the Stock Purchase Plan. As
of June 30, 2008 and 2007, there were $211,000 and $184,000 of employee contributions,
respectively, included in accrued liabilities in the accompanying condensed consolidated balance
sheets. Stock compensation expense recognized related to the Stock Purchase Plan for three-month
periods ended June 30, 2008 and 2007 totaled $58,000 and $38,000, respectively. Stock compensation
expense recognized related to the Stock Purchase Plan for the nine-month periods ended June 30,
2008 and 2007 totaled $141,000 and $118,000, respectively. The stock-based compensation table above
includes the Stock Purchase Plan expenses.
(8) Comprehensive Income
The components of comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
4,800 |
|
|
$ |
5,587 |
|
|
$ |
15,553 |
|
|
$ |
17,253 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on available-for-sale securities
arising during the period, net of tax |
|
|
(1,575 |
) |
|
|
(173 |
) |
|
|
(2,457 |
) |
|
|
2,668 |
|
Adjustment for realized (gains) losses included in net income, net of tax |
|
|
(39 |
) |
|
|
6 |
|
|
|
(843 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,186 |
|
|
$ |
5,420 |
|
|
$ |
12,253 |
|
|
$ |
19,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48) Accounting for
Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109, on October 1, 2007. Upon
adoption of FIN 48, the Company recorded a net $79,000 benefit related to taxes, which was recorded
as an increase to the October 1, 2007 beginning retained earnings balance. As of the adoption date,
the Company has gross unrecognized tax benefits of $1.1 million and if recognized, this total
amount would impact the effective tax rate. At adoption, the Company classified $160,000 of the
gross unrecognized tax benefits as a current liability, reflecting the amount the Company expects
to pay during the next twelve months in connection with certain amended tax returns filed by the
Company. As of June 30, 2008 the current liability has been reduced to zero. The remaining
liability for unrecognized tax benefits has been classified as non-current, as no payments are
expected to be made in the next twelve months. The Company does not anticipate any other
significant increases or decreases in unrecognized tax benefits within twelve months of adoption of
FIN 48. Interest and penalties related to unrecognized tax benefits are recorded in income tax
expense. As of October 1, 2007, a gross balance of $445,000 of interest and penalties had been
accrued related to the unrecognized tax benefits balance. There have been no material changes to
this amount as of June 30, 2008.
The Company files tax returns, including returns for its subsidiaries, in the United States
federal jurisdiction and in various state jurisdictions. Uncertain tax positions are related to tax
years that remain subject to examination. As of the date of the adoption, U.S. tax returns for
fiscal years ended September 30, 2005, 2006, and 2007 remained subject to examination by federal
tax authorities. Tax returns for state and local jurisdictions for fiscal years ended September 30,
2003 through 2007 remain subject to examination by state and local tax authorities.
(10) Operating Segments
Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing performance.
10
SurModics manages its business on the basis of the operating segments noted in the table
below, which are comprised of the Companys seven business units. The three operating segments are
aggregated into one reportable segment. The Drug Delivery operating segment consists of three
business units: (1) the Drug Delivery business unit, which is responsible for technologies
dedicated to site specific delivery of drugs; (2) the Ophthalmology business unit, which is
dedicated to the advancement of treatments for eye diseases, such as age-related macular
degeneration (AMD) and diabetic macular edema (DME), two of the leading causes of blindness; and
(3) the Brookwood Pharmaceuticals business unit, which provides proprietary polymer-based
technologies to companies developing improved pharmaceutical products. The Hydrophilic and Other
operating segment consists of three business units: (1) the Hydrophilic Technologies business unit,
which focuses on enhancing medical devices with advanced lubricious coatings that facilitate their
placement and maneuverability in the body; (2) the Regenerative Technologies business unit, which
is 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 or prohealing coatings); and (3) the
Orthopedics business unit, which is committed to innovative solutions for orthopedics patients
using proven SurModics technologies, and creating new technology solutions to existing patient care
gaps in the orthopedics field. The In Vitro operating segment consists of the In Vitro
Technologies (formerly Diagnostics and Drug Discovery) business unit, which includes the Companys
genomics slide technologies, stabilization products, antigens and substrates for immunoassay
diagnostics tests, its in vitro diagnostic format technology and its synthetic ECM cell culture
products.
Each operating segment has similar economic characteristics, technology, manufacturing
processes, customers, regulatory environments, and shared infrastructures. The Company manages its
expenses on a company-wide basis, as many costs and activities are shared among the business units.
The focus of the business units is providing solutions to customers and maximizing financial
performance over the long term. The accounting policies for segment reporting are the same as for
the Company as a whole. The table below presents revenue from the three operating segments for the
three-month and nine-month periods in fiscal 2008 and 2007, respectively (in thousands ):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Operating segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Delivery |
|
$ |
10,674 |
|
|
$ |
5,772 |
|
|
$ |
33,397 |
|
|
$ |
18,607 |
|
Hydrophilic and Other |
|
|
7,899 |
|
|
|
6,897 |
|
|
|
23,714 |
|
|
|
18,720 |
|
In Vitro |
|
|
5,703 |
|
|
|
5,093 |
|
|
|
16,701 |
|
|
|
14,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
24,276 |
|
|
$ |
17,762 |
|
|
$ |
73,812 |
|
|
$ |
51,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11) Share Repurchases
In November 2007, the Companys Board of Directors authorized the repurchase of $35.0 million
of the Companys common stock in open-market transactions, private transactions, tender offers, or
other transactions. The repurchase authorization does not have a fixed expiration date. During the
three months ended June 30, 2008, the Company repurchased 93,300 shares for $4.1 million at an
average price of $44.09 per share. During the nine months ended June 30, 2008, the Company
repurchased 157,500 shares for $6.7 million at an average price of $42.63 per share under this
plan. As of June 30, 2008, $28.3 million remains authorized and available for future purchases
under the repurchase program. The Company repurchased a total of 1,007,752 shares for $35 million
at an average price of $34.76 per share under a September 2006 authorized program in the nine
months ended June 30, 2007.
(12) Commitments and Contingencies
Litigation. From time to time, the Company may become involved in various legal actions
involving its business, products and technologies, including intellectual property and employment
disputes. The outcomes of these legal actions are not within the Companys complete control and may
not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as
other relief, including injunctions barring the sale of products that are the subject of the
lawsuit, which, if granted, could require significant expenditures or result in lost revenues. In
accordance with SFAS No. 5, Accounting for Contingencies, the Company records a liability in the
consolidated financial statements for these actions when a loss is known or considered probable and
the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a
range, and no amount within the range is a better estimate, the minimum amount of the range is
accrued. If a loss is possible but not known or probable, and can be
11
reasonably estimated, the estimated loss or range of loss is disclosed. In most cases,
significant judgment is required to estimate the amount and timing of a loss to be recorded.
Land Purchase Commitment. In August 2007, the Company entered into an agreement to purchase an
undeveloped parcel of land in Eden Prairie, Minnesota for approximately $3.6 million (including a
non-refundable deposit of $100,000 paid to the seller at the time the purchase agreement was
signed). The agreement requires that the Company complete the purchase on or before August 24, 2008
(the Closing Date). While it is the Companys current expectation to complete the purchase on or
before the Closing Date, the Company will be required to pay the seller $1.6 million if it fails to
do so and will have no further rights to acquire the land. This $1.6 million commitment is secured
by a standby letter of credit as discussed in Note 4.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
SurModics is a leading provider of surface modification and drug delivery technologies to the
healthcare industry. The Company is organized into three operating segments composed of seven
technology-centered and industry-focused business units. The Drug Delivery operating segment
consists of three business units: (1) the Drug Delivery business unit, which is responsible for
technologies dedicated to site-specific delivery of drugs; (2) the Ophthalmology business unit,
which is dedicated to the advancement of treatments for eye diseases, such as age-related macular
degeneration (AMD) and diabetic macular edema (DME), two of the leading causes of blindness; and
(3) the Brookwood Pharmaceuticals business unit, which provides proprietary polymer-based
technologies to companies developing improved pharmaceutical products. The Hydrophilic and Other
operating segment consists of three business units: (1) the Hydrophilic Technologies business unit,
which focuses on enhancing medical devices with advanced lubricious coatings that facilitate their
placement and maneuverability in the body; (2) the Regenerative Technologies business unit, which
is 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 or prohealing coatings); and (3) the
Orthopedics business unit, which is committed to innovative solutions for orthopedics patients
using proven SurModics technologies, and creating new technology solutions to existing patient care
gaps in the orthopedics field. The In Vitro operating segment consists of the In Vitro
Technologies (formerly Diagnostics and Drug Discovery) business unit, which includes our genomics
slide technologies, our stabilization products, antigens and substrates for immunoassay diagnostic
tests, our in vitro diagnostic format technology and our synthetic ECM cell culture products.
Revenue in each of our operating segments is derived from three primary sources: (1) royalties
and license fees from licensing our patented surface modification and drug delivery technologies
and in vitro diagnostic formats to customers; the vast majority (typically in excess of 90%) of
revenue in the royalties and license fees category is in the form of royalties; (2) the sale of
reagent chemicals to licensees of our technologies, stabilization products, antigens and substrates
to the diagnostics industry and coated glass slides to the genomics market; and (3) research and
development fees generated on customer projects. Revenue should be expected to fluctuate from
quarter to quarter depending on, among other factors: our customers success in selling products
incorporating our technologies; the timing of introductions of coated products by customers; the
timing of introductions of products that compete with our customers products; the number and
activity level associated with customer development projects; the number and terms of new license
agreements that are finalized; the value of reagent chemicals and other products sold to customers;
and the timing of future acquisitions we complete, if any.
In June 2007, we signed a collaborative research and license agreement with Merck (the Merck
Agreement) to pursue the joint development and commercialization of the I-vation sustained drug
delivery system with triamcinolone acetonide and other products that combine Merck proprietary drug
compounds with the I-vation system for the treatment of serious retinal diseases. Under the terms
of our agreement with Merck, we received an up-front license fee of $20 million and may receive up
to an additional $288 million in fees and development milestones associated with the successful
product development and attainment of appropriate U.S. and EU regulatory approvals for these new
combination products. We will also be paid for our activities in researching and developing these
combination products. Additionally, under the terms of our agreement with Merck, we will be
responsible for the exclusive manufacture and supply of clinical and commercial products. Once
products licensed under the agreement are commercialized, we will also receive royalties on sales
of such products.
12
Under Emerging Issues Task Force Issue No. 00-21 (EITF 00-21) Revenue Arrangements with
Multiple Deliverables, we are amortizing the $20 million license fee we received upon signing the
agreement in June 2007, over the economic life of the technology we licensed to Merck, or 16 years.
This accounting treatment, and the resulting amortization, also applies to currently earned and
future license fees and milestone payments. We have earned through the nine-month period ended June
30, 2008 milestone payments of $11 million that have been deferred and are being amortized over the
remaining economic life of the licensed technology. The commercial R&D fees that we are paid by
Merck have totaled $5.6 million through the nine-month period ended June 30, 2008, and are also
deferred and amortized over the same economic life. However, all of the costs of the R&D work we
perform for Merck are expensed in the period performed. In addition, we recognize billings to Merck
for reimbursed out-of-pocket expenses in the period incurred; accordingly such amounts are not
deferred. As of June 30, 2008, the deferred revenue balance related to the Merck Agreement was
$34.6 million with a substantial increase of approximately $9.8 million since March 31, 2008, as a
significant milestone was achieved in the third quarter.
In July 2007, we acquired Brookwood Pharmaceuticals, Inc. (Brookwood), from Southern
Research Institute, for $40 million in cash at closing and up to an additional $22 million in cash
upon the successful achievement of specified milestones. In the second quarter of fiscal 2008, a
milestone was achieved and $2 million of additional purchase price was recorded as an increase to
goodwill. Brookwood specializes in proprietary injectable microparticles and implants to provide
sustained delivery of drugs being developed by leading pharmaceutical, biotechnology and medical
device clients as well as emerging companies. This acquisition is expected to help us broaden our
technology offerings to our customers, diversify the range of markets in which we participate,
expand our customer base, and enhance our pipeline of potential revenue generating opportunities.
In August 2007, we acquired BioFX Laboratories, Inc. (BioFX), a provider of substrates to
the in vitro diagnostics industry, for $11.3 million in cash at closing and up to an additional
$11.4 million in cash upon the successful achievement of specified revenue targets. In the first
quarter of fiscal 2008, a milestone was achieved and $1.1 million of additional purchase price was
recorded as an increase to goodwill. BioFX is a leading manufacturer of substrates, a critical
component of diagnostic test kits used to detect and signal that a certain reaction has taken
place. We expect our acquisition of BioFX to broaden our product portfolio in the in vitro
diagnostics market.
The operating results for the Brookwood and BioFX businesses are included in the consolidated
results of operations from the dates of acquisition.
For financial accounting and reporting purposes, we treat our three operating segments as one
reportable segment. We made this determination because a significant percentage of our employees
provide support services (including research and development) to each operating segment; technology
and products from each operating segment are marketed to the same or similar customers; each
operating segment uses the same sales and marketing resources; and each operating segment operates
in the same regulatory environment.
Critical Accounting Policies
Critical accounting policies are those policies that require the application of managements
most challenging subjective or complex judgment, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in subsequent periods.
Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to
result in materially different results under different assumptions and conditions. For a detailed
description of our critical accounting policies, see the notes to the financial statements included
in our Annual Report on Form 10-K for the year ended September 30, 2007.
13
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2008 |
|
|
2007 |
|
|
$ Increase |
|
|
% Increase |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Delivery |
|
$ |
10,674 |
|
|
$ |
5,772 |
|
|
$ |
4,902 |
|
|
85% |
|
Hydrophilic and Other |
|
|
7,899 |
|
|
|
6,897 |
|
|
|
1,002 |
|
|
15% |
|
In Vitro |
|
|
5,703 |
|
|
|
5,093 |
|
|
|
610 |
|
|
12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
24,276 |
|
|
$ |
17,762 |
|
|
$ |
6,514 |
|
|
37% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Third quarter revenue was $24.3 million, an increase of $6.5 million or 37%, compared
with the third quarter of fiscal 2007. Revenue included $4.7 million from the acquisition of
Brookwood and $1.1 million from the acquisition of BioFX, which were completed in the fourth
quarter of fiscal 2007. All three operating segments generated revenue growth, as detailed in the
table above and further explained in the narrative below.
Drug Delivery. Revenue in the Drug Delivery segment was $10.7 million in the third quarter of
fiscal 2008, an 85% increase compared with $5.8 million in the prior-year period. The increase in
total revenue reflects a significant increase in research and development revenue from drug
delivery and ophthalmology customers. Our Brookwood business unit generated $4.7 million of revenue
in the third quarter, whereas prior period results do not include any revenue from Brookwood.
Excluding the contribution from Brookwood, Drug Delivery revenue increased 5% compared with the
prior-year period.
Drug Delivery derives a substantial amount of revenue from royalties and license fees and
product sales attributable to Cordis Corporation, a Johnson & Johnson company, on its CYPHER®
Sirolimus-eluting coronary stent. The CYPHER® stent incorporates a proprietary SurModics polymer
coating that delivers a therapeutic drug designed to reduce the occurrence of restenosis in the
coronary arteries.
Drug Delivery royalties and license fees increased 8%, as increased royalties and license fees
from ophthalmology and drug delivery customers (other than Cordis) offset a 12% decrease in royalty
revenue from Cordis as a result of lower CYPHER® sales.
The CYPHER® stent, from which we derive a substantial amount of our Drug Delivery
revenue, faces continuing competition from Boston Scientific Corporations Taxus®
drug-eluting stent and Medtronics Endeavor® drug-eluting stent, which are sold
domestically and internationally, and stents from Abbott Vascular and others sold outside the U.S.
In addition, a drug-eluting stent from Abbott, and a similar stent from Boston Scientific
Corporation, received approval in the U.S. in July 2008. These stents compete or will compete
directly with the CYPHER® stent. The Company also receives a royalty on the Medtronic
Endeavor® drug-eluting stent, but the associated royalty revenue is reflected in the
Hydrophilic and Other segment. In addition to competition among the various players, the total size
of the drug-eluting stent market has decreased significantly in the past two years as a result of
concerns about product safety, mostly related to potential clotting associated with stents.
Therefore, future royalty and reagent sales revenue could decrease due to lower CYPHER®
stent sales as a result of the overall market contraction and the ongoing and expected future
competition. We anticipate that quarterly royalty revenue from the CYPHER® stent may be
volatile throughout fiscal 2008 and beyond as the various marketers of drug-eluting stents continue
competing in the marketplace and as others enter the marketplace. Management expects royalties from
the CYPHER® stent to continue to constitute a substantial portion of our revenue in
fiscal 2008. However, whether and the extent to which royalties from the CYPHER® stent
continue to constitute a significant source of revenue is subject to a number of risks, including
intellectual property litigation generally, and specifically the damages, settlements and mutual
agreements that may result from various infringement suits between the major competitors in this
marketplace.
The inclusion of revenue from our Brookwood business unit in Drug Delivery is also impacting
the overall revenue and revenue mix in fiscal 2008, as a substantial majority of Brookwood revenue
is comprised of research and development fees.
Hydrophilic and Other. Hydrophilic and Other revenue was $7.9 million in the third quarter of
fiscal 2008, an increase of 15% compared with $6.9 million in the prior-year period, primarily as a
result of 8% growth in royalties and license fees and 68% growth in research and development fees.
In contrast to our Drug Delivery segment, where a significant percentage of revenue is attributable
14
to Cordis, there are several dozen licensees and an even larger number of coated products
generating royalties in this segment. We believe that revenue will likely continue to increase for
the remainder of fiscal 2008; however, the rate of growth will depend upon the timing and market
success of our customers newly released products, as well as the sales of existing products.
In Vitro. Revenue in the In Vitro segment was $5.7 million in the third quarter of 2008, an
increase of 12% compared with $5.1 million in the prior-year period. The increase was attributable
to increased product sales, principally as a result of the addition of $1.1 million of BioFX
products sold during the quarter. The increase was partially offset by a decrease in royalties and
license fees. Prior-year results do not include sales of BioFX products, because the acquisition of
BioFX was completed in the fourth quarter of fiscal 2007. We anticipate continued growth in product
sales for the remainder of fiscal 2008 primarily due to the addition of BioFX products, but
the rate of growth will depend on the success of certain product launches. Royalties and license
fees likely will not increase. In Vitro derives a significant percentage of its revenue from GE
Healthcare and Abbott Laboratories. Royalty revenue generated under our diagnostic format patent
license agreement with Abbott Laboratories (the Abbott Agreement) is expected to cease following
the expiration of the licensed patents in December 2008. Consistent with our revenue recognition
practices, royalty revenue is recognized as licensees report it to us, which typically occurs on a
quarter lag basis. Accordingly, we expect royalties generated under the Abbott Agreement to extend
into the second quarter of fiscal 2009.
Product costs. Product costs were $1.8 million in the third quarter of fiscal 2008, compared
with $1.2 million in the prior-year period. The $0.6 million increase in product costs reflects
principally the addition of product sales from BioFX and Brookwood and to a lesser extent a
changing product mix. Overall product margins averaged 60%, compared with 59% reported last year.
We anticipate that product margins will continue to be slightly
higher to flat on a year-over-year basis
throughout the remainder of fiscal 2008 when compared to prior-year results, principally as a result of product
sales mix.
Research and development expenses. Research and development expenses were $10.5 million for
the third quarter, an increase of 70% compared with $6.2 million in the prior-year period. The
increase principally reflects the addition of Brookwood and BioFX to our operations, which together
incurred total research and development expenses of $3.7 million in the quarter. In addition,
compensation expenses have increased as we have added personnel to support customer projects and
internal development projects. Our research and development headcount increased by 14 employees
compared with June 30, 2007, not including the addition of 58 research and development employees
related to our Brookwood and BioFX acquisitions. Also contributing to the increase were higher
costs related to our internal development projects, and $0.5 million of out-of-pocket expenses in
connection with our Merck projects, for which we are reimbursed. Research and development expenses
are expected to continue to increase for the remainder of fiscal 2008, reflecting the addition of
Brookwood and BioFX to our operations, and our continued expansion of the research and development
organization. Research and development expenses for our Brookwood business unit, in particular, are
a higher percentage of that units total revenues than for our other business units.
Selling, general and administrative expenses. Selling, general and administrative (SG&A)
expenses were $4.8 million for the three-month period ended June 30, 2008, an increase of $2.0
million compared with the prior-year period. The increase principally reflects the addition of
Brookwood and BioFX to our operations, which comprised $1.2 million of SG&A expenses, stock-based
compensation expense of $0.9 million and patent-related legal expenses. We expect SG&A expenses to
remain approximately at current levels for the remainder of fiscal 2008, reflecting the addition of
Brookwood and BioFX to our operations.
Other income, net. Other income was $0.6 million in the third quarter of fiscal 2008 compared
to $1.2 million in the prior-year period. Income from investments was $0.7 million, compared with
$1.2 million in the prior-year period. The decrease principally reflects lower investment balances
and lower yields from our investment portfolio.
Income tax expense. The income tax provision was $3.0 million in the third quarter of fiscal
2008, compared with $3.1 million in the prior-year period. The effective tax rate was 38.5%,
compared with 35.9% in the prior-year period. This increase is primarily attributable to tax
reserve increases for state tax contingencies. There was a release of certain tax reserves related
to expiring statutes of limitations in the third quarter of fiscal 2007 which reduced the effective
tax rate.
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
2008 |
|
|
2007 |
|
|
$ Increase |
|
|
% Increase |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug Delivery |
|
$ |
33,397 |
|
|
$ |
18,607 |
|
|
$ |
14,790 |
|
|
79% |
|
Hydrophilic and Other |
|
|
23,714 |
|
|
|
18,720 |
|
|
|
4,994 |
|
|
27% |
|
In Vitro |
|
|
16,701 |
|
|
|
14,538 |
|
|
|
2,163 |
|
|
15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
73,812 |
|
|
$ |
51,865 |
|
|
$ |
21,947 |
|
|
42% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue was $73.8 million for the first nine months of fiscal 2008, an increase
of $21.9 million or 42%, compared with the same period of fiscal 2007. Revenue included $17.5
million from the acquisitions of Brookwood and BioFX businesses, which were completed in the fourth
quarter of fiscal 2007. All three operating segments generated revenue growth, as detailed in the
table above and further explained in the narrative below.
Drug Delivery. Drug Delivery revenue increased 79% to $33.4 million for the first nine months
of fiscal 2008 compared with $18.6 million for the same period last year. The increase in total
revenue reflects a significant increase in research and development revenue from drug delivery and
ophthalmology customers, offset partially by lower royalties and license fees. Our Brookwood
business unit generated $14.2 million of revenue in the first nine months of fiscal 2008.
Prior-period results do not include any revenue from Brookwood, as the acquisition was completed in
the fourth quarter of 2007. The decrease in Drug Delivery royalties and license fees principally
reflects decreased royalty revenue from Cordis as a result of lower CYPHER® sales. Substantially
offsetting the decrease attributable to CYPHER® was an increase in royalties and license fees from
other drug delivery and ophthalmology customers, including Merck.
Hydrophilic and Other. Hydrophilic and Other revenue increased 27% to $23.7 million compared
with $18.7 million for the same period last year. The growth was driven principally by increased
royalties and license fees as the company continues to grow its licensed customer base.
In Vitro. In Vitro revenue increased 15% to $16.7 million compared with $14.5 million for the
same period last year. The increase was attributable to increased product sales, mostly as a result
of the addition of $3.3 million of BioFX products sold during the period. The increase was
partially offset by a decrease in royalties and license fees. Prior-period results do not include
sales of BioFX products, because the acquisition of BioFX was completed in the fourth quarter of
fiscal 2007. In Vitro segment royalties and license fees decreased in part because the prior-year
results included a settlement related to past due royalties; there was no such settlement in the
first nine months of fiscal 2008.
Product costs. Product costs were $5.9 million for the nine months ended June 30, 2008, a 74%
increase from $3.4 million for the same period last year. Overall product margins averaged 59%
compared with 62% for the comparable period last year. The margin decrease was primarily
attributable to a changing mix of product sales.
Research and development expenses. Research and development expenses were $30.4 million for
the first nine months of fiscal 2008, an increase of 78% compared with $17.1 million for the same
period of fiscal 2007. The increase principally reflects the addition of Brookwood and BioFX to our
operations, which together had total research and development expenses of $10.2 million in the
first nine months of fiscal 2008. In addition, compensation expenses have increased as we have
added personnel to support customer projects and internal development projects. Our research and
development headcount has increased by nine compared with September 30, 2007, not including the
addition of 58 research and development employees from our Brookwood and BioFX acquisitions. We
have also incurred higher costs related to our internal development projects, and $1.4 million of
out-of-pocket expenses were incurred in connection with our Merck projects, for which we are
reimbursed.
Selling, general and administrative expenses. SG&A expenses were $15.6 million for the first
nine months of fiscal 2008, an increase of $8.0 million compared with the prior-year period. The
increase principally reflects the addition of Brookwood and BioFX to our operations, as they
incurred $3.4 million of SG&A expenses. Our stock-based compensation expenses were $2.1 million
higher for the first nine months of fiscal 2008 principally associated with second quarter
transitions of our Board of Directors and higher third quarter stock based compensation.
16
Other income, net. Other income was $3.5 million for the first nine months of fiscal 2008
compared with $3.7 million in the same period of fiscal 2007. Income from investments was $2.7
million, compared with $3.7 million in the prior-year period. The decrease principally reflects
lower investment balances and lower yields generated by our investment portfolio. Partially
offsetting the decrease in investment income was $0.8 million in other income.
Income tax expense. The income tax provision was $9.9 million for the first nine months of
fiscal 2008, compared with $10.2 million for the same period in fiscal 2007. The effective tax rate
for the first nine months of fiscal 2008 was 38.9%, compared with 37.1% for the same period last
year. The increase in the effective tax rate principally reflects an increase in state tax
contingency reserves in fiscal 2008 and a release of federal tax reserves in fiscal 2007.
Liquidity and Capital Resources
As of June 30, 2008, the Company had working capital of $41.6 million, of which $24.3 million
consisted of cash, cash equivalents and short-term investments. Working capital increased $13.6
million from the September 30, 2007 level driven principally by cash flow from operations and the
collection of $5.9 million of notes receivable. Our cash, cash equivalents and short-term and
long-term investments totaled $70.0 million at June 30, 2008, a slight decrease of $0.2 million
from $70.2 million as of September 30, 2007. The Companys investments principally consist of U.S.
government and government agency obligations and investment grade, interest-bearing corporate debt
securities with varying maturity dates, the majority of which are five years or less. The Companys
policy requires that no more than 5% of investments be held in any one credit issue, excluding U.S.
government and government agency obligations. The primary investment objective of the portfolio is
to provide for the safety of principal and appropriate liquidity while meeting or exceeding a
benchmark (Merrill Lynch 1-3 Year Government-Corporate Index) total rate of return. Management
plans to continue to direct its investment advisors to manage the Companys investments primarily
for the safety of principal for the foreseeable future as it assesses other investment
opportunities and uses of its investments.
We had cash flows from operating activities of approximately $22.6 million in the nine-months
ended June 30, 2008, compared with $23.6 million for the nine-months ended June 30, 2007. The
decrease compared with prior-year results primarily reflects increased current-year income tax
payments and accounts receivable balances increasing, rather than being a source of cash, as
accounts receivable was in the prior-year period. In June 2008, we recorded a receivable of $9.0
million associated with achievement of a milestone event under the Merck Agreement, which was paid
in July 2008.
In November 2007, our Board of Directors authorized the repurchase of up to $35 million of the
Companys common stock in open-market transactions, private transactions, tender offers, or other
transactions. The repurchase authorization does not have a fixed expiration date. During the
nine-months ended June 30, 2008, we purchased 157,500 shares of common stock for $6.7 million at an
average price of $42.63 per share. Under the current authorization, the Company has $28.3 million
remaining available for authorized share repurchases as of June 30, 2008.
As of June 30, 2008, we had approximately $236,000 of debt outstanding in connection with our
Brookwood subsidiary. We do not have any material credit agreements established at this time, and
we believe that our existing capital resources will be adequate to fund our operations and material
commitments into the foreseeable future. Nevertheless, we may enter into credit arrangements from
time to time when we consider market conditions to be favorable. Our remaining anticipated
liquidity needs for fiscal 2008 include but are not limited to the following: capital expenditures
related to the recently acquired Alabama facility in the range of $1 million to $6 million and
related to our Minnesota facilities in the range of $4 million to $6 million; and any amounts
associated with the repurchase of common stock under the authorization discussed above.
As of June 30, 2008, the Company did not have any off-balance sheet arrangements with any
unconsolidated entities.
Forward-Looking Statements
Certain statements contained in this report and other written and oral statements made from
time to time by the Company do not relate strictly to historical or current facts. As such, they
are considered forward-looking statements that provide current expectations or forecasts of
future events. These forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use
of terminology such as anticipate, believe, could, estimate, expect, forecast,
intend, may, plan, possible, project, will and similar words or
17
expressions. Any statement that is not an historical fact, including estimates, projections,
future trends and the outcome of events that have not yet occurred, are forward-looking statements.
The Companys forward-looking statements generally relate to its growth strategy, expected
financial results, product development programs, the impact of the Merck Agreement, sales efforts,
the impact of acquisitions, sufficiency of capital resources, and the impact of the Cordis
agreement and other significant customer agreements. You should carefully consider forward-looking
statements and understand that such statements involve a variety of risks and uncertainties, known
and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking
statement can be guaranteed and actual results may vary materially. The Company undertakes no
obligation to update any forward-looking statement.
Although it is not possible to create a comprehensive list of all factors that may cause
actual results to differ from the Companys forward-looking statements, such factors include, among
others: (i) the Companys 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
between the major competitors in the drug-eluting stent marketplace; (ii) 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; (iii) failure to
obtain intellectual property rights protecting our proprietary technologies, or the expiration or
loss of such rights, could have a material adverse effect on our business, financial condition and
results of operations; (iv) 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; (v) the Companys 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
Companys ability to maintain satisfactory relationships with its licensees; (vi) the Companys
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; (vii) the
Companys 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; (viii) market acceptance of products sold by customers incorporating our technologies
and the timing of new product introductions by licensees; (ix) market acceptance of products sold
by customers competitors and the timing and pricing of new product introductions by customers
competitors; (x) 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; (xi) 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; (xii) the ability to secure raw materials for reagents the Company
sells; (xiii) the Companys ability to manage successfully clinical trials and related foreign and
domestic regulatory processes for the I-vation sustained drug delivery system or other acquired
products from InnoRx under development by the Companys 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; (xiv) product liability claims not covered by insurance; (xv)
the development of new products or technologies by competitors, technological obsolescence and
other changes in competitive factors; (xvi) 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; (xvii) the Companys 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 (including Brookwood Pharmaceuticals, Inc., and BioFX Laboratories, Inc.) and its
ability to create synergies from acquisitions and other strategic relationships; (xviii)
difficulties in bringing our facilities into compliance with good manufacturing practices or other
applicable regulatory standards may adversely impact our ability to manufacture and supply
products, or perform other services for our customers; (xix) the Companys 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; (xx) the Companys
ability to successfully perform and earn milestone payments related to contractual milestone
criteria in general and specifically the license fees and development milestones in the
Merck Agreement; (xxi) economic and other factors over which the Company has no control, including
changes in inflation and consumer confidence; (xxii) acts of God or terrorism which impact the
Companys personnel or facilities; and (xxiii) other factors described in the Risk Factors and
other sections of SurModics Annual Report on Form 10-K, which you are encouraged to read
carefully. Many of these factors are outside the control and knowledge of the Company and could
result in increased volatility in period-to-period results. Investors are advised not to place
undue reliance upon the Companys forward-looking information and to consult any further
disclosures by the Company on this subject in its filings with the Securities and Exchange
Commission.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Companys investment policy requires investments with high credit quality issuers and
limits the amount of credit exposure to any one issuer. The Companys investments principally
consist of U.S. government and government agency obligations and investment-grade, interest-bearing
corporate debt securities with varying maturity dates, the majority of which are five years or
less. Because of the credit criteria of the Companys investment policy, the primary market risk
associated with these investments is interest rate risk. The Company does not use derivative
financial instruments to manage interest rate risk or to speculate on future changes in interest
rates. A one percentage point increase in interest rates would result in an approximate $964,000
decrease in the fair value of the Companys available-for-sale securities as of June 30, 2008, but
no material impact on the results of operations or cash flows. Management believes that a
reasonable change in raw material prices would not have a material impact on future earnings or
cash flows because the Companys inventory exposure is not material.
Although we conduct business in foreign countries, our international operations consist
primarily of sales of reagent and stabilization chemicals. Additionally, all sales transactions are
denominated in U.S. dollars. Accordingly, we do not expect to be subject to material foreign
currency risk with respect to future costs or cash flows from our foreign sales. To date, we have
not entered into any foreign currency forward exchange contracts or other derivative financial
instruments to hedge the effects of adverse fluctuations in foreign currency exchange.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company conducted an evaluation under
the supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer regarding the effectiveness of the design and
operation of the Companys disclosure controls and procedures, as defined in to Rule 13a-15(e) of
the Securities Exchange Act of 1934 (the Exchange Act), pursuant to Rule13a-15(b) of the Exchange
Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were effective as of such time.
Changes in Internal Controls
There were no changes in the Companys internal control over financial reporting that occurred
during the period covered by this report that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On June 18, 2008, all ongoing litigation and disputes involving the Company, the former
stockholders of InnoRx, Inc., and Michael Cooney, M.D., were settled. The settlement, the terms of
which are confidential, does not affect the Companys interest in, or its ability to fully exploit,
the technologies involved in the litigation and disputes. The
settlement is reflected in, but did not
have a material impact on, the Companys June 30, 2008 financial statements.
There have been no other material developments in the legal proceedings previously disclosed
in the Companys Form 10-K for the fiscal year ended September 30, 2007.
Item 1A. Risk Factors.
There have been no material changes from risk factors as previously disclosed in the Companys
Form 10-K for the fiscal year ended September 30, 2007 in response to Item 1A to Part I of Form
10-K.
19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Issuer Purchases of Equity Securities
The following table presents information with respect to purchases of common stock of the
Company made during the three months ended June 30, 2008, by the Company or on behalf of the
Company or any affiliated purchaser of the Company, as defined in Rule 10b-18(a)(3) under the
Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
(d) |
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Dollar |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Value of |
|
|
|
|
|
|
|
|
|
|
Purchased |
|
Shares that |
|
|
|
|
|
|
|
|
|
|
as Part of |
|
May Yet Be |
|
|
(a) |
|
(b) |
|
Publicly |
|
Purchased |
|
|
Total Number |
|
Average |
|
Announced |
|
Under the |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Plans or |
Period |
|
Purchased(1) |
|
Per Share |
|
Programs |
|
Programs(2) |
|
4/01/08 4/30/08 |
|
|
1,700 |
|
|
$ |
41.97 |
|
|
|
1,700 |
|
|
$ |
32,327,249 |
|
5/01/08 5/31/08 |
|
|
992 |
|
|
$ |
45.16 |
|
|
NA |
|
|
$ |
32,327,249 |
|
6/01/08 6/30/08 |
|
|
91,600 |
|
|
$ |
44.13 |
|
|
|
91,600 |
|
|
$ |
28,285,308 |
|
|
Total |
|
|
94,292 |
|
|
$ |
44.10 |
|
|
|
93,300 |
|
|
$ |
28,285,308 |
|
|
|
|
|
(1) |
|
The purchases in this column included shares repurchased as part of our publicly announced
program and in addition include 992 shares that were repurchased by the Company to satisfy tax
withholding obligations in connection with so-called stock swap exercises related to the
vesting of restricted stock awards. |
|
(2) |
|
On November 15, 2007, our Board of Directors announced the authorization of the repurchase of
$35 million of its outstanding common stock. As of June 30, 2008, we have repurchased 157,500
shares at an average price of $42.63 per share. Under the current authorization the Company
has $28.3 million available for authorized share repurchases as of June 30, 2008, and such
authorization has no expiration date. |
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
20
Item 6. Exhibits.
|
|
|
Exhibit |
|
Description |
|
|
|
3.1
|
|
Restated Articles of Incorporation, as amended incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-QSB for the quarter ended December 31, 1999, SEC File
No. 0-23837 |
|
|
|
3.2
|
|
Restated Bylaws incorporated by reference to Exhibit 3.2 of the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2007, SEC File No. 0-23837 |
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002** |
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002** |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002** |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002** |
21
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, thereunto duly authorized.
|
|
|
|
|
|
SurModics, Inc.
|
|
Date: August 11, 2008 |
By: |
/s/ Philip D. Ankeny
|
|
|
|
Philip D. Ankeny |
|
|
|
Senior Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer) |
|
|
22
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2008
SURMODICS, INC.
|
|
|
Exhibit |
|
Description |
|
|
|
3.1
|
|
Restated Articles of Incorporation, as amended incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-QSB for the quarter ended December 31, 1999, SEC File
No. 0-23837 |
|
|
|
3.2
|
|
Restated Bylaws incorporated by reference to Exhibit 3.2 of the Companys Annual Report on
Form 10-K for the fiscal year ended September 30, 2007, SEC File No. 0-23837 |
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002** |
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002** |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002** |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002** |
23
exv31w1
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF SARBANES-OXLEY ACT OF 2002
I, Bruce J Barclay, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 registrants other certifying officer 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 we 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;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
|
|
|
|
|
|
|
|
Dated: August 11, 2008 |
Signature: |
/s/ Bruce J Barclay |
|
|
|
Bruce J Barclay |
|
|
|
President, Chief Executive Officer and
Director (Principal Executive Officer) |
|
exv31w2
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302
OF SARBANES-OXLEY ACT OF 2002
I, Philip D. Ankeny, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 registrants other certifying officer 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 we 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;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
|
|
|
|
|
|
|
|
Dated: August 11, 2008 |
Signature: |
/s/ Philip D. Ankeny |
|
|
|
Philip D. Ankeny |
|
|
|
Senior Vice President and Chief Financial
Officer (Principal Financial Officer) |
|
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SurModics, Inc. (the Company) on Form 10-Q for
the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission (the
Report), I, Bruce J Barclay, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
|
|
|
|
|
|
|
|
Dated: August 11, 2008 |
/s/ Bruce J Barclay
|
|
|
Bruce J Barclay |
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer) |
|
|
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SurModics, Inc. (the Company) on Form 10-Q for
the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission (the
Report), I, Philip D. Ankeny, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
|
|
|
|
|
|
|
|
Dated: August 11, 2008 |
/s/ Philip D. Ankeny
|
|
|
Philip D. Ankeny |
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|