e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
or
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o |
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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)
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MINNESOTA
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41-1356149 |
(State of incorporation)
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(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.
Yesþ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o 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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
The number of shares of the registrants common stock, $.05 par value per share, outstanding as of
July 31, 2009 was 17,475,291.
TABLE OF CONTENTS
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3 |
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17 |
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22-23 |
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23 |
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24 |
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24 |
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24 |
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25 |
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25 |
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Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
EX-32.2 |
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
SurModics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
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June 30, |
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September 30, |
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2009 |
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2008 |
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(In thousands, except share data) |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
5,744 |
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$ |
15,376 |
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Short-term investments |
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16,161 |
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9,251 |
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Accounts receivable, net of allowance for
doubtful accounts of $146 and $135 as of June
30, 2009 and September 30, 2008, respectively |
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11,914 |
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14,589 |
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Inventories |
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3,109 |
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2,651 |
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Deferred tax asset |
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481 |
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1,058 |
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Prepaids and other |
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1,151 |
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3,584 |
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Total current assets |
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38,560 |
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46,509 |
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Property and equipment, net |
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61,583 |
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41,897 |
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Long-term investments |
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29,598 |
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47,351 |
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Deferred tax asset |
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2,356 |
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11,099 |
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Intangible assets , net |
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18,233 |
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16,870 |
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Goodwill |
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21,070 |
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18,001 |
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Other assets, net |
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10,288 |
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9,301 |
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Total assets |
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$ |
181,688 |
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$ |
191,028 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
3,791 |
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$ |
3,466 |
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Accrued liabilities |
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3,261 |
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4,422 |
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Deferred revenue |
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1,127 |
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4,335 |
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Other current liabilities |
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654 |
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303 |
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Total current liabilities |
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8,833 |
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12,526 |
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Deferred revenue, less current portion |
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635 |
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33,243 |
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Other long-term liabilities |
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4,717 |
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3,453 |
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Total liabilities |
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14,185 |
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49,222 |
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Stockholders Equity |
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Series A Preferred stock- $.05 par value, 450,000
shares authorized; no shares issued and
outstanding |
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Common stock- $.05 par value, 45,000,000 shares
authorized; 17,468,530 and 18,030,270 shares
issued and outstanding |
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873 |
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901 |
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Additional paid-in capital |
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64,350 |
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74,573 |
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Accumulated other comprehensive income (loss) |
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1,000 |
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(107 |
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Retained earnings |
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101,280 |
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66,439 |
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Total stockholders equity |
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167,503 |
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141,806 |
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Total liabilities and stockholders equity |
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$ |
181,688 |
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$ |
191,028 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
3
SurModics, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(In thousands, except per share data) |
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(unaudited) |
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(unaudited) |
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Revenue |
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Royalties and license fees |
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$ |
8,200 |
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$ |
13,587 |
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$ |
65,999 |
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$ |
40,574 |
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Product sales |
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5,130 |
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4,447 |
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13,762 |
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14,354 |
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Research and development |
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4,856 |
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6,242 |
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22,566 |
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18,884 |
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Total revenue |
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18,186 |
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24,276 |
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102,327 |
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73,812 |
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Operating costs and expenses |
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Product costs |
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1,988 |
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1,773 |
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5,341 |
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5,902 |
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Research and development |
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7,627 |
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10,511 |
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25,464 |
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30,415 |
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Selling, general and administrative |
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3,910 |
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4,808 |
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12,996 |
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15,559 |
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Purchased in-process research and development |
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3,200 |
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Restructuring charges |
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1,798 |
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Total operating costs and expenses |
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13,525 |
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17,092 |
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48,799 |
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51,876 |
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Income from operations |
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4,661 |
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7,184 |
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53,528 |
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21,936 |
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Other income |
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Investment income |
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384 |
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677 |
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1,515 |
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2,681 |
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Other income (loss), net |
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410 |
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(51 |
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281 |
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849 |
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Other income |
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794 |
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626 |
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1,796 |
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3,530 |
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Income before income taxes |
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5,455 |
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7,810 |
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55,324 |
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25,466 |
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Income tax provision |
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(1,916 |
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(3,010 |
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(20,484 |
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(9,913 |
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Net income |
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$ |
3,539 |
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$ |
4,800 |
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$ |
34,840 |
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$ |
15,553 |
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Basic net income per share |
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$ |
0.20 |
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$ |
0.27 |
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$ |
2.00 |
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$ |
0.86 |
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Diluted net income per share |
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$ |
0.20 |
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$ |
0.26 |
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$ |
1.99 |
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$ |
0.85 |
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Weighted average shares outstanding |
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Basic |
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17,356 |
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18,073 |
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17,458 |
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18,058 |
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Dilutive effect of outstanding stock options |
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23 |
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249 |
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34 |
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315 |
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Diluted |
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17,379 |
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18,322 |
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17,492 |
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18,373 |
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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
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Nine Months Ended |
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June 30, |
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2009 |
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2008 |
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(In thousands) |
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(unaudited) |
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Operating Activities: |
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Net income |
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$ |
34,840 |
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$ |
15,553 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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4,352 |
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4,501 |
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Gain on equity method investment and sales of investments |
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(200 |
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(807 |
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Amortization of premium on investments |
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104 |
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36 |
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Stock-based compensation |
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4,988 |
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7,181 |
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Purchased in-process research and development |
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3,200 |
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Restructuring charges |
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1,798 |
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Deferred taxes |
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8,616 |
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(4,339 |
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Excess tax benefits from exercise of stock options |
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241 |
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(936 |
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Other |
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(250 |
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65 |
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Change in operating assets and liabilities: |
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Accounts receivable |
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2,675 |
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(8,598 |
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Inventories |
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(458 |
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(476 |
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Accounts payable and accrued liabilities |
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(3,261 |
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(369 |
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Income taxes |
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3,302 |
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(3,945 |
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Deferred revenue |
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(35,816 |
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13,151 |
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Prepaids and other |
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638 |
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1,583 |
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Net cash provided by operating activities |
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24,769 |
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22,600 |
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Investing Activities: |
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Purchases of property and equipment |
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(21,660 |
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(16,849 |
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Purchases of available-for-sale investments |
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(28,465 |
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(13,601 |
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Sales/maturities of available-for-sale investments |
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40,407 |
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21,459 |
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Purchases of held-to-maturity investments |
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(6,485 |
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Business acquisition |
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(8,585 |
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(2,996 |
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Purchase of licenses and patents |
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(631 |
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(1,225 |
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Investment in other strategic assets |
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(2,513 |
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Collection of notes receivable |
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5,870 |
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Cash restricted for land purchase |
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(1,640 |
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Other investing activities |
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(189 |
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(229 |
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Net cash used in investing activities |
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(19,123 |
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(18,209 |
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Financing Activities: |
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Excess tax benefits from exercise of stock options |
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(241 |
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|
936 |
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Issuance of common stock |
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|
655 |
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2,955 |
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Repurchase of common stock |
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(14,998 |
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(6,717 |
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Purchase of common stock to fund employee taxes |
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(458 |
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(1,495 |
) |
Repayment of notes payable |
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(236 |
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(224 |
) |
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Net cash used in financing activities |
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(15,278 |
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(4,545 |
) |
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Net change in cash and cash equivalents |
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(9,632 |
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(154 |
) |
Cash and cash equivalents |
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|
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|
Beginning of period |
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15,376 |
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|
13,812 |
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End of period |
|
$ |
5,744 |
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|
$ |
13,658 |
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Supplemental Information |
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Cash paid for income taxes |
|
$ |
8,764 |
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$ |
18,093 |
|
Noncash transaction acquisition of property, plant, and equipment on account |
|
$ |
2,467 |
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$ |
469 |
|
Noncash transaction acquisition of intangible assets on account |
|
$ |
210 |
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|
$ |
|
|
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, 2009
(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 (GAAP) 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, 2009 are not necessarily indicative of the
results that may be expected for the entire 2009 fiscal year.
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 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, 2008, and footnotes thereto included in the Companys
Form 10-K as filed with the United States Securities and Exchange Commission on December 15, 2008.
The Companys revenue arrangements with multiple deliverables follow the guidance from
Emerging Issues Task Force Issue No. 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables, (EITF 00-21) with recognition of each separable deliverable as it is earned. The
Company applies EITF 00-21 to a collaborative research and license agreement (Merck Agreement)
entered into on June 27, 2007 with Merck & Co., Inc. (Merck).
In September 2008, following a strategic review of Mercks business and product development
portfolio, Merck gave notice to SurModics of Mercks intent to terminate the Merck Agreement as
well as the supply agreement entered into in June 2007. The termination was effective December 16,
2008. The Company has recognized revenue of approximately $45 million in the first nine-months of
fiscal 2009 principally from amounts that previously had been deferred and amortized under the
accounting treatment required by EITF 00-21 and a milestone payment associated with the termination
of the triamcinolone acetonide development program under the Merck Agreement.
(2) Recent 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). SFAS
No. 157 defines fair value, establishes a framework and gives guidance regarding the methods used
for measuring fair value in accordance with GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 applies to other pronouncements that require or permit fair value
measurements; it does not require any new fair value measurements. The provisions of SFAS No. 157,
as issued, were effective for SurModics on October 1, 2008. However, in February 2008, the FASB
issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157 (FSP FAS
No. 157-2), which delays the effective date of SFAS No. 157 from fiscal 2009 to fiscal 2010 for
all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually). As a result of
the deferral, the Company has delayed the implementation of SFAS No. 157 provisions on the fair
value of goodwill, other intangible assets and nonfinancial long-lived assets. The Company adopted
SFAS No. 157 on October 1, 2008, the first day of fiscal 2009, for all financial assets and
financial liabilities and for all nonfinancial assets and nonfinancial liabilities recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually). The
Company is currently evaluating the potential impact of the adoption of those provisions of SFAS
No. 157 for which the effective date has been delayed until fiscal year 2010 by FSP FAS No. 157-2
on its consolidated financial condition and results of operations. See Note 3 for additional
information relating to the adoption of SFAS No. 157.
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 the Company in fiscal 2009. The adoption of this statement did not have a material
effect on the Companys consolidated financial statements as the Company has elected not to account
for any additional financial assets or financial liabilities at fair value.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), 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.
6
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 requires minority
interests to be recharacterized as noncontrolling interests and reported as a component of equity.
In addition, SFAS No. 160 requires that purchases or sales of equity interests that do not result
in a change in control be accounted for as equity transactions and, upon a loss of control,
requires the interests sold, as well as any interests retained, to be recorded at fair value with
any gain or loss recognized in earnings. SFAS No. 160 is effective for the Company in fiscal 2010,
with early adoption prohibited. The Company does not expect the adoption of SFAS No. 160 to have a
material impact on its consolidated financial statements.
In April 2008, the FASB issued FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP FAS No. 142-3). FSP FAS No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. FSP FAS No. 142-3 is
intended to improve the consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset
under SFAS No. 141(R) and other GAAP. FSP FAS No. 142-3 is effective for the Company in fiscal
2010, with early adoption prohibited. The Company does not expect the adoption of FSP FAS No. 142-3
to have a material impact on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments (FSP FAS No. 115-2 and FAS No. 124-2). FSP FAS
No. 115-2 and FAS No. 124-2 modifies the other-than-temporary impairment guidance for debt
securities through increased consistency in the timing of impairment recognition and enhanced
disclosures related to the credit and noncredit components of impaired debt securities that are not
expected to be sold. In addition, increased disclosures are required for both debt and equity
securities regarding expected cash flows, credit losses, and an aging of securities with unrealized
losses. The adoption of FSP No. 115-2 and FAS No. 124-2 in the third quarter of fiscal 2009 did not
have a material impact on the Companys financial statements.
In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, Interim Disclosures about
Fair Value of Financial Instruments (FSP FAS No. 107-1 and APB No. 28-1). FSP FAS No. 107-1 and
APB No. 28-1 requires fair value disclosures for financial instruments that are not reflected in
the Condensed Consolidated Balance Sheets at fair value. Prior to the issuance of FSP FAS No. 107-1
and APB No. 28-1, the fair values of those assets and liabilities were disclosed only once each
year. With the issuance of FSP FAS No. 107-1 and APB No. 28-1, the Company is now be required to
disclose this information on a quarterly basis, providing quantitative and qualitative information
about fair value estimates for all financial instruments not measured in the Condensed Consolidated
Balance Sheets at fair value. The adoption of FSP FAS No. 107-1 and APB No. 28-1 in the third
quarter of fiscal 2009 did not have a material impact on the Companys financial statements. See
Note 4 for additional information relating to the adoption of FSP FAS No. 107-1 and APB No. 28-1.
In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly (FSP FAS No. 157-4). FSP FAS No. 157-4 clarifies the
methodology used to determine fair value when there is no active market or where the price inputs
being used represent distressed sales. FSP FAS No. 157-4 also reaffirms the objective of fair value
measurement, as stated in FAS No. 157, Fair Value Measurements, which is to reflect how much an
asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to
determine if a formerly active market has become inactive, as well as to determine fair values when
markets have become inactive. The adoption of FSP FAS No. 157-4 in the third quarter of fiscal 2009
did not have a material impact on the Companys financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165
establishes principles and requirements for subsequent events for potential recognition or
disclosure in the financial statements, circumstances under which an entity shall recognize events
or transactions occurring after the balance sheet date in its financial statements and disclosures
an entity shall make about events or transactions that occurred after the balance sheet date. SFAS
No. 165 is effective for the Company in the third quarter of fiscal 2009 and requires the Company
disclose the date through which subsequent events have been evaluated, as well as whether that date
is the date the financial statements were issued or the date the financial statements were
available to be issued. See Note 17 for disclosures related to the adoption of SFAS No. 165.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162
(SFAS No. 168). SFAS No. 168 establishes the FASB Accounting Standards Codification
(Codification) as the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) in the United States. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. All guidance contained in the
Codification carries an equal level of authority. SFAS No. 168 is effective for financial
statements issued by the Company for the annual period ended after September 15, 2009. The Company
does not expect the adoption of SFAS No. 168 to have a material impact on its consolidated
financial statements.
7
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) Fair Value Measurements
Effective October 1, 2008, the Company adopted the provisions of SFAS No. 157 for all
financial assets and financial liabilities and for all nonfinancial assets and nonfinancial
liabilities recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually). SFAS No. 157 defines fair value as the exchange price that would be received
from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements
for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and also considers
assumptions that market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Hierarchy
SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The fair value framework requires the
categorization of assets and liabilities into three levels based upon the assumptions (inputs) used
to price the assets or liabilities. SFAS No. 157 requires that assets and liabilities carried at
fair value be classified and disclosed in one of the following categories:
Level 1 Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Companys Level 1 asset consists of its investment in OctoPlus, N.V. (see Note 7 for further
information).
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the asset or liability.
The Companys Level 2 assets consist of money market funds, U.S. Treasury securities, corporate
bonds, municipal bonds, U.S. agency securities, agency and municipal securities, certain
asset-backed securities and mortgage-backed securities.
Level 3 Unobservable inputs to the valuation methodology that are supported by little or no
market activity and that are significant to the measurement of the fair value of the assets or
liabilities. Level 3 assets and liabilities include those whose fair value measurements are
determined using pricing models, discounted cash flow methodologies or similar valuation
techniques, as well as significant management judgment or estimation.
The Companys Level 3 assets include other U.S. government agency securities and a mortgage-backed
security.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In instances where the inputs used to measure fair value fall into different levels of the
fair value hierarchy, the fair value measurement has been determined based on the lowest level
input that is significant to the fair value measurement in its entirety. The Companys assessment
of the significance of a particular item to the fair value measurement in its entirety requires
judgment, including the consideration of inputs specific to the asset or liability. The following
table presents information about the Companys financial assets and liabilities measured at fair
value on a recurring basis as of June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
Total Fair |
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
Value as of |
|
|
|
Instruments |
|
|
Inputs |
|
|
Inputs |
|
|
June 30, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2009 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
|
|
|
$ |
4,672 |
|
|
$ |
|
|
|
$ |
4,672 |
|
Short-term investments |
|
|
|
|
|
|
15,157 |
|
|
|
|
|
|
|
15,157 |
|
Long-term investments |
|
|
|
|
|
|
23,877 |
|
|
|
439 |
|
|
|
24,316 |
|
Other assets |
|
|
3,083 |
|
|
|
|
|
|
|
|
|
|
|
3,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
3,083 |
|
|
$ |
43,706 |
|
|
$ |
439 |
|
|
$ |
47,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and Long-term investments disclosed in the condensed
consolidated balance sheets include held-to-maturity investments
totaling $6.3 million as of June 30, 2009.
8
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis
The following table is a reconciliation of financial assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2009 |
|
Balance, beginning of period |
|
$ |
47 |
|
|
$ |
264 |
|
Total realized and unrealized gains: |
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
(6 |
) |
|
|
19 |
|
Purchases, issuances and settlements, net |
|
|
(81 |
) |
|
|
455 |
|
Transfer in (out) of Level 3 |
|
|
479 |
|
|
|
(299 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
439 |
|
|
$ |
439 |
|
|
|
|
|
|
|
|
As of June 30, 2009, marketable securities measured at fair value using Level 3 inputs was
comprised of $360,879 of U.S. government agency securities and $78,264 of a mortgage-backed
security within the Companys available-for-sale investment portfolio. These securities were
measured using observable market data and Level 3 inputs due to the lack of market activity and
liquidity. The fair value of these securities was based on the Companys assessment of the
underlying collateral and the creditworthiness of the issuer of the securities.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Companys investments in non-marketable securities of private companies are accounted for
using the cost or equity method. These investments as well as held-to-maturity securities are
measured at fair value on a non-recurring basis when they are deemed to be other-than-temporarily
impaired. In determining whether a decline in value of non-marketable equity investments in private
companies has occurred and is other-than-temporary, an assessment is made by considering available
evidence, including the general market conditions in the investees industry, the investees
product development status and subsequent rounds of financing and the related valuation and/or the
Companys participation in such financings. The Company also assesses the investees ability to
meet business milestones and the financial condition and near-term prospects of the individual
investee, including the rate at which the investee is using its cash and the investees need for
possible additional funding at a lower valuation. The valuation methodology for determining the
decline in value of non-marketable equity securities is based on inputs that require management
judgment and are Level 3 inputs.
(4) Investments
Investments consist principally of U.S. government and government agency obligations and
mortgage-backed securities and are classified as available-for-sale or held-to-maturity at June 30,
2009. Available-for-sale investments are reported at fair value with unrealized gains and losses
net of tax excluded from operations and reported as a separate component of stockholders equity,
except for other-than-temporary impairments, which are reported as a charge to current operations.
A loss would be recognized when there is an other-than-temporary impairment in the fair value of
any individual security classified as available-for-sale with the associated net unrealized loss
reclassified out of accumulated other comprehensive income with a corresponding adjustment to other
income (loss). This adjustment results in a new cost basis for the investment. Investments which
management has the intent and ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost. If there is an other-than-temporary impairment in the fair value of any
individual security classified as held-to-maturity, the Company will write down the security to
fair value with a corresponding adjustment to other income (loss). Interest on debt securities,
including amortization of premiums and accretion of discounts, is included in other income (loss).
Realized gains and losses from the sales of debt securities, which are included in other income
(loss), are determined using the specific identification method.
9
The original cost, unrealized holding gains and losses, and fair value of available-for-sale
investments as of June 30, 2009 and September 30, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Original Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
U.S. government obligations |
|
$ |
9,247 |
|
|
$ |
234 |
|
|
$ |
(9 |
) |
|
$ |
9,472 |
|
Mortgage-backed securities |
|
|
8,601 |
|
|
|
113 |
|
|
|
(183 |
) |
|
|
8,531 |
|
Municipal bonds |
|
|
8,200 |
|
|
|
239 |
|
|
|
|
|
|
|
8,439 |
|
Asset-backed securities |
|
|
3,336 |
|
|
|
60 |
|
|
|
(186 |
) |
|
|
3,210 |
|
Corporate bonds |
|
|
9,819 |
|
|
|
2 |
|
|
|
|
|
|
|
9,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,203 |
|
|
$ |
648 |
|
|
$ |
(378 |
) |
|
$ |
39,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
Original Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
U.S. government obligations |
|
$ |
18,440 |
|
|
$ |
91 |
|
|
$ |
(87 |
) |
|
$ |
18,444 |
|
Mortgage-backed securities |
|
|
10,147 |
|
|
|
46 |
|
|
|
(179 |
) |
|
|
10,014 |
|
Municipal bonds |
|
|
11,022 |
|
|
|
153 |
|
|
|
(3 |
) |
|
|
11,172 |
|
Asset-backed securities |
|
|
6,193 |
|
|
|
2 |
|
|
|
(171 |
) |
|
|
6,024 |
|
Corporate bonds |
|
|
4,582 |
|
|
|
8 |
|
|
|
(33 |
) |
|
|
4,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50,384 |
|
|
$ |
300 |
|
|
$ |
(473 |
) |
|
$ |
50,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The original cost and fair value of investments by contractual maturity at June 30,
2009 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
Debt securities due within: |
|
|
|
|
|
|
|
|
One year |
|
$ |
14,808 |
|
|
$ |
14,865 |
|
One to five years |
|
|
16,439 |
|
|
|
16,765 |
|
Five years or more |
|
|
7,956 |
|
|
|
7,843 |
|
|
|
|
|
|
|
|
Total |
|
$ |
39,203 |
|
|
$ |
39,473 |
|
|
|
|
|
|
|
|
The following table summarizes sales of available-for-sale securities for the
nine-month period ended June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
Proceeds from sales |
|
$ |
40,407 |
|
|
|
|
|
Gross realized gains |
|
$ |
770 |
|
|
|
|
|
Gross realized losses |
|
$ |
(10 |
) |
|
|
|
|
At June 30, 2009, the amortized cost and fair market value of held-to-maturity debt
securities was $6.3 million and $6.4 million, respectively. Investments in securities designated as
held-to-maturity consist of tax-exempt municipal bonds and have maturity dates ranging between one
and five years from June 30, 2009.
(5) Acquisition
PR Pharmaceuticals, Inc. On November 4, 2008, the Companys SurModics Pharmaceuticals, Inc.
(formerly Brookwood Pharmaceuticals, Inc.) subsidiary entered into an asset purchase agreement with
PR Pharmaceuticals, Inc. (PR Pharma) whereby it acquired certain contracts and assets of PR
Pharma for $3.4 million consisting of $2.9 million in cash on the closing date, additional
consideration of $0.3 million upon successful achievement of specified milestones in the three
months ended December 31, 2008 and $0.2 million in transaction costs. In the three months ended
June 30, 2009, certain milestones were achieved resulting in additional payments of $1.5 million
bringing the total payments to $5.5 million as of June 30, 2009. PR Pharma is eligible to receive
up to an additional $3.6 million in cash upon the successful achievement of milestones for contract
signing and invoicing, successful patent issuances and product
development.
Management believes this acquisition strengthens the Companys portfolio of drug delivery
technologies for the pharmaceutical and biotechnology industries. The purchase price was allocated
to the fair value
10
of the intangible assets acquired with a liability of $2.2 million recorded for
contingent consideration to be paid. The purchase price was allocated as follows as of November 4,
2008 (in thousands):
|
|
|
|
|
Core technology |
|
$ |
1,400 |
|
Customer relationships |
|
|
900 |
|
In-process research and development |
|
|
3,200 |
|
Trade names |
|
|
20 |
|
Non-compete agreements |
|
|
50 |
|
|
|
|
|
Total purchase price |
|
$ |
5,570 |
|
|
|
|
|
The acquired developed technology is being amortized on a straight-line basis over 18 years,
customer relationships are being amortized over 9 years, and non-compete agreements are being
amortized over 2 years. The trade names have a life of less than one year and have been amortized
in the first quarter of fiscal 2009. As part of the acquisition, the Company recognized fair value
associated with in-process research and development (IPR&D) of $3.2 million. The IPR&D was expensed
on the date of acquisition and relates to polymer-based drug delivery systems. The value assigned
to IPR&D is related to projects for which the related products have not achieved commercial
feasibility and have no future alternative use. The amount of purchase price allocated to IPR&D was
based on estimating the future cash flows of each project and discounting the net cash flows back
to their present values. The discount rate used was determined at the time of acquisition in
accordance with accepted valuation methods. These methodologies include consideration of the risk
of the project not achieving commercial feasibility. The research efforts ranged from 5% to 50%
complete at the date of acquisition. The Company used the Relief from Royalty valuation method to
assess the fair value of the projects with a risk adjusted discount rate of 25%. The Company
determined the method was appropriate based on the nature of the projects and future cash flow
streams. The research and development work performed is billed to customers, in most cases, using
standard commercial billing rates which include a reasonable markup. Accordingly, the Company has
no fixed cost obligations to carry projects forward. There have been no significant changes to the
development plans for the acquired incomplete projects. Significant net cash inflows would commence
with the commercial launch of customer products that are covered by
the intellectual property rights and related agreements acquired from
PR Pharma.
(6) 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, |
|
|
|
2009 |
|
|
2008 |
|
Raw materials |
|
$ |
1,345 |
|
|
$ |
1,308 |
|
Finished products |
|
|
1,764 |
|
|
|
1,343 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,109 |
|
|
$ |
2,651 |
|
|
|
|
|
|
|
|
(7) Other Assets
Other assets consist principally of strategic investments. The Company accounts for its
strategic investments under the cost method, except for SurModics Pharmaceuticals investment in
Aeon Biosience, which is accounted for under the equity method. The Company accounts for its
investment in OctoPlus N.V. common stock as an available-for-sale investment rather than a cost
method investment following an initial public offering of OctoPlus N.V. common stock in October
2006. Available-for-sale investments are reported at fair value with unrealized gains and losses
reported as a separate component of stockholders equity, except for other-than-temporary
impairments, which are reported as a charge to current operations, recorded in the other income
(loss) section of the condensed consolidated statements of income. The Companys original
investment in OctoPlus N.V. totaled $6.0 million and was adjusted to $1.7 million in fiscal 2008
based on a significant decline in the stock price of OctoPlus N.V. that was determined to be an
other-than-temporary impairment. The Company made an investment in Paragon Intellectual
Properties, LLC (Paragon) and a Paragon subsidiary, Apollo Therapeutics, LLC (Apollo). In
October 2008, Paragon, announced that it had restructured, along with its subsidiaries, including
Apollo, moving from a limited liability company with seven subsidiaries to a single C-corporation
named Nexeon MedSystems, Inc. The Company accounted for the investments in Paragon and Apollo under
the equity method in the first quarter of fiscal 2009, as both entities reported results to us on a
one-quarter lag. Commencing in the second quarter of fiscal 2009, the Company accounts for the
investment in Nexeon under the cost method as the Companys ownership level is less than 20%.
Other assets consisted of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
Investment in OctoPlus N.V. |
|
$ |
3,083 |
|
|
$ |
1,714 |
|
Investment in Nexeon MedSystems |
|
|
5,151 |
|
|
|
5,388 |
|
Investment in ThermopeutiX |
|
|
1,185 |
|
|
|
1,185 |
|
Investment in Novocell |
|
|
559 |
|
|
|
559 |
|
Other |
|
|
310 |
|
|
|
455 |
|
|
|
|
|
|
|
|
Other assets |
|
$ |
10,288 |
|
|
$ |
9,301 |
|
|
|
|
|
|
|
|
11
The Company recognized revenue of $0.6 million and $0.5 million for the three-month periods
ended June 30, 2009 and 2008, respectively, and recognized revenue of $1.2 million and $3.0 million
for the nine-month periods ended June 30, 2009 and 2008, respectively, from activity with companies
in which it had a strategic investment.
(8) Intangible Assets
Intangible assets consist principally of acquired patents and technology, customer
relationships, licenses, and trademarks. The Company recorded amortization expense of $0.4 million
and $0.7 million for the three-month periods ended June 30, 2009 and 2008, respectively. The
Company recorded amortization expense of $1.7 million and $2.2 million for the nine-month periods
ended June 30, 2009 and 2008, respectively.
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life |
|
|
June 30, |
|
|
September 30, |
|
|
|
(in years) |
|
|
2009 |
|
|
2008 |
|
Customer list |
|
|
9 11 |
|
|
$ |
8,657 |
|
|
$ |
7,340 |
|
Abbott license |
|
|
4 |
|
|
|
|
|
|
|
7,037 |
|
Core technology |
|
|
8 18 |
|
|
|
8,330 |
|
|
|
6,930 |
|
Patents and other |
|
|
2 20 |
|
|
|
3,542 |
|
|
|
3,398 |
|
Trademarks |
|
|
|
|
|
|
600 |
|
|
|
580 |
|
Less accumulated amortization of intangible assets |
|
|
|
|
|
|
(2,896 |
) |
|
|
(8,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
$ |
18,233 |
|
|
$ |
16,870 |
|
|
|
|
|
|
|
|
|
|
|
|
The Abbott license was fully amortized as of June 30, 2009. The original cost and accumulated
amortization have been removed from the June 30, 2009 amounts presented.
Based on the intangible assets in service as of June 30, 2009, estimated amortization expense
for each of the next five fiscal years is as follows (in thousands):
|
|
|
|
|
Remainder of 2009 |
|
$ |
401 |
|
2010 |
|
|
1,656 |
|
2011 |
|
|
1,633 |
|
2012 |
|
|
1,631 |
|
2013 |
|
|
1,631 |
|
2014 |
|
|
1,631 |
|
Future amortization amounts presented above are estimates. Actual future amortization expense
may be different, due to future acquisitions, impairments, changes in amortization periods, or
other factors.
(9) Goodwill
Goodwill represents the excess of the cost of the acquired entities over the fair value
assigned to the assets purchased and liabilities assumed in connection with the Companys
acquisitions. The carrying amount of goodwill is evaluated annually, and between annual evaluations
if events occur or circumstances change indicating that the carrying amount of goodwill may be
impaired.
In the second quarter of fiscal 2009 a milestone was achieved associated with the July 2007
acquisition of SurModics Pharmaceuticals, Inc. (formerly Brookwood Pharmaceuticals, Inc.) and $3
million of additional purchase price was recorded as an increase to goodwill.
(10) Revolving Credit Facility
In February 2009, the Company entered into a two-year $25.0 million unsecured revolving credit
facility. Borrowings under the credit facility, if any, will bear interest at a benchmark rate plus
an applicable margin based upon the Companys funded debt to EBITDA ratio. In connection with the
credit facility, the Company is required to maintain certain financial and nonfinancial covenants.
As of June 30, 2009, the Company had no debt outstanding under this credit facility and was in
compliance with all covenants.
12
(11) Stock-based Compensation
The Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards 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
Companys stock-based compensation expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Product costs |
|
$ |
19 |
|
|
$ |
44 |
|
|
$ |
65 |
|
|
$ |
131 |
|
Research and development |
|
|
747 |
|
|
|
867 |
|
|
|
2,566 |
|
|
|
2,743 |
|
Selling, general and administrative |
|
|
590 |
|
|
|
919 |
|
|
|
2,357 |
|
|
|
4,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,356 |
|
|
$ |
1,830 |
|
|
$ |
4,988 |
|
|
$ |
7,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, approximately $10.0 million of total unrecognized compensation costs
related to non-vested awards is expected to be recognized over a weighted average period of
approximately 1.4 years. The unrecognized compensation costs include $3.9 million associated with
performance share awards that are currently not anticipated to be fully expensed.
Stock Option Plans
The Company uses the Black-Scholes option pricing model to determine the weighted average fair
value of options. The weighted average fair value of options granted during the three-month periods
ended June 30, 2009 and 2008 was $7.28 and $13.72, respectively. The weighted average fair value of
options granted during the nine-month periods ended June 30, 2009 and 2008 was $8.39 and $18.46,
respectively. The assumptions used as inputs in the model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Risk-free interest rates |
|
|
2.0 |
% |
|
|
2.9 |
% |
|
|
2.2 |
% |
|
|
3.2 |
% |
Expected life (years) |
|
|
4.8 |
|
|
|
4.1 |
|
|
|
4.8 |
|
|
|
5.1 |
|
Expected volatility |
|
|
40.2 |
% |
|
|
33.9 |
% |
|
|
38.2 |
% |
|
|
39.7 |
% |
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 a 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. Options granted prior to May 2008
generally become exercisable with respect to 20% of the shares on each of the first five
anniversaries following the grant date such that the entire option is fully vested five years after
date of grant, and options granted subsequent to May 2008 generally become exercisable with respect
to 25% on each of the first four anniversaries following the grant date such that the entire option
is fully vested four years after the grant date.
The total pre-tax intrinsic value of options exercised during the three-month periods ended
June 30, 2009 and 2008 was $145,000 and $1,387,000, respectively. During the nine-month periods
ended June 30, 2009 and 2008, the total pre-tax intrinsic value of options exercised was $242,000
and $2,455,000, respectively. This intrinsic value represents the difference between the exercise
price and the fair market value of the Companys common stock on the last day of the respective
fiscal period end.
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 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 $330,000, and $1,464,000 during three-month
and nine-month periods ended June 30, 2009, respectively, and $474,000 and $1,680,000 for the
three-month and nine-month periods ended June 30, 2008, respectively.
13
Performance Share Awards
Historically, 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, 2009, the Company reversed
expenses previously recognized of $144,000 and $173,000, respectively, associated with the
Performance Shares granted. The Company recognized expenses of $867,000 and $1,175,000 for the
three-month and nine-month periods ended June 30, 2008, respectively. The stock-based compensation
table above includes the Performance Shares expenses.
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, with a limit of $25,000, to purchase the
Companys Common Stock at purchase prices defined within the provisions of the Stock Purchase Plan.
As of June 30, 2009 and 2008, there were $221,000 and $216,000 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 the
three-month periods ended June 30, 2009 and 2008 totaled $72,000 and $58,000, respectively. Stock
compensation expense for the nine-month periods ended June 30, 2009 and 2008 totaled $193,000 and
$141,000, respectively. The stock-based compensation table above includes the Stock Purchase Plan
expenses.
(12) Restructuring Charges
In November 2008, the Company announced a functional reorganization to better serve its
customers and improve its operating performance. As a result of the reorganization, the Company
eliminated 15 positions, or approximately 5% of the Companys workforce. These employee
terminations occurred across various functions and the reorganization plan was completed by the end
of the first quarter of fiscal 2009. The Company also vacated a leased facility in Eden Prairie,
Minnesota, consolidating into its owned office and research facility also in Eden Prairie, as part
of the reorganization plan.
The Company recorded total restructuring charges of approximately $1.8 million in connection
with the reorganization. These pre-tax charges consisted of $0.5 million of severance pay and
benefits expenses and $1.3 million of facility-related costs which were recorded in the first
quarter of fiscal 2009. The restructuring is expected to result in approximately $2.2 million in
annualized cost savings.
The following table summarizes the restructuring accrual activity for the first nine months of
fiscal 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
Facility- |
|
|
|
|
|
|
severance and |
|
|
related |
|
|
|
|
|
|
benefits |
|
|
costs |
|
|
Total |
|
Balance at September 30, 2008 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accruals during the period |
|
|
523 |
|
|
|
1,275 |
|
|
|
1,798 |
|
Cash payments |
|
|
(513 |
) |
|
|
(139 |
) |
|
|
(652 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
10 |
|
|
$ |
1,136 |
|
|
$ |
1,146 |
|
|
|
|
|
|
|
|
|
|
|
The charges above have been shown separately as restructuring charges on the condensed
consolidated statements of income. The remaining accrual as of June 30, 2009 relates to
facility-related costs that are expected to be paid within the next 18 months. As such, the current
portion totaling $0.6 million is recorded as a current liability within other accrued liabilities
and the long-term portion totaling $0.5 million is recorded as a long-term liability within other
long-term liabilities on the condensed consolidated balance sheets.
14
(13) Comprehensive Income
The components of comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
3,539 |
|
|
$ |
4,800 |
|
|
$ |
34,840 |
|
|
$ |
15,553 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains
(losses) on available-for-sale
securities arising during the
period |
|
|
980 |
|
|
|
(1,575 |
) |
|
|
1,586 |
|
|
|
(2,457 |
) |
Less reclassification adjustment
for realized gains included in
net income, net of tax |
|
|
(285 |
) |
|
|
(39 |
) |
|
|
(479 |
) |
|
|
(843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
695 |
|
|
|
(1,614 |
) |
|
|
1,107 |
|
|
|
(3,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
4,234 |
|
|
$ |
3,186 |
|
|
$ |
35,947 |
|
|
$ |
12,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) Income Taxes
The Company recorded income tax provisions of $1.9 million and $3.0 million for the
three-month periods ended June 30, 2009 and 2008, respectively, representing effective tax rates of
35.1% and 38.5%, respectively. The Company recorded income tax provisions of $20.5 million and $9.9
million for the nine-month periods ended June 30, 2009 and 2008, respectively, representing
effective tax rates of 37.0% and 38.9%, respectively. The difference between the U.S. federal
statutory tax rate of 35% and the Companys effective tax rate is primarily due to state taxes.
The federal tax credit for research activities expired as of December 31, 2007. The credit for
research activities for the three-months ended December 31, 2007 has been included in the fiscal
2008 tax provision. The October 2008 adoption of the Emergency Economic Stabilization Act of 2008,
retroactively extended the term of the research credit through 2009. During the nine-month period
ended June 30, 2009, the Company recognized a discrete benefit of approximately $120,000 related to
the nine-month period ended September 30, 2008. The tax credit for research activities for the
2009 fiscal year is expected to approximate $170,000.
The total amount of unrecognized tax benefits including interest and penalties that, if
recognized, would affect the effective tax rate as of June 30, 2009 and September 30, 2008,
respectively, are $1.8 million and $1.3 million. Currently, the Company does not expect the
liability for unrecognized tax benefits to change significantly in the next twelve months. Interest
and penalties related to the unrecognized tax benefits are recorded in income tax expense.
The Company files income 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. With few exceptions, the Company is no longer
subject to examination by state and local tax authorities for tax returns associated with tax years
prior to fiscal year 2003.
(15) 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.
The Company manages its business on the basis of the segments noted in the table below, which
are comprised of the Companys four business units. The Company reorganized business units in
November 2008, which resulted in new operating segments which are aggregated into one reportable
segment. The Therapeutic segment contains: (1) the Cardiovascular business unit, which provides
drug delivery and surface modification technologies to customers in the cardiovascular market; (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 SurModics Pharmaceuticals business unit, which
provides proprietary polymer-based drug delivery technologies to companies developing improved
pharmaceutical products in cardiovascular, ophthalmology and other clinical markets. Revenue
results in the Therapeutic segment are presented below by the clinical market areas in which the
Companys customers participate (Cardiovascular, Ophthalmology and Other Markets). The Diagnostic
operating segment contains the In Vitro Technologies business unit, which includes the Companys
microarray 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 business unit 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
15
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 segments, with Therapeutic broken out further by
market-focused area, for the three-month and nine-month periods in fiscal 2009 and 2008, (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Therapeutic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular |
|
$ |
10,063 |
|
|
$ |
11,624 |
|
|
$ |
30,036 |
|
|
$ |
36,499 |
|
Ophthalmology |
|
|
1,770 |
|
|
|
3,151 |
|
|
|
50,252 |
|
|
|
7,664 |
|
Other Markets |
|
|
3,500 |
|
|
|
3,798 |
|
|
|
10,197 |
|
|
|
12,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Therapeutic |
|
|
15,333 |
|
|
|
18,573 |
|
|
|
90,485 |
|
|
|
57,111 |
|
Diagnostic |
|
|
2,853 |
|
|
|
5,703 |
|
|
|
11,842 |
|
|
|
16,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
18,186 |
|
|
$ |
24,276 |
|
|
$ |
102,327 |
|
|
$ |
73,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16) 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
nine months ended June 30, 2009, the Company repurchased 623,748 shares for $15.0 million at an
average price of $24.05 per share in open-market transactions. As of June 30, 2009, $7.3 million
remains authorized and available for future purchases under the repurchase program.
(17) Subsequent Events
Subsequent events have been evaluated through August 7, 2009, the date the financial
statements were issued.
On
July 31, 2009, SurModics Pharmaceuticals was named as a defendant in a lawsuit associated with SurModics
acquisition of SurModics Pharmaceuticals. Pursuant to the terms of
the stock purchase agreement with Southern Research Institute
(SRI), the Company has notified SRI of its intent to
claim indemnification from SRI and no expenses or liabilities related to this lawsuit
have been included in the Companys financial statements.
SurModics Pharmaceuticals intends to vigorously defend itself in the
lawsuit.
On
August 7, 2009 the Company made a $2 million strategic
investment in a private medical technology company.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Understanding Our Financial Information
References in the Managements Discussion and Analysis of Financial Condition and Results of
Operations to Company, we, our, or us, refer to SurModics, Inc. together with its
consolidated subsidiaries. The following discussion and analysis provides information management
believes to be relevant to understanding the financial condition and results of operations of
SurModics, Inc. For a full understanding of financial condition and results of operations, you
should read this discussion along with Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30,
2008. In addition, you should read this discussion along with our condensed consolidated financial
statements and related Notes thereto as of June 30, 2009.
Overview
SurModics is a leading provider of drug delivery and surface modification technologies to the
healthcare industry. In November 2008, we announced a change in our organizational structure into
four clinically and market focused business units: Cardiovascular, Ophthalmology, In Vitro
Technologies, and SurModics Pharmaceuticals (formerly Brookwood Pharmaceuticals). We believe that
this structure will improve the visibility, marketing and adoption of the Companys broad array of
technologies within specific markets and help our customers in the medical device, pharmaceutical
and life science industries better solve unmet clinical needs. In addition, a new centralized
research and development function has been formed to serve the needs of the Companys clinically
and market focused business units. SurModics Pharmaceuticals research and development operations
remained unchanged.
The reorganization change announced in November 2008 resulted in the Company being comprised
of new operating segments. The Therapeutic segment contains: (1) the Cardiovascular business
unit, which provides drug delivery and surface modification technologies to customers in the
cardiovascular market; (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 SurModics Pharmaceuticals business
unit, which provides proprietary polymer-based drug delivery technologies to companies developing
improved pharmaceutical products. Revenue results in the Therapeutic segment are presented by the
clinical market areas in which our customers participate (Cardiovascular, Ophthalmology and Other
Markets). The Diagnostic operating segment contains the In Vitro Technologies business unit,
which includes our microarray 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 is derived from three primary sources: (1) royalties and license fees from licensing
our patented drug delivery and surface modification 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 polymers and reagent chemicals,
stabilization products, antigens, substrates and microarray slides to the diagnostics and
biomedical research industry; 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 licensed 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.
For financial accounting and reporting purposes, we treat our operating segments as one
reportable segment. We made this determination because each operating segment has similar economic
characteristics; 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.
In June 2007, we signed a collaborative research and license agreement with Merck & Co., Inc.
(Merck) to pursue the joint development and commercialization of the I-vationTM
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
had the potential to 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.
In September 2008, following a strategic review of its business and product development
portfolio, Merck gave notice that it was terminating the collaborative research and license
agreement, as well as the supply agreement entered into in June 2007. This decision was not based
on any concerns about the safety or efficacy of the I-vation system. The termination was effective
December 16, 2008, and we have recognized revenue related to the termination of approximately $45
million in the first nine-months of fiscal 2009, principally from amounts that previously had been
deferred and amortized under the accounting treatment required by Emerging Issues Task Force Issue
No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, (EITF 00-21)
17
which totaled approximately $35 million and from a $9 million milestone payment associated with the
termination of the triamcinolone acetonide development program.
In November 2008, we acquired a portfolio of intellectual property and collaborative drug
delivery projects from PR Pharmaceuticals, Inc., a drug delivery company specializing in
injectable, biodegradable sustained release formulations. Total consideration paid through June 30,
2009 was $5.5 million and PR Pharmaceuticals, Inc. is eligible to receive up to an additional $3.6
million in cash upon successful achievement of specified milestones. The proprietary technologies
we acquired complement and enhance the existing portfolio of drug delivery capabilities available
from SurModics and SurModics Pharmaceuticals by providing a broader toolkit for protein delivery
and the ability to use smaller gauge needles for microparticle injections. In addition, the
multiple customer development programs we assumed complement the diversified portfolio of customer
projects at SurModics Pharmaceuticals and we believe will further leverage the investment we are
making in cGMP manufacturing facilities.
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 consolidated financial
statements included in our Annual Report on Form 10-K for the year ended September 30, 2008.
Results of Operations third quarter of fiscal 2009 compared with third quarter of fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Increase |
|
|
% Increase |
|
|
|
(Dollars in thousands) |
|
|
(Decrease) |
|
|
(Decrease) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Therapeutic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular |
|
$ |
10,063 |
|
|
$ |
11,624 |
|
|
$ |
(1,561 |
) |
|
|
(13 |
)% |
Ophthalmology |
|
|
1,770 |
|
|
|
3,151 |
|
|
|
(1,381 |
) |
|
|
(44 |
)% |
Other Markets |
|
|
3,500 |
|
|
|
3,798 |
|
|
|
(298 |
) |
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Therapeutic |
|
|
15,333 |
|
|
|
18,573 |
|
|
|
(3,240 |
) |
|
|
(17 |
)% |
Diagnostic |
|
|
2,853 |
|
|
|
5,703 |
|
|
|
(2,850 |
) |
|
|
(50 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
18,186 |
|
|
$ |
24,276 |
|
|
$ |
(6,090 |
) |
|
|
(25 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Revenue for the third quarter of fiscal 2009 was $18.2 million, a decrease of $6.1
million, or 25%, compared with the third quarter of fiscal 2008. The decreases in Therapeutic and
Diagnostic segment revenue, as detailed in the table above, are further explained in the narrative
below.
Therapeutic. Revenue in the Therapeutic segment was $15.3 million in the third quarter of
fiscal 2009, a 17% decrease compared with $18.6 million in the prior-year period. The decrease in
total revenue was driven by lower royalties and license fees as well as lower research and
development revenue. Therapeutic revenue was further characterized by the market-focused areas
detailed above.
Cardiovascular 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 coronary artery lesions. The CYPHER® stent faces continuing
competition from Boston Scientific, Medtronic, and Abbott. These stents compete directly with the
CYPHER® stent both domestically and internationally. Future royalty and reagent sales
revenue could decrease due to lower CYPHER® stent sales as a result of the ongoing and
expected future competition. We anticipate that quarterly royalty revenue from the
CYPHER® stent may be volatile throughout fiscal 2009 and beyond as the various marketers
of drug-eluting stents compete in the marketplace and as others enter
the marketplace. We also receive a royalty on sales
of the Medtronic Endeavor® drug-eluting stent system incorporating our hydrophilic
technology, which recently received regulatory approval in Japan.
Cardiovascular revenue decreased $1.6 million, or 13%, in the third quarter of fiscal 2009,
compared with the third quarter of fiscal 2008 principally as a result of lower royalties and
license fees and research and development revenue. Our broad portfolio of revenue streams helped
dampen the decrease in royalty revenue from Cordis as a result of 41% lower CYPHER®
sales.
Ophthalmology revenue decreased $1.4 million, or 44%, in the third quarter of fiscal 2009,
compared with the third quarter of fiscal 2008. Decreased royalties and license fees was the key
contributor. In the third quarter of fiscal 2008 we recognized $0.9 million of amortization of
deferred revenue, following the accounting treatment under EITF 00-21, associated with our Merck
agreement.
18
Other Markets revenue decreased $0.3 million, or 8%, in the third quarter of fiscal 2009,
compared with the third quarter of fiscal 2008. Lower research and development revenue was the main
contributor to the decrease. Other Markets revenue is derived from more than 50 customers.
Diagnostic. Revenue in the Diagnostic segment was $2.9 million in the third quarter of fiscal
2009, a decrease of 50% compared with $5.7 million in the prior-year period. This decrease was
attributable to lower royalties and license fees in the third quarter of fiscal 2009. In past
quarters, Diagnostic derived a significant percentage of revenue from
Abbott Laboratories. The second quarter of fiscal 2009 was the last
quarter in which we received royalty revenue from our diagnostic format patent license agreement with Abbott Laboratories
(the Abbott Agreement). Royalty revenue was approximately $2.8
million for the third quarter of fiscal 2008. Product sales in the Diagnostic segment increased 3%
compared with the third quarter of fiscal 2008.
Product costs. Product costs were $2.0 million in the third quarter of fiscal 2009, compared
with $1.8 million in the prior-year period. The $0.2 million increase in product costs principally
reflects higher product sales. Overall product margins averaged 61%, compared with 60% reported
last year. The increase in product margins reflects the mix of products sold in the current period.
Research and development expenses. Research and development expenses were $7.6 million for the
third quarter, a decrease of 27% compared with $10.5 million for the third quarter of fiscal 2008.
The decrease principally reflects lower compensation expense as a result of lower headcount, which
has decreased by 19 and 18 employees compared with June 30 and September 30, 2008, respectively,
lower outlays for project-related materials, and the benefits of a more centralized research and
development function in connection with our November 2008 restructuring. Compensation expense has
decreased approximately $1.1 million as a result of the lower headcount. Lower project activity has
reduced material costs by approximately $1.2 million, including $0.5 million of out-of-pocket
expenses associated with our Merck projects in the third quarter of fiscal 2008, which were not
incurred in the third quarter of fiscal 2009 as a result of the termination of the Merck agreement
in December 2008.
Selling, general and administrative expenses. Selling, general and administrative expenses
were $3.9 million for the three months ended June 30, 2009, a decrease of $0.9 million, or 19%,
compared with the three months ended June 30, 2008. The decrease is primarily a result of lower
compensation expenses and legal costs.
Other income. Other income was $0.8 million in the third quarter of fiscal 2009, compared with
$0.6 million in the third quarter of fiscal 2008. Income from investments was $0.4 million,
compared with $0.7 million in the prior-year period. The decrease primarily reflects lower
investment balances. In fiscal 2009, other income included $0.4 million from realized gains in our
investment portfolio.
Income tax expense. The income tax provision was $1.9 million in the third quarter of fiscal
2009, compared with $3.0 million in the prior-year period. The effective tax rate was 35.1%,
compared with 38.9% in the prior-year period. The decrease in the effective tax rate is primarily
attributable to state taxes, lower incentive stock option deductions and FIN 48 tax reserve impact.
These three factors generated effective tax rate percentage point benefits of 2.0%, 0.8% and 0.7%,
respectively.
Results of Operations nine months of fiscal 2009 compared with nine months of fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Increase |
|
|
% Increase |
|
|
|
(Dollars in thousands) |
|
|
(Decrease) |
|
|
(Decrease) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Therapeutic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cardiovascular |
|
$ |
30,036 |
|
|
$ |
36,499 |
|
|
$ |
(6,463 |
) |
|
|
(18 |
)% |
Ophthalmology |
|
|
50,252 |
|
|
|
7,664 |
|
|
|
42,588 |
|
|
|
556 |
% |
Other Markets |
|
|
10,197 |
|
|
|
12,948 |
|
|
|
(2,751 |
) |
|
|
(21 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Therapeutic |
|
|
90,485 |
|
|
|
57,111 |
|
|
|
33,374 |
|
|
|
58 |
% |
Diagnostic |
|
|
11,842 |
|
|
|
16,701 |
|
|
|
(4,859 |
) |
|
|
(29 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
102,327 |
|
|
$ |
73,812 |
|
|
$ |
28,515 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Total revenue for the first nine months of fiscal 2009 was $102.3 million, an
increase of $28.5 million, or 39%, compared with the same period of fiscal 2008. The increase in
Therapeutic segment revenue more than offset the decrease in the Diagnostic segment, as detailed in
the table above and further explained in the narrative below.
Therapeutic. Revenue in the Therapeutic segment was $90.5 million in the first nine months of
fiscal 2009, a 58% increase compared with $57.1 million in the prior-year period. The increase in
total revenue reflects the recognition of revenue of approximately $45 million associated with the
terminated Merck collaborative research and license agreement. Excluding these significant
event-specific items, revenue decreased $11.6 million, or 20%.
19
Cardiovascular revenue decreased $6.5 million, or 18%, in the first nine months of fiscal
2009, compared with the first nine months of fiscal 2008, with the decrease principally in
royalties and license fees. Our royalty revenue from Cordis decreased approximately 37%, which
reflects the decrease in CYPHER® stent sales.
Ophthalmology revenue increased $42.6 million in the first nine months of fiscal 2009,
compared with the first nine months of fiscal 2008. The significant increase principally reflects
the recognition of approximately $45 million of previously deferred revenue associated with the
terminated collaborative research and license agreement with Merck and a milestone payment
associated with the termination of the triamcinolone acetonide development program.
Ophthalmology revenue, excluding the Merck event-specific items in the first nine months of
fiscal 2009 and amortization of revenue in the first nine months of fiscal 2008, decreased $0.4
million, or 7%, principally as a result of lower research and development revenue.
Other Markets revenue decreased $2.8 million, or 21%, in the first nine months of fiscal 2009,
compared with the first nine months of fiscal 2008. Lower research and development revenue was the
main contributor to the decrease. Selected customers have delayed or slowed down projects in fiscal
2009 based on various factors including current economic conditions.
Diagnostic. Revenue in the Diagnostic segment was $11.8 million in the first nine months of
fiscal 2009, a decrease of 29% compared with $16.7 million in the prior-year period. This decrease
was mainly attributable to lower royalties and license fees, as royalty revenue generated under our
diagnostic format patent license agreement with Abbott Laboratories decreased 51% compared with the
nine months ended June 30, 2008.
Product costs. Product costs were $5.3 million in the first nine months of fiscal 2009,
compared with $5.9 million in the prior-year period. The $0.6 million decrease in product costs
principally reflects lower product sales. Overall product margins averaged 61%, compared with 59%
reported last year. The increase in product margins reflects the mix of products sold in the first
nine months of fiscal 2009.
Research and development expenses. Research and development expenses were $25.5 million for
the first nine months of fiscal 2009, a decrease of 16% compared with the first nine months of
fiscal 2008. The decrease was driven principally by reduced compensation expense as lower headcount
from our November 2008 restructuring generated cost savings, as well as reduced outlays for
project-related materials and expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses
were $13.0 million for the nine months ended June 30, 2009, a decrease of 16% compared with the
prior-year period. The prior-year period included $1.6 million of stock-based compensation expenses
principally as a result of transitions on our Board of Directors. The decrease also reflects lower
outside service costs, which were offset somewhat by higher facilities expenses.
Purchased in-process research and development. In November 2008, we acquired certain assets
comprised of intellectual property and collaborative programs from PR Pharmaceuticals, Inc. The
fair value of $3.2 million associated with the in-process research and development intangible asset
was determined by management and recognized as an expense in the nine months ended June 30, 2009.
Restructuring charges. In November 2008, we announced a functional reorganization to better
serve our customers and improve our operating performance. As a result of the reorganization, we
eliminated 15 positions, or approximately 5% of our workforce. These employee terminations occurred
across various functions, and the reorganization plan was completed by the end of the first quarter
of fiscal 2009. The reorganization also resulted in SurModics vacating a leased office facility in
Eden Prairie, Minnesota, consolidating into our owned office and research facility also in Eden
Prairie.
We recorded total restructuring charges of approximately $1.8 million in connection with the
reorganization. These pre-tax charges consisted of $0.5 million of severance pay and benefits
expenses and $1.3 million of facility-related costs. Costs totaling $0.7 million have been paid and
we anticipate paying the remaining $1.1 million within the next eighteen months.
Other income. Other income was $1.8 million in the first nine months of fiscal 2009, compared
with $3.5 million in the first nine months of fiscal 2008. Income from investments was $1.5
million, compared with $2.7 million in the prior-year period. The decrease primarily reflects lower
investment balances and lower yields on investments during the past several months. We also
recognized gains of $0.8 million on our investment portfolio in fiscal 2009, partially offset by
our pro rata net loss on our equity method investments. In fiscal 2008, other income included a
$1.0 million gain on our investment in ForSight Newco II, which was acquired by QLT Inc. in October
2007. Partially offsetting this gain was our pro rata net loss on our equity method investments.
Income tax expense. The income tax provision was $20.5 million in the first nine months of
fiscal 2009, compared with $9.9 million in the prior-year period. The effective tax rate was 37.0%,
compared with 38.9% in the prior-year period. The decrease in the effective tax rate is primarily
attributable to state taxes, FIN 48 tax reserve impact and tax credits. These three factors
generated effective tax rate percentage point benefits of 0.8%, 0.3% and 0.3%, respectively.
20
Liquidity and Capital Resources
As of June 30, 2009, the Company had working capital of $29.7 million. Working capital
decreased $4.3 million compared with September 30, 2008, driven principally by lower cash and cash
equivalents balances, lower accounts receivable and lower prepaid balances, partially offset by
lower deferred revenue following the termination of the Merck agreement. Our cash, cash equivalents
and short-term and long-term investments totaled $51.5 million at June 30, 2009, a $20.5 million
decrease from $72.0 million at September 30, 2008. The
decrease is primarily a result of our investment
in property, plant and equipment of $21.7 million in the nine months ended June 30, 2009. 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 continues 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 $24.8 million in the first nine
months of fiscal 2009, compared with $22.6 million in the first nine months of fiscal 2008. The
increase compared with prior-year results primarily reflects cash generated by accounts receivable
and lower income tax payments, offset by cash used by accounts payable and accrued liabilities.
In November 2007, our 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 nine
months ended June 30, 2009, the Company repurchased 623,748 shares for $15.0 million at an average
price of $24.05 per share, leaving $7.3 million remaining available for future purchases under the
repurchase program.
In February 2009, we entered into a two-year $25.0 million unsecured revolving credit
facility. Borrowings under the credit facility, if any, will bear interest at a benchmark rate plus
an applicable margin based upon our funded debt to EBITDA ratio. In connection with the credit
facility, we are required to maintain certain financial and nonfinancial covenants. As of June 30,
2009, we had no borrowings outstanding under this credit facility and were not in violation of any
of the covenants.
As of June 30, 2009, we had no debt outstanding. We believe that our existing cash, cash
equivalents and investments, together with cash flow from operations and availability under the
revolving credit facility, will provide liquidity sufficient to meet our needs for the foreseeable
future. Our remaining anticipated liquidity needs for fiscal 2009 include, but are not limited to,
the following: capital expenditures related to our Alabama facilities in the range of $5 million to
$7 million; general capital expenditures in the range of $2 million to $4 million; any amounts
associated with contingent consideration payments related to our acquisitions of SurModics
Pharmaceuticals, BioFX or PR Pharmaceuticals; and any amounts associated with the repurchase of
common stock under the authorization discussed above.
As of June 30, 2009, 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 expressions. Any
statement that is not a 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 our growth strategy, financial prospects, expense
expectations, product development programs, sales efforts, sufficiency of capital resources,
anticipated liquidity needs, 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:
|
|
|
the Companys significant reliance on our relationship with 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 the outcome of which could adversely affect the royalty
revenue we derive based on the sales of licensed products; |
21
|
|
|
general economic conditions we are subject to which are beyond our control,
including the impact of recession, business investment and changes in consumer
confidence; |
|
|
|
|
frequent intellectual property litigation in the medical device and
pharmaceutical industries that may directly or indirectly adversely affect our
customers ability to market their products incorporating our technologies; |
|
|
|
|
our ability to protect our own intellectual property; |
|
|
|
|
healthcare reform efforts and reimbursement rates for medical device and
pharmaceutical products that may adversely affect our customers ability to
cost-effectively market and sell devices and pharmaceuticals incorporating our
technologies; |
|
|
|
|
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, changes in the development and marketing priorities of our licensees
and development partners and the Companys ability to maintain satisfactory
relationships with our licensees; |
|
|
|
|
the Companys ability to increase the number of market segments and
applications that use our technologies through our sales and marketing and
research and development efforts; |
|
|
|
|
the Companys ability to facilitate the creation of new market segments and
applications that incorporate our technologies through strategic investment and
research and development support; |
|
|
|
|
market acceptance of products sold by customers incorporating our technologies
and the timing of new product introductions by licensees; |
|
|
|
|
market acceptance of products sold by our customers competitors and the timing
and pricing of new product introductions by customers competitors; |
|
|
|
|
the difficulties and uncertainties associated with the lengthy and costly new
product development and foreign and domestic regulatory approval processes,
such as delays, difficulties or failures in achieving acceptable clinical
results or obtaining foreign or FDA marketing clearances or approvals, which
may result in lost market opportunities or postpone or preclude product
commercialization by licensees; |
|
|
|
|
efficacy or safety concerns with respect to products marketed by us and our
licensees, whether scientifically justified or not, that may lead to product
recalls, withdrawals or declining sales; |
|
|
|
|
the ability to secure raw materials for reagents the Company sells; |
|
|
|
|
the Companys ability to successfully manage clinical trials and related
foreign and domestic regulatory processes for the I-vation TM
intravitreal implant or other products under development by the Company,
whether delays, difficulties or failures in achieving acceptable clinical
results or obtaining foreign or FDA marketing clearances or approvals postpone
or preclude product commercialization of the intravitreal implant or other
products, and whether the intravitreal implant and any other products remain
viable commercial prospects; |
|
|
|
|
product liability claims not covered by insurance; |
|
|
|
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the development of new products or technologies by competitors, technological
obsolescence and other changes in competitive factors; |
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the trend of consolidation in the medical device and pharmaceutical industry,
resulting in more significant, complex and long term contracts than in the past
and potentially greater pricing pressures; |
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the Companys ability to identify suitable businesses to acquire or with whom
to form strategic relationships to expand our technology development and
commercialization, our ability to successfully integrate the operations of
companies it may acquire from time to time and our ability to create synergies
from acquisitions and other strategic relationships; |
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the Companys ability to successfully internally perform certain product
development activities and governmental and regulatory compliance activities
which the Company has not previously undertaken in any significant manner; |
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the Companys ability to successfully complete construction of its
manufacturing facility in Birmingham, Alabama, and attract customers to utilize
the facilitys manufacturing capabilities; |
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acts of God or terrorism which impact the Companys personnel or facilities; and |
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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 statements and to consult any further disclosures by
the Company on this subject in our filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except as noted in this Item 3, there have been no material changes in our exposure to market
risk or to our quantitative and qualitative disclosures about market risk as disclosed in our Form
10-K for the fiscal year ended September 30, 2008.
22
The Companys investment policy requires the Company to invest in 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 policies, 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 $520,000
decrease in the fair value of the Companys available-for-sale and held-to-maturity securities as
of June 30, 2009, 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, 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 Rule 13a-15(e) and
15d-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 June
30, 2009, to ensure that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC rules and forms.
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. In fiscal 2009, the
Company has integrated the accounting system used by BioFX Laboratories, Inc. into SurModics
corporate accounting platform. Management does not believe that this implementation has adversely
affected the Companys internal control over financial reporting.
23
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in the legal proceedings previously disclosed in our
Form 10-K for the fiscal year ended September 30, 2008.
On April 27, 2009, certain former employees of Southern Research Institute (SRI) filed suit
in the Circuit Court of Jefferson County, Alabama against SRI. In the complaint, the plaintiffs
seek certain unspecified damages (including punitive damages) based on claims of negligence, breach
of contract, breach of fiduciary duties, and other tort-based claims arising out of the Companys
acquisition of Brookwood Pharmaceuticals, Inc. (now SurModics Pharmaceuticals) made pursuant to a
stock purchase agreement between the Company and SRI dated July 31, 2007 (the Stock Purchase
Agreement). On July 31, 2009, the plaintiffs amended their
complaint to name SurModics Pharmaceuticals as a
defendant, asserting claims substantially similar to those previously asserted against SRI.
Pursuant to the Stock Purchase Agreement, the Company has notified
SRI of its intent to claim indemnification from SRI with
respect to losses (including without limitation, damages, expenses, reasonable attorneys fees, and
costs) incurred as a result of the litigation. The Companys financial statements do not include
any expenses or liabilities related to the above actions as the probability of the outcome is
currently not determinable and any potential loss is not estimable. The Company believes it has
meritorious defenses to the plaintiffs claims and will vigorously defend itself in the lawsuit.
Item 1A. Risk Factors.
There have been no material changes from risk factors as previously disclosed in our Form 10-K
for the fiscal year ended September 30, 2008 in response to Item 1A to Part I of Form 10-K.
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, 2009, 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.
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(c) |
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(d) |
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Total Number |
|
Dollar |
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|
|
|
|
|
|
|
|
|
of Shares |
|
Value of |
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Purchased |
|
Shares that |
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as Part of |
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May Yet Be |
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(a) |
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(b) |
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Publicly |
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Purchased |
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|
Total Number |
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Average |
|
Announced |
|
Under the |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Plans or |
Period |
|
Purchased(1) |
|
Per Share |
|
Programs |
|
Programs(2) |
|
4/01/09 4/30/09 |
|
|
2,721 |
|
|
$ |
21.70 |
|
|
|
0 |
|
|
$ |
7,333,728 |
|
5/01/09 5/31/09 |
|
|
1,067 |
|
|
$ |
19.65 |
|
|
|
0 |
|
|
$ |
7,333,728 |
|
6/01/09 6/30/09 |
|
|
0 |
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|
NA |
|
|
0 |
|
|
$ |
7,333,728 |
|
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Total |
|
|
3,788 |
|
|
$ |
21.12 |
|
|
|
0 |
|
|
$ |
7,333,728 |
|
|
|
|
|
(1) |
|
The purchases in this column included 3,788 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 or to satisfy payment associated with
exercise of non-qualified stock options. |
|
(2) |
|
On November 15, 2007, our Board of Directors announced the authorization of the repurchase of
$35 million of outstanding common stock. As of June 30, 2009, we have repurchased a cumulative
921,648 shares at an average price of $30.02 per share. Under the current authorization the
Company has $7.3 million available for authorized share repurchases as of June 30, 2009, and
such authorization has no expiration date. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
24
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits.
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Exhibit |
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Description |
3.1
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|
Restated Articles of Incorporation, as amended incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, SEC File
No. 0-23837 |
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3.2
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|
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 |
|
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31.1**
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Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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31.2**
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Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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32.1**
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Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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32.2**
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Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
25
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.
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August 7, 2009 |
SurModics, Inc.
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By: |
/s/ Philip D. Ankeny
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Philip D. Ankeny |
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Senior Vice President and
Chief Financial Officer |
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26
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-Q
For the Quarter Ended December 31, 2008
SURMODICS, INC.
|
|
|
Exhibit |
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Description |
3.1
|
|
Restated Articles of Incorporation, as amended incorporated by reference to Exhibit 3.1 of
the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, SEC File
No. 0-23837 |
|
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3.2
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|
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 |
|
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31.1**
|
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Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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31.2**
|
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Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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32.1**
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Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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32.2**
|
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Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
27
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.
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Dated: August 7, 2009
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Signature:
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/s/ Bruce J Barclay
Bruce J Barclay
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President and |
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Chief Executive Officer |
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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.
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Dated: August 7, 2009
|
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Signature:
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/s/ Philip D. Ankeny
Philip D. Ankeny
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Senior Vice President and |
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|
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Chief Financial Officer |
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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, 2009, 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 7, 2009
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/s/ Bruce J Barclay
|
|
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Bruce J Barclay |
|
|
President and
Chief 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, 2009, 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 7, 2009
|
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/s/ Philip D. Ankeny
|
|
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Philip D. Ankeny |
|
|
Senior Vice President and
Chief Financial Officer |
|
|