SurModics, Inc. F2Q10 (Qtr End 03/31/10) Earnings Call Transcript

SurModics, Inc. F2Q10 (Qtr End 03/31/10) Earnings Call Transcript
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SurModics, Inc. (SRDX)

F2Q10 (Qtr End 03/31/10) Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Phil Ankeny – SVP and CFO

Bruce Barclay – President and CEO

Analysts

Richard Rinkoff – Craig-Hallum

Ernie Andberg – Feltl & Company

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the SurModics second quarter 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to the questions. (Operator Instructions) This conference is being recorded today, Wednesday, April 28, 2010. I would now like to turn the conference over to Mr. Phil Ankeny, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Phil Ankeny

Thank you, Marissa. Good afternoon and welcome to SurModics Fiscal 2010 second quarter conference call. Thank you very much for joining us today. Our press release reporting quarterly results was issued earlier this afternoon and is available on our website at www.surmodics.com.

Joining me on the call today is Bruce Barclay, our President and Chief Executive Officer. Before we begin, it is my duty to inform you that this conference call is being webcast and is accessible through the investor relation section of the SurModics website where the audio recording of the web cast will also be archived for future reference. I will remind you that some of the statements made during this call may be considered forward looking. The 10-K for fiscal year 2009 identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward looking statements made during this call. The company does not undertake any duty to update any forward looking statements as a result of new information or future events or developments.

On today's call, I will address the company's quarterly financial results, Bruce will then highlight quarterly achievements and progress against our published fiscal 2010 company goals and finally, we will open the call to your questions. I will begin by reviewing key second quarter financial results and then provide commentary around a few highlights.

For the second quarter of fiscal 2010, revenue was $18.4 million, up 6% sequentially. Diluted loss per share was $0.02 and cash flow from operations was $4.1 million. Included within our GAAP results for the second quarter were two event specific charges. Specifically, restructuring charges of $1.3 million in connection with the organizational and leadership changes we announced in March as well as a $2.1 million non-cash asset impairment charge in connection with the consolidation of the company's facilities in Birmingham, Alabama, into our new facility which we opened in January.

The asset impairment charges not in connection with our new CGMP facility but rather our other facilities in Birmingham and reflects the decline in the commercial real estate market since the acquisition of Brookwood Pharmaceuticals in July 2007.

However, our ultimate goal of having all our Birmingham employees under one roof should result in operating expense savings as well as enhanced productivity, communication and ultimately improved results. Excluding the restructuring and asset impairment charges for the quarter, non-GAAP results were as follows.

Operating income was $2.4 million, net become was $1.7 million and diluted earnings per share was $0.10. These figures are down modestly on a sequential basis compared with our GAAP first quarter results which were as follows. Operating income was $2.8 million, net income was $1.9 million and diluted earnings per share was $0.11.

Next, let's turn to revenue line items. Royalties and license fees for the second quarter were $7.8 million, down 15% sequentially. We experienced this sequential decrease in royalties and license fees primarily as a result of the continued decline in CYPHER royalties.

Johnson & Johnson reported that sales of the CYPHER Sirolimus-eluting Coronary Stent were approximately $191 million in the quarter, down 24% year over year and 14% sequentially. We are pleased to report that quarter has recently launched the CYPHER SELECT Plus drug-eluting stent in Japan, the second largest market for drug-eluting stents in the world, following receipt of the reimbursement approval for that stent.

CYPHER SELECT Plus has both our drug delivery polymer on the stent and our hydrophilic coating on the delivery system. So we received two royalty streams on the sale of this product.

Let's take a closer look at the royalties and license fees line. While down year over year and sequentially, we actually are seeing a positive trend emerging here from the focused efforts of our sales and product development teams. In particular, we are continuing to sign a number of new customer licenses in the hydrophilic space and have been for some time.

If we focus for a moment on the royalties being generated by the various customers in our hydrophilic portfolio, sales of our customers' products are a diverse mix with some increasing and others decreasing. However, the good news is that there are more customers whose products are growing than declining and perhaps more importantly, aggregate dollars from royalties in our hydrophilic portfolio grew nicely, both year over year and sequentially. And while milestones and license fees occur quite regularly in our business model, as they did again in the second quarter, in aggregate they were lower this quarter than they were in the first quarter of fiscal 2010 as well as in the second quarter of fiscal 2009.

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