SurModics, Inc., (SRDX)
F3Q 2010 Earnings Call
July 28, 2010 5:00 p.m. ET
Philip Ankeny – Interim Chief Executive Officer, Senior Vice President, Chief Financial Officer and Senior Vice President
Ross Taylor – CL King
Suraj Kalia – Rodman & Renshaw
Richard Rinkoff – Craig Hallum
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the SurModics F3Q 2010 earnings conference call. (Operator instructions.) This conference is being recorded today, Wednesday, July 28
, 2010. I would now like to turn the conference over to Phil Ankeny, Interim Chief Executive Officer, Senior Vice President and Chief Financial Officer. Please go ahead.
Thank you, Brian. Good afternoon and welcome to SurModics F3Q 2010 conference call. We appreciate you joining us today. Our press release reporting quarterly results was issued earlier this afternoon and is available on our website at
Before we begin it is my duty to inform you that this conference call is being webcast and is accessible through the investor relations section of the SurModics website where the audio recording of the webcast 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, then I will highlight quarterly achievements and finally open the call to your questions. I will begin by reviewing key Q3 financial results and then provide commentary around select highlights.
For the Q3 of fiscal 2010 revenue was $18.6 million, up 1.4% sequentially. Operating income was $2.2 million. We had a net loss of $0.9 million and diluted loss per share was $0.05. And cash flow from operations was $4.4 million.
Included within our Q3 GAAP results was a $2.6 million non-cash investment impairment charge in connection with our strategic investments, the majority of which related to our investment in an early-stage medical device company, which like many start-ups in recent times has been unable to secure sufficient financing. In addition, we had a $0.2 million non-cash asset impairment charge associated with fixed assets.
Excluding these asset and investment impairment charges, non-GAAP results for the Q3 were as follows: operating income was $2.4 million, net income was $1.8 million, and diluted earnings per share was $0.11. These figures showed improvement on a sequential basis as Q2 non-GAAP results were operating income of $2.4 million, net income of $1.7 million, and diluted earnings per share of $0.10.
Next, let’s turn to revenue line items. First, royalties and license fees for the Q3 were $9.3 million, up 20% sequentially. These results included approximately $1.25 million in license fees related to one of our medical device customers, which was one-time in nature. Encouragingly, within royalties and license fees we are continuing to see positive results from our portfolio of hydrophilic coating customers in the medical device space.
Total royalties from this profile grew nicely again this quarter, both on a year-over-year and sequential basis. These results reflect many years of work we have invested in cultivating such a strong business in medical device coatings.
We achieved favorable results in royalties and license fees this quarter despite the continued decline in CYPHER® royalties. Johnson & Johnson reported that sales of the CYPHER® Sirolimus-eluting Coronary Stent were approximately $167 million in the quarter, down 29% year-over-year and down 13% sequentially.
Now let’s turn our attention to product sales, which hit a new record in the Q3 at $5.8 million, up 9% sequentially. Particular areas of strength included
diagnostic products and reagents. We continue to see broad based customer demand for our component
diagnostic products, and strong sales of our reagents reflects growing usage of our coatings technologies.
In our third category of revenue, SurModics generated $3.5 million in R&D revenue in the Q3. While 34% lower sequentially this is not an unexpected result. Rather, it is a natural phenomenon in our R&D revenue line reflecting the normal ebbs and flows of activity in our various customer development programs. Importantly, looking at our portfolio of R&D programs we have not lost any significant customer programs and signed some exciting new projects during the Q3.
Turning to our revenue reporting by market, I will begin with Therapeutic. In total, Therapeutic revenue was $15.4 million, down 1% sequentially. Cardiovascular revenue for the Q3 was $11 million, up 19% sequentially. If you exclude the approximately $1.25 million license fees that were one-time in nature, Cardiovascular revenue was up 6% sequentially.
Moving on to Ophthalmology. Revenue here was $1.1 million for the quarter, down 68% sequentially. As the vast majority of revenue in Ophthalmology is R&D related, this quarter’s results reflect the ebbs and flows of activity in our R&D projects that I discussed earlier.
We continue to have Ophthalmology projects with three top-ten pharma customers including Genentech. Rounding out Therapeutic, other markets' revenue was $3.3 million, up 13% sequentially, driven principally by growth in R&D revenue from our SurModics Pharmaceuticals business in these Therapeutic areas.