SurModics Misses

SurModics’ (SRDX - Analyst Report) fourth-quarter earnings per share came in at 18 cents, below the Zacks Consensus Estimate of 20 cents. The company reported revenues of $19.2 million, down 17% compared to the year ago period. In addition to quarterly results, SurModics came out with fiscal year 2009 results. The company recorded revenues of $121.5 million in 2009, up 25%, compared to $97 million in the previous year and earnings per share of $1.07 for 2009.

On a business unit basis, apart from Diagnostic, revenues from the other three segments – Cardiovascular, Ophthalmology and Other Markets, recorded a decline in revenues for the fourth quarter. While Diagnostic revenues increased 2% year over year to $4.6 million, revenues for the other three segments declined 12% to $9.8 million, 29% to $1.9 million and 41% to $2.9 million, respectively.

Cardiovascular segment results were impacted by the continuing decline in Cypher sales. SurModics derives a substantial majority of its drug delivery revenue from the Cypher stent, which is marketed by Johnson & Johnson’s (JNJ - Analyst Report) Cordis division. However, Cypher faces stiff competition from Boston Scientific Corp.’s (BSX - Analyst Report) Taxus drug-eluting stent, and stents from Medtronic (MDT - Analyst Report) and Abbott Vascular, a division of Abbott (ABT - Analyst Report). Johnson & Johnson reported a 27% year over year decline in Cypher sales which came in at $211 million.

Although the Ophthalmology segment did not perform well this quarter, we expect it to improve based on the company’s recent agreement with Genentech.

Revenues in each of the four business units are derived from three primary sources: royalties and license fees from licensing patented surface modification and drug delivery technologies and in vitro diagnostic formats to customers; the sale of reagent chemicals to licensees of its technologies, stabilization products to the diagnostics industry and coated glass slides to the genomics market; research and development fees generated on customer projects.

For the reported quarter, royalties and license fees accounted for 49% of total revenues with product sales and research and development, accounting for 29% and 22%, respectively. Despite a 15% decline in operating expenses, operating margin declined to 20.7% compared to 22.9% in the fourth quarter of 2008.
 
At the end of the fourth quarter, SurModics had $20.6 million of cash and short term investments, down from $24.6 million at the end of September 2008. During the fiscal year, the company repurchased about $15 million of stock and is left with another $7 million for further repurchases.