SurModics (SRDX) reported first quarter fiscal 2010 earnings per share (EPS) of 11 cents, down from $1.53 in the year ago period. However, after adjustments, the EPS of 24 cents surpassed the Zacks Consensus Estimate by 5 cents.
The company reported revenues of $17.4 million, down 72.5% from the corresponding period last year. The primary reason for the decline was the termination of the company’s agreement with Merck (MRK). Revenues were down 9% on a sequential basis.
SurModics opened a new cGMP facility in Alabama. The facility is expected to generate revenues for the company from the second quarter. The major portion of capital investment for this facility has already been made with another $3 million−$4 million expected to be spent on equipment in the remainder of fiscal 2010.
In the therapeutic area, SurModics’ revenues from Cardiovascular and Ophthalmology recorded a sequential growth of 9% and 35%, respectively. However, Diagnostics revenues were down 51% sequentially at $2.3 million. During the quarter, Cardiovascular accounted for 62% of total revenues. Growth of this segment is quite significant especially in a scenario where Johnson & Johnson (JNJ) reported an 18% year-over-year decline in Cypher stent sales ($223 million) during the quarter.
SurModics derives a substantial majority of its drug delivery revenue from the Cypher stent, which is marketed by Johnson & Johnson’s Cordis division. In addition, we are pleased to note that the overall drug-eluting stent penetration rates in the U.S. increased to 77%, up from 73% in the year-ago period.
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 53% of total revenues with product sales and research & development accounting for 26% and 21%, respectively. Operating expenses declined 22%, led by a 14% decline in R&D expenses, offset partially by a 30% increase in product expense.
At the end of the reported quarter, SurModics had $19.3 million of cash and short term investments, marginally up from $20.1 million at the end of September 2009. We have a Neutral recommendation on the stock.
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