SurModics Inc. (SRDX) suffered a loss (excluding special items) of $0.05 per share in the fourth quarter of fiscal 2010, well short of the Zacks Consensus Estimate which hinted at earnings of $0.13 per share. The company reported earnings of $0.16 per share in the year-ago quarter. The weak performance in the final quarter of fiscal 2010 was attributable to lower revenues.
Revenues dropped 19.3% year over year to $15.5 million in the reported quarter well short of the Zacks Consensus Estimate of $20 million. Revenues were down approximately 17% sequentially.
We note that SurModics operates through the following business units: Cardiovascular, Ophthalmology, SurModics Pharmaceuticals (constituting the Therapeutic segment) and In Vitro Technologies (Diagnostics). In the Therapeutic segment, SurModics’ revenues from the Ophthalmology market recorded a sequential decline of 44% to $0.6 million in the reported quarter.
Revenues from the Cardiovascular segment were down 17% sequentially to $9.1 million. Revenues from Other Markets recorded a sequential decline of 11% to $2.9 million. Revenues from the Diagnostic market fell 11% sequentially to $2.9 million.
SurModics derives a substantial majority of its drug delivery revenue from the cypher stent (reflecting revenues from the cardiovascular market), which is marketed by the Cordis division of Johnson & Johnson (JNJ). Johnson & Johnson reported $136 million in sales from Cypher stent, down 36% year over year and 19% sequentially.
For the reported quarter, royalties and license fees accounted for approximately 51% of total revenue with product sales and research & development accounting for 30% and 19% respectively.
SurModics exited the quarter with $56.8 million in cash and investments with no debt. During the quarter, 5 new licensees signed with SurModics customers. Moreover, the quarter saw 4 new customer product classes being introduced.
For fiscal 2010, SurModics suffered a loss (excluding special items) of $0.38 per share as opposed to a profit of $1.07 in fiscal 2009. Performance was hurt by lower revenues in fiscal 2010 which fell 15.4% to $73.4 million on an adjusted basis.
Fiscal 2011 Projection
In addition to disclosing financial results, SurModics provided guidance for fiscal 2011. The company expects earnings (excluding special items) in the range of -$0.15-$0.05 per share for fiscal 2011. Revenues are expected between $55 million and $63 million. The Zacks Consensus Estimate for fiscal 2011 hints at earnings of $0.63 on revenues of $83 million.
Our Recommendation
We remain Neutral on SurModicsin the long-run, which is supported by a Zacks#3 Rank (short-term Hold recommendation) currently carried by the company.
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