SurModics Inc.‘s (SRDX) third-quarter fiscal 2010 earnings (excluding special items) of 11 cents per share fell short of the Zacks Consensus Estimate by 3 cents and the year-ago earnings by 9 cents. On a reported basis (including special items), the company suffered a loss of 5 cents per share in the reported quarter.
Revenues of $18.6 million were up 1% from the year-ago period and also sequentially. The Zacks Consensus Revenue Estimate was $19 million.
The company operates through the following business units: Cardiovascular, Ophthalmology, SurModics Pharmaceuticals (constituting the “Therapeutic” segment) and In Vitro Technologies (Diagnostics market).
Revenues from the Therapeutic segment were down 1% sequentially to $15.4 million. In the Therapeutic segment, SurModics’ revenues from the Ophthalmology market recorded a sequential decline of 68% to $1.1 million in the reported quarter. Revenues from the Cardiovascular section, accounting for 58% of the top line, were up 11% sequentially to $11 million. Cardiovascular revenues were up 6% sequentially, excluding the one-time $1.25 million license fees. Revenues from Other Markets recorded a sequential growth of 13% to $3.3 million.
Revenues from the Diagnostic market increased 14% sequentially to $3.2 million. Growth in the Diagnostic market was driven by the strong performance of various component diagnostic products at SurModics.
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 $167 million in sales from Cypher stent, down 29% year over year and 13% sequentially.
For the reported quarter, royalties and license fees accounted for approximately 50% of the total revenue with product sales and research & development accounting for 51% and 19% respectively.
SurModics’ customers had 104 licensed product classes, generating revenues in terms of royalty at the end of the reported quarter, against 105 in the prior-year period. The total number of licensed product classes yet to be launched stood at 110 at the end of the third quarter of fiscal 2010, as opposed to 105 in the year-ago period. Major non-licensed opportunities fell to 72 as of June 30, 2010, against 87 at the end of the third quarter of 2009.
Our Recommendation
SurModics is a Zacks #3 Rank (‘Hold’) stock, which indicates that it is expected to perform in line with the overall US equity market over the next 1-3 months. Our long-term “Neutral” stance on the SurModics indicates that the stock is expected to replicate its short-term performance but over 6+ months.
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