In a bid to focus extensively on its Medical Device and In Vitro Diagnostics units, SurModics Inc. (SRDX) announced that it will explore options regarding its Pharmaceuticals division. The company may even sell off the unit to meet the objective.
SurModics, a provider of surface modification and drug delivery technologies to the healthcare industry, has been delivering below-par performances over the past few quarters. The company has been taking various measures aimed at cutting costs and improving efficiencies.
In October 2010, SurModics trimmed its work-force by 13% and made certain changes to its organizational structure to reduce its cost structure and utilize its resources in a better manner. Surmodics had reduced its workforce in March 2010 as well.
Following the October 2010 restructuring, the company now operates through three business units: Medical Devices, Pharmaceuticals and In Vitro Diagnostics.
The Medical Devices segment provides drug delivery and surface modification coating technologies to customers in the coronary, peripheral, neuro-vascular and urology markets among others.
The Pharmaceuticals unit comprises a wide range of drug delivery technologies for injectable therapeutics for pharmaceutical and biotechnology companies. The In Vitro Diagnostics segment includes components and technologies for diagnostic test kits and biomedical research applications such as microarray slide technologies, protein stabilization reagents, substrates and antigens.
The move is expected to result in annual savings of approximately $3 million to $3.5 million. Moreover, the organizational restructuring announced in October 2010 is expected to result in a one-time restructuring charge of approximately $1.3 to $1.7 million in the first quarter of fiscal 2011 for Surmodics.
The latest announcement to look at options regarding the Pharma business, including its potential sale, is another move to streamline operations and increase efficiencies. However, management noted that a final decision regarding the matter is yet to be taken.
In another development, there has been a change at SurModics with Gary R. Maharaj taking over as the President and CEO as of Dec 27, 2010. Maharaj, a former President and CEO of Arizant Inc., which was sold to 3M Co. (MMM) in October 2010, will also be a member of the board of directors at SurModics.
We recently downgraded SurModics to Underperform following its disappointing showing in the final quarter of fiscal 2010. The below-par showing was attributable to a sharp decline in revenues across all segments.
Even though SurModics has taken a number of steps to serve its customers better, we believe that unless the move works in the desired direction there is no reason for investors to own the stock at current levels. Our long-term Underperform stance on the stock is supported by the Zacks #5 Rank (short-term Strong Sell recommendation) currently carried by the company.
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