We are maintaining our Neutral recommendation on SurModics Inc. (SRDX) with a target price of $13.00.
SurModics, headquartered in Eden Prairie, Minnesota, provides surface modification and drug delivery technologies to the healthcare industry. The company, which has been delivering below-par performances over the past few quarters, has taken a number of measures to emerge from the phase of underperformance.
With a view to reducing its cost structure and utilizing its resources in a better manner, SurModics trimmed its work-force by 13% and made certain changes to its organizational structure in October 2010. The move is expected to result in annual savings of approximately $3 million to $3.5 million.
The organizational restructuring resulted in a one-time restructuring charge of $1.2 million in the first quarter of fiscal 2011. Surmodics had reduced its workforce in March 2010 as well.
Following the October 2010 restructuring, SurModics now operates through three business units: Medical Device, Pharmaceuticals and In Vitro Diagnostics. SurModics is currently exploring options regarding the Pharma unit, including its potential sale. The move is aimed at enabling the company to focus on its core business and enhance shareholder value.
SurModics has made management changes to guide its recovery. Mr. Gary R. Maharaj took over as the President and CEO at SurModics from December 27, 2010. Maharaj, a former President and CEO of Arizant Inc., which was sold to 3M Co. (MMM) in October 2010, is also a member of the board of directors at SurModics.
We believe that the above moves will take quite some time before yielding results. Consequently, we see limited upside from current levels and retain our Neutral stance on SurModics.
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