BENEATH THE SURFACE: A thriving company with a … THE SURFACE: A thriving company with a bold...
Transcript of BENEATH THE SURFACE: A thriving company with a … THE SURFACE: A thriving company with a bold...
BENEATH THE SURFACE:A thriving company with a bold vision for growth
Gary MaharajPresident and CEO
Andy LaFrenceVice President of Finance and CFO
JUNE 2016
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S A F E H A R B O R
Some of the statements made during this presentation may be considered forward-looking statements. Statements that are not
historical or current facts, including statements about our corporate goals and those relating to our key growth strategy to
become a whole-product solutions provider, are forward-looking statements. Forward-looking statements involve inherent risks
and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including (1) our
ability to successfully develop, obtain regulatory approval for, and commercialize our SurVeil drug-coated balloon product,
including the timing associated with the initiation of our first-in-human clinical trial; (2) our reliance on third parties (including our
customers and licensees) and their failure to successfully develop, obtain regulatory approval for, market and sell products
incorporating our technologies; (3) our ability to successfully identify, acquire, and integrate target companies, and achieve
expected benefits from acquisitions that are consummated; (4) possible adverse market conditions and possible adverse impacts
on our cash flows, and (5) the factors identified under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2015, and updated in our subsequent reports filed with the SEC. These reports are available in
the Investors section of our website at www.surmodics.com.
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I N V E S T M E N T T H E S I S
CLEAR STRATEGY & DISCIPLINED EXECUTION
EXPERIENCED LEADERSHIP TEAM
IN VITRO DIAGNOSTICSGold Standard in Diagnostic Reagents
MEDICAL DEVICEUndisputed Leader in Device Coatings
DRUG DELIVERY: 3rd GENERATION DRUG-COATED BALLOON
WHOLE PRODUCTS: TECHNOLOGY + DEVICE + MANUFACTURING
&
MISSION: Improve the treatment and detection of disease by using our technology to provide solutions to difficult medical device and diagnostic challenges
Strong balance sheet and attractive cash flows to fund growth strategy
• $39 million of cash/investments as of March 31, 2016
• 31%+ operating margin the past 4 fiscal years
M E D I C A L D E V I C E S
70%
C O R E B U S I N E S S R E V E N U E
I V DB U S I N E S S
30%
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M A R K E T N E E D
T O R T U O U S VA S C U L AT U R E R E Q U I R E S
Accessibility
Maneuverability
Reduced vessel friction
Sustained durability
HYDROPHILIC COATINGS
C O AT I N G S+D E V I C E
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Enables greater revenue capture and strategic control
I N C R E A S I N G R E L E V A N C E
+DEVICE SURFACE TECHNOLOGY
C O M B I N E D R E V E N U E P O T E N T I A LO F W H O L E - P R O D U C T S O L U T I O N
=
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K E Y G R O W T H S T R AT E G Y
WE ARE BECOMING A WHOLE-PRODUCT
SOLUTIONS PROVIDER
TO PROVIDE OUR CUSTOMERS EARLY ACCESS TO MAJOR INNOVATIONS
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PRODUCT DESIGN MANUFACTURING
P A S T C A P A B I L I T I E S
DEVICE DEVELOPMENT SURFACE TECHNOLOGIES
E X PA N D I N G C A PA B I L I T I E S
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S T R AT E G I C A C Q U I S I T I O N S
PLYMOUTH
N O R M E D I X C R E A G H M E D I C A L
BALLINASLOE
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A C Q U I S I T I O N T E R M S
C R E A G H M E D I C A L A C Q U I S I T I O N
• November 20, 2015
• Located in Ballinasloe, Ireland
• €30 million cash consideration
– Upfront payment of €18 million
– Up to €12 million based on achievement of milestones
N O R M E D I X A C Q U I S I T I O N
• January 8, 2016
• Located in Plymouth, MN
• $14 million cash consideration
• Upfront payment of $7 million
• Up to $7 million based on achievement of milestones
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DEVICE DEVELOPMENT
S T R AT E G I C F I T
Extensive capabilities: prototyping, in-house extrusion,
characterization and testing
MANUFACTURING
World-class manufacturing facility3,500 sq. ft. clean room, expandable footprint for multiple product lines
Design and development of high-quality PTA balloon catheters
and differentiated technologies
PRODUCT DESIGN
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E X PA N D E D C A PA B I L I T I E S
Surmodics is uniquely positioned to offer best-in-class capabilities in three of four critical areas for vascular access and interventional medicine
C A T H E T E R S B A L L O O N S T E C H N O L O G Y G U I D E W I R E S
SHAFT COATINGSerene™ hydrophilic coating
PROPRIETARY PHOTOLINK® Basecoat
.035” OTW PTA PLATFORM4–7 mm x 40–150 mm
S U R V E I L™ D R U G - C O AT E D B A L L O O N
UNIFORM DRUG TOPCOATPaclitaxel + proprietary excipient2.0 µg/mm² drug load360° coating coverage
CAUTION SurVeilTM Drug-Coated Balloon is an investigational device. Limited by Federal (United States) law to investigational use.
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S H O W I N G P R O G R E S S
PRESS RELEASESurmodics Announces First Patient Enrolled in IDE Study of
SurVeil™ Drug-Coated Balloon
EDEN PRAIRIE, Minn. – April 6, 2016 – SURMODICS, INC. (Nasdaq: SRDX), a leading provider of medical devices and in vitro diagnostic technologies, today announced enrollment of the first patient in an early feasibility study of its proprietary SurVeil™ drug-coated balloon (DCB). This study is part of the company’s strategy to transform its medical device business from a provider of device coatings, to offering differentiated whole-product solutions to leading medical device customers.
Surmodics received investigational device exemption (IDE) approval for the study from the U.S. Food and Drug Administration (FDA) in late 2015. The SurVeil DCB includes the company’s new, proprietary coating formulation for interventional vascular treatment of peripheral artery disease (PAD), and it is the first complete vascular medical device developed that will be clinically tested by Surmodics.
"First and second generation DCBs demonstrated a biologic effect and improved patency in patients with PAD,” said Kenneth Rosenfield, M.D., section head, Vascular Medicine and Intervention at Massachusetts General Hospital, and chair of the Surmodics Scientific Advisory Board. “The new generation of DCBs, which includes significant advances in technology, provides a great opportunity to further enhance patient outcomes.
CAUTION SurVeilTM Drug-Coated Balloon is an investigational device. Limited by Federal (United States) law to investigational use.
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P R O M I S I N G P R E - C L I N I C A L R E S U LT S
LEVERAGING OUR CORE STRENGTHS
Data generated from pre-clinical and bench testing. Data on file at SURMODICS, INC.CAUTION SurVeilTM Drug-Coated Balloon is an investigational device. Limited by Federal (United States) law to investigational use.
U N I F O R M I T Y & C O N T R O L
Biological Drug Effect at 28 DaysSurmodics Median = In.Pact Admiral Maximum
Surmodics DCB In.Pact Admiral DCB POBA Control
MIN
IMU
MM
EDIA
NM
AXIM
UM
B I O L O G I C A L D R U G E F F E C TD R U G D E L I V E R Y & R E T E N T I O N
Treatment with 5, 6 x 40 mm Balloons
Comparison of DCBs in U.S.
Surmodics (dry-expanded)
Competitive Product A (dry-expanded)
Competitive Product B (dry-expanded)
Surmodics SurVeil
Medtronic In.Pact Admiral
Bard Lutonix
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S U R V E I L ™ D C B P L AT F O R M
Surmodics has impressive drug
delivery capabilities with its
proprietary excipients, coating
formulations and manufacturing
process controls. With the
integration of Creagh Medical, we
now have access to customized
balloon design capabilities. These
combined capabilities enable us to
meet virtually any drug-coated
balloon requirement. SFA.035.018
BTK.014
AV ACCESS30 ATM RBP
CORONARY.014
C U S T O M B A L L O O N
D E S I G N
DRUG / EXCIPIENT
COMBINATIONS PACLITAXEL LIMUS
EXCIPIENT PTX /
EXCIPIENTLIMUS /
EXCIPIENT
C O M P R E H E N S I V E D C B P L A T F O R M C A P A B I L I T I E S
CAUTION SurVeilTM Drug-Coated Balloon is an investigational device. Limited by Federal (United States) law to investigational use.
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C O R E B U S I N E S S
• Robust IP and history of leadership
• Unique full-service partnership model
• Over 100 customers in vascular space ranging from start-ups, to mid-size companies, to industry-leading, large strategics
• Deep market traction in all major intravascular product categories
S U S TA I N A B L E A D V A N TA G E
CORONARY
PERIPHERAL
NEUROVASCULAR
STRUCTURAL HEART
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S U R M O D I C S S E R E N E ™ C O AT I N G S
• Proprietary technology combining unsurpassed lubricity and durability with dramatic particulate reduction
• U.S. and O.U.S. regulatory clearances in coronary, peripheral, neurovascular and structural heart devices across broad range of substrates
• Robust formulation and characterization of the coating
• An ideal solution given regulatory focus on coating durability
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S E R V I C E + T E C H N O L O G Y
Feasibility & Optimization
Global Regulatory Approval Support
Commercialization
Short-run Manufacturing
Tech Transfer and Onsite Support
3 to 12 months
6 to 48 months
R O Y A L T Y A N D R E A G E N T S A L E S
Strong and profitable licensing model with revenue generated from our collaborative service process and technology content:
• Licensing fees and royalty payments
• Technology feasibility programs
• Contract coating services
• Proprietary reagent sales
• Contract manufacturing
• Continuous lifecycle support
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S U R M O D I C S I N V I T R O D I A G N O S T I C S
Surmodics IVD products offer differentiated levels of performance to ensure accurate diagnosis based on the absence or presence of disease
COMPONENTS
Dried Protein Stabilizer & Antigens – Microwellplates are prepared with antigens/primary antibodies, blockers and stabilizers
Assay Diluent – Target analyte (patient sample) is added and assay diluent/HAMA blocker is applied
Liquid Protein Stabilizer – Secondary antibody conjugate (with enzyme) is added along with conjugate stabilizer
Colorimetric Substrate – Applied to yield a color signal related to diagnosis (presence or no presence of disease)
Stop Solution – Once color signal is achieved, a stop solution is applied to maintain color and discontinue further reaction
ELISA TESTClose-up View of Single Well
COLORIMETRIC SUBSTRATE
CONJUGATESTABILIZER
ASSAY DILUENT(HAMA BLOCKER)
TARGET ANALYTEIN PATIENT SAMPLE
ANTIGEN
SECONDARYANTIBODYCONJUGATE
ENZYME
YIELDSCOLORSIGNAL
TIME FORSTOP SOLUTION
DRIED PROTEIN STABILIZERS & ANTIGENS
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M O L E C U L A R D I A G N O S T I C S
M I C R O A R R A Y S L I D E S /S U R F A C E C H E M I S T R Y
TRIDIA™ coatings and CodeLink® slides immobilize biological entities to surface materials
• Reactive chemistry is homogeneous across entire surface for high signal and consistent results
• Passivating polymer increases specificity by preventing non-specific binding of unwanted biomolecules
• Thin, versatile photochemistry allows coating of various geometries and surface materials
REACTIVE BINDING GROUP
POLYMER
PHOTOREACTIVE GROUP
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M A N A G E M E N T T E A M
Gregg S. Sutton, Vice President of Research and Development (2016)
• 25 years of engineering experience • Co-founded and held executive positions at several
highly successful early stage development device companies including Atritech, Angioguard, Vascular Solutions, and Navarre Biomedical
• Over 50 patents granted or pending
OUR STRONG FINANCIAL PERFORMANCE IS THE DIRECT RESULT OF THE STRENGTH OF OUR WORK FORCE • Nearly 1 in 3 employees is a scientist, engineer,
and/or manufacturing specialist• Nearly 15% of employees have advanced degrees• Average employee tenure = 8 years
Gary R. Maharaj, President & Chief Executive Officer (2010)
• Joined Surmodics in 2010• President & CEO of Arizant Inc.
(sold to 3M for $810 million in 2010)• 28 years in med-device; served in research for
orthopedic implant and rehabilitation divisions of Smith & Nephew
Andrew D. C. LaFrence, Vice President of Finance & Chief Financial Officer (2013)
• Previously CFO for CNS Therapeutics (sold to Covidien for $102 million in 2012)
• CPA with more than 30 years of financial and management experience including audit partner at KPMG
Bryan K. Phillips, Senior Vice President of Legal & Human Resources, General Counsel and Secretary (2005)
• 15-year career also includes patent counsel at Guidant’s Cardiac Rhythm Management Group
• Practiced law at Merchant & Gould
Timothy J. Arens, Vice President of Corporate Development & Strategy (2007)
• Served as Vice President of Finance & interim CFO and General Manager of IVD business unit
• Past Director of Research and Analysis at St. Jude; Worked in product development and product management at four other companies
• More than 25 years of experience in medical device, manufacturing and financial institutions
Charles W. Olson, Senior Vice President and General Manager, Medical Device (2001)
• 20-year medical device career also includes General Manager at Minnesota Extrusion and project management and technical sales at Lake Region
Joseph J. Stich, Vice President and General Manager, In Vitro Diagnostics (2010)
• 25 years of management experience including corporate development for Abraxis Bioscience; business development and sales at MGI PHARMA
• President/COO of Pharmaceutical Corp. of America• Sales and marketing at Sanofi-Aventis
Thomas Greaney, Vice President of Operations & General Manager of Surmodics Ireland (2015)
• More than 20 years in medical device design, development and manufacturing
• Previously CEO for Creagh Medical Ltd. since 2005• Prior positions include 10 years at Boston Scientific and
six years in various technology companies
INSERT PHOTO
I N V E S T O R R E L AT I O N SFor additional inquiries, please contact:Andy LaFrence • 952-500-7062
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U S E O F N O N - G A A P F I N A N C I A L I N F O R M A T I O N
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Surmodics is reporting non-
GAAP financial results including non-GAAP operating income, non-GAAP income before income taxes, non-GAAP net income, and non-GAAP
diluted net income per share. We believe that these non-GAAP measures provide meaningful insight into our operating performance
excluding certain event-specific matters, and provide an alternative perspective of our results of operations. We use non-GAAP measures,
including those set forth in this presentation, to assess our operating performance and to determine payout under our executive
compensation programs. We believe that presentation of certain non-GAAP measures allows investors to review our results of operations
from the same perspective as management and our board of directors and facilitates comparisons of our current results of operations. The
method we use to produce non-GAAP results is not in accordance with GAAP and may differ from the methods used by other companies.
Non-GAAP results should not be regarded as a substitute for corresponding GAAP measures but instead should be utilized as a supplemental
measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain
items that may have a material impact on our reported financial results. As such, these non-GAAP measures should be viewed in conjunction
with both our financial statements prepared in accordance with GAAP and the reconciliation of the supplemental non-GAAP financial
measures to the comparable GAAP results provided for the specific periods presented, which are attached to this presentation.
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(1) These adjustments consist of (a) due diligence and integration fees and (b) the contingent consideration adjustments represent accounting adjustments to state contingent consideration liabilities at their estimated fair value, including related foreign exchange losses. These adjustments can be highly variable depending on the assessed likelihood and amount of future contingent consideration payments. Due diligence and other fees include legal, tax, investment banker and other expenses associated with acquisitions that can be highly variable and not representative of on-going operations.
(2) Amortization expense is a non-cash expense and does not impact our liquidity or compliance with the financial covenants included in our credit facility agreement. Management removes the impact of amortization from our operating performance to assist in assessing our cash generated from operations. We believe this is a critical metric for measuring our ability to generate cash and invest in our growth. Therefore, amortization expense for the Creagh Medical, NorMedixand other prior acquisitions is excluded from management's assessment of operating performance and is also excluded from our operating segments' measures of profit and loss used for making operating decisions and assessing performance. Accordingly, management has excluded amortization expense for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance, particularly in terms of liquidity.
(3) Represents the estimated discrete income tax benefit associated with the December 2015 signing of the Protecting Americans from Tax Hikes Act of 2015— which retroactively reinstated federal R&D income tax credits for calendar 2015.
(4) Represents the gain recognized on the sale of a strategic investment.
F I S C A L 2 0 1 6 G U I D A N C E
SURMODICS, INC., & SUBSIDIARIESEstimated Non-GAAP Net Income per Common Share Reconciliation
For the Fiscal Year Ended September 30, 2016
Full Fiscal Year Estimate
Low High
GAAP results $ 0.30 $ 0.35Estimated due diligence and integration costs (1) 0.34 0.38Estimated amortization expense (2) 0.16 0.17Federal research and development discrete tax item (3) (0.02) (0.02)Gain on strategic investment (4) (0.03) (0.03)
Adjusted results $ 0.75 $ 0.85
Revenue Guidance for Fiscal Year 2016: $63 to $66 million
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(1) Represents acquisition related costs, including due diligence and integration expenses. Due diligence and other fees include legal, tax, investment banker and other expenses associated with acquisitions that can be highly variable and not representative of on-going operations.
(2) The contingent consideration accretion adjustment represents accounting adjustments to state contingent consideration liabilities at their estimated fair value.
(3) Foreign exchange loss related to marking Euro denominated contingent consideration to market.
(4) To exclude amortization of acquisition related intangible assets and associated tax impact.
(5) Represents the gain recognized on the sale of a strategic investment.
This table is a summary of pro forma adjustments to GAAP earnings and EPS; columns may not foot due to rounding.
F I N A N C I A L S
SURMODICS, INC., & SUBSIDIARIESNet Income and Diluted EPS GAAP to Non-GAAP Reconciliation
For the Three Months Ended March 31, 2016
(in thousands, except per share data)
(Unaudited)
Total Revenue
Operating Income
OperatingIncome
Percentage
Income Before
Income TaxesNet
IncomeDiluted
EPS
GAAP $ 16,699 $ 2,240 13.4% $ 2,183 $ 825 $ 0.06Adjustments:
Acquisition transaction, integration and other costs (1)
- 640 3.8 640 640 0.05
Contingent consideration accretion expense (2)
- 392 2.3 392 392 0.03
Foreign exchange loss (3) - - - 431 431 0.03
Amortization of intangible assets (4) - 780 4.7 780 666 0.05
Gain on strategic investment (5) - - - (361) (361) (0.03)
Non-GAAP $ 16,699 $ 4,052 24.3% $ 4,065 $ 2,594 $ 0.20
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(1) Represents the gain recognized on the sale of a strategic investment.
(2) To exclude amortization of acquisition related intangible assets and associated tax impact.
This table is a summary of pro forma adjustments to GAAP earnings and EPS; columns may not foot due to rounding.
F I N A N C I A L S
SURMODICS, INC., & SUBSIDIARIESNet Income and Diluted EPS GAAP to Non-GAAP Reconciliation
For the Three Months Ended March 31, 2015
(in thousands, except per share data)
(Unaudited)
Total Revenue
Operating Income
OperatingIncome
Percentage
Income Before
Income TaxesNet
IncomeDiluted
EPS
GAAP $ 14,415 $ 3,932 27.3% $ 4,531 $ 3,051 $ 0.23Adjustments:
Investment income gain on sale of shares (1) - - - (523) (523) (0.04)Amortization of intangible assets (2) - 151 1.0 151 100 0.01
Non-GAAP $ 14,415 $ 4,083 28.3% $ 4,159 $ 2,628 $ 0.20
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(1) Reflects the settlement of a customer claim and associated tax impact.
(2) An impairment charge associated with a strategic investment in CeloNova BioSciences, Inc.
(3) Reduction in net investment income associated with the sale of Intersect ENT shares. There is no income tax benefit as there was an offsetting release of capital loss valuation allowance.
(4) Represents a discrete income tax benefit associated with the December 2014 signing of the Tax Increase Prevention Act of 2014 which retroactively reinstated federal R&D income tax credits for calendar 2014.
(5) To exclude amortization of acquisition related intangible assets and associated tax impact.
F I N A N C I A L S
SURMODICS, INC., & SUBSIDIARIESNet Income and Diluted EPS GAAP to Non-GAAP Reconciliation
For the Fiscal Year Ended September 30, 2015
(in thousands, except per share data)
(Unaudited)
Total Revenue
Operating Income
OperatingIncome
Percentage
Income from Operations
Before Income Taxes
Net Income
Diluted EPS
GAAP $ 61,898 $ 19,089 30.8 % $ 18,241 $ 11,947 $ 0.90Adjustments:
Claim settlement (1) - 2,500 4.0 2,500 1,617 0.12Impairment loss on strategic investment (2) - - 1,500 1,500 0.11Gain on investment (3) - - (523) (523) (0.04)Research and development tax credit (4) - - - (201) (0.01)Amortization of intangible assets (5) - 619 1.0 619 400 0.03
Non-GAAP $ 61,898 $ 21,208 35.9 % $ 22,337 $ 14,740 $ 1.11
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(1) Adjusted to reduce operating expenses associated with the acceleration of Board of Director stock-based compensation awards and associated tax impact.
(2) Reflects a reduction in net investment income associated with contingent milestone payments related to the sale of Vessix Vascular shares which were sold in fiscal 2014.
(3) Represents net investment income associated with an investment impairment charge associated with the strategic investment in ThermopeutiX.
(4) To exclude amortization of acquisition related intangible assets and associated tax impact.
F I N A N C I A L S
SURMODICS, INC., & SUBSIDIARIESIncome from Continuing Operations and Diluted EPS GAAP to Non-GAAP Reconciliation
For the Fiscal Year Ended September 30, 2014
(in thousands, except per share data)
(Unaudited)
Total Revenue
Operating Income
OperatingIncome
Percentage
Income from Operations
Before Income Taxes
Net Income
Diluted EPS
GAAP $ 57,439 $ 18,576 32.3 % $ 18,472 $ 12,207 $ 0.88Adjustments:
Board of Directors stock vesting acceleration (1) - 914 1.6 914 580 0.04Contingent milestone income (2) - - - (709) (709) (0.05)Impairment loss on strategic investment (3) - - - 1,184 1,184 0.09Amortization of intangible assets (4) - 606 1.1 606 385 0.03
Non-GAAP $ 57,439 $ 20,096 35.0 % $ 20,467 $ 13,647 $ 0.99