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.

http://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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2 0 2 0 V I S I O N

Beneath the surface we are a thriving company with a bold vision

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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.


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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


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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.


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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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


For the Three Months Ended March 31, 2015


(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.


F I N A N C I A L S




(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.


F I N A N C I A L S

SURMODICS, INC., & SUBSIDIARIESIncome from Continuing Operations and Diluted EPS GAAP to Non-GAAP Reconciliation



(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

beneath the surface: a thriving company with a … the surface: a thriving company with a bold...

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