investor day -...

Investor Day

November 15, 2007

Safe Harbor StatementSome of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ and factors that may cause such results to differ are identified beginning on page 14 of the Company’s fiscal 2006 Form 10-K annual report and in the MD&A section of the Company’s Forms 10-Q filed after the 10-K.

AgendaSurModics Overview & Strategy Bruce BarclayDrug Delivery Brian RobeyOphthalmology Paul LopezOrthopedics Steve KeoughBrookwood Pharmaceuticals Art TiptonQ&ABreakHydrophilic Technologies Charlie OlsonRegenerative Technologies Lise DuranInVitro Technologies Peter Ginsberg

(for Doug Astry)

Financials Phil AnkenyFiscal 2008 Goals Bruce BarclayQ&A

Company Overview & Strategy

Bruce BarclayPresident and Chief Executive Officer

Key Accomplishments in FY2007Financial

• Record annual revenue for the 10th consecutive yearDespite less than $0.5M from Merck recognized as revenue

• Record non-J&J revenue Up 30% year-over-yearSince FY2004, this business has more than doubled, growing at 27% compound annual growth rate

• Record Hydrophilic and Other segment revenue • Record In Vitro segment revenue • Record operating cash flow of $50.7M• Completed first share repurchase

1M+ shares at $34.76• Share price increase

40% in FY200782% in calendar 2007 through October 31

$50.7

$35.3

$26.0$23.2

$17.1$14.3

$7.8$7.4$4.4

$2.1$0$5

$10$15

$20$25$30$35$40$45

$50

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Operating Cash Flow44% Growth in FY2007

$ in millions

Key Accomplishments in FY2007Other Important Events

• Merck license, development and manufacturing agreements$20M up front license feeUp to $288M in development milestonesRoyalties, development, manufacturing

• Acquired two companiesBrookwood PharamceuticalsBioFX Laboratories

• Ophthalmic development work with industry leaders and others

• 27 licenses signed vs. investor goal of 18, and 21 last year• 17 new product classes launched by our customers• Key agreements with St. Jude and Medtronic

Key Accomplishments in FY2007Other Important Events (continued)

• License/investment agreements with Paragon• Launch of first Synthetic Extracellular Matrix

products by Corning Life Sciences• Encouraging animal study results generated for:

Biodegradable stent coatingsFinale™ Prohealing technology

• License agreement with major Orthopedic customer • Cypher® Select Plus launched internationally• Continuation of strong clinical data from I-vation™

TA

Strategic Growth Initiatives

1. “Climbing the value chain”2. Continued diversification in the DES market3. Diversify into new markets 4. Increase participation in the convergence of

drugs and devices 5. Accelerate our technology leadership6. Pursue business development opportunities7. Attract and retain top talent

Surface Modification Drug Delivery In Vitro

HydrophilicBiocompatibleHemocompatibleProhealingCell Encapsulation

Applications:

CardiovascularOphthalmology OrthopedicsDiabetes

End Markets:

Focus: Applications & End Markets



Applications:

CardiovascularOphthalmology OrthopedicsDiabetes

End Markets:

Site SpecificDrug Eluting StentsOphthalmic Implants

SystemicInjectionsImplants

Applications:

CardiovascularOphthalmologyOrthopedicsOncologyDiabetesCentral Nervous SystemPain

End Markets:


Multiple Combinations forPolymer Based Drug Delivery

Polymer / Drug Polymer / Device / Drug

Microparticles I-vation Implant

Polymer Only

Eureka Implant

Hydrophilic CoatingEureka In Situ Matrix

Finale Prohealing Coating

Polymer / Device

Drug Eluting StentDrug Delivery Implant

Wound SpacerOphthalmic Implant

DrugDrug

PolymerPolymer

Device



Applications:

CardiovascularNeurologyOrthopedicsDiabetes

End Markets:

Site SpecificDrug Eluting StentsOphthalmic Implants

Systemic

InjectionsImplants

Applications:

CardiovascularOphthalmologyOrthopedicsOncologyDiabetesCentral Nervous SystemPain

End Markets:

Components for Diagnostic Test Kits

StabilizationAntigensSubstrates

MicroarraysCell Culture Labware

Applications:

In Vitro DiagnosticsGenomicsCell Culture

End Markets:


SurModics Participates in Many Large and Growing Opportunities

• Favorable healthcare demographics • Large disease states with unmet clinical needs• Favorable trends in patient diagnosis and

treatment• SurModics has the ability to participate at

several points in the patient care cycle

Favorable Demographics

• Strong worldwide growth in the 60+ population segment is expected to result in an increase in disease state prevalence…

Source: World Health Organization

Population aged 60 years and older

2006: ~ 680 million

2020: ~ 1.1 billion

2000 - 20102010 - 2020

2020 - 20302030 - 2040

2040 - 2050

0 - 24 years

25 - 59 years

60 years or older-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

% G

row

th b

y Po

pula

tion

Age

Seg

men

t

Worldwide Population -- Age Group Change by Decade through 2050

0 - 24 years 4.7% 1.9% 1.4% -0.8% -1.6%25 - 59 years 18.1% 13.5% 7.1% 6.2% 3.1%60 years or older 25.5% 34.9% 32.5% 21.9% 18.2%

2000 - 2010 2010 - 2020 2020 - 2030 2030 - 2040 2040 - 2050

Leading to More People In Need of Diagnosis and Treatment….

U.S. Prevalence of Cardiovascular Disease

14.8%

39.1%

71.3%

83.0%

9.4%

39.5%

75.1%

92.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

20 - 39 40 - 59 60 - 79 80+

Population Age

Perc

ent o

f Pop

ulat

ion

Males Females

Source: NHANES: 1999 - 2004

• … for example, in the U.S. greater than 70% of the population aged 60 years and older suffer from cardiovascular disease…



• … greater than 10% of the population aged 80 years and older suffer from stroke…

U.S. Prevalence of Stroke

0.5%1.2%

6.5%

14.8%

0.5%

2.3%

6.2%

12.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

20 - 39 40 - 59 60 - 79 80+

Population Age

Perc

ent o

f Pop

ulat

ion

Males Females



• … and, greater than 20% of the population aged 60 years and older suffer from diabetes…

U.S. Prevalence of Diabetes

2.0%

10.0%

21.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

20 - 39 40 - 59 60+

Perc

ent o

f Pop

ulat

ion

Large Disease States with Unmet Clinical Needs

21 millionOsteoarthritis

2.25 millionRetinal Disease

8 millionPeripheral Vascular Disease

~1 million (incidence)Coronary Artery Disease

U.S. PrevalenceDisease Area

Favorable Trends in Patient Diagnosis and Treatment

• Trend towards increasingly minimally invasive procedures

Faster patient recoveryShorter hospital staysFewer patient co-morbidities

• Benefits of site specific and local drug deliveryAbility to improve performance through improved outcomes, convenience, accessibility and safetyPotential to reduce side effects and improve patient quality of life Potential to improve patient compliance

• Economics of healthcare

SurModics Participates at Several Points in the Patient Care Cycle

• Patient DiagnosisIn Vitro Diagnostics Vascular ImagingCardiac Mapping

• Patient TreatmentAccess, Therapy, and Recuperation

Examples of cardiovascular therapiesStent and Non-Stent

SurModics Participates at Several Points in the Patient Care Cycle

Examples• Interventional cardiology and peripheral vascular

Access and angiographyAngioplastyStentingIntravascular imagingVascular closure

• Cardiac rhythm managementAccess and delivery systemsPacemakersICDsCardiac resynchronization therapyAblation

Key Messages

• SurModics has a unique ability to grow and diversify its revenue and cash flow

• We derive value from solving customer problems in many different ways

• We have a track record of strong financial results and effective capital allocation

Our Revenue Diversification Strategy is Working13 Consecutive Quarters of Non-Cypher Growth

43.2

49.7

69.9

73.2

62.3

52%

33%

47%46%

48%

40

45

50

55

60

65

70

75

FY2003 FY2004 FY2005 FY2006 FY200730%

35%

40%

45%

50%

55%

Revenue ($millions) % Revenue from J&J

Value from Solving Customer Problems

• Intensive focus on innovation• Innovation comes in many forms

Research to create new Intellectual PropertyExpedite the time to market for new productsReduce the risk of new product developmentMaximize the efficiency and reliability once product commercialization begins

Solving Customers’ Needs at Each Phase of Product Development

Technology NeedsProvide value-added innovation to meet clinical needsQuickly help customers to assess technology solutions

Product Development NeedsCollaborate on project plans including analytical and characterization considerationsOptimize SurModics technology to customers’ specifications

Commercialization NeedsQuality and regulatory supportBridge coating supportReagent manufacturingOngoing technical services support

Summary

• SurModics’ Strategic Growth Initiatives are working• We participate in many large and growing market

opportunities• Our three primary areas of technology position us

well for the futureBuilding on our strong presence in site specific and local drug delivery

• SurModics has a strong potential to grow shareholder value well into the future

Drug DeliveryBusiness Unit

Brian RobeyVice President and General Manager

Drug Delivery

Drug Delivery

Background• Established in 2004 when SurModics was reorganized into business units

Brian Robey became the General Manager in 2006 after joining SurModics as Senior Director of Commercial Drug Delivery in 2005 from GuidantCorporation

• Licensing business modelPaid commercial developmentMilestone paymentsRoyaltiesReagent product sales

• Best known for Bravo™ drug delivery polymer on the first-to-market drug eluting coronary stent, but Drug Delivery technologies extend well beyond cardiovascular field

• Efforts focus on the commercialization of local site specific drug delivery technologies for medical devices and drug delivery implants

Next generation drug eluting stentsEmerging combination drug-device markets

• Drug Delivery works collaboratively with other SurModics business units, including Ophthalmology and Orthopedics

Drug Delivery

Key Market Needs• Sustained local treatment at site of disease or injury

Reduced side effectsImproved patient compliance and clinical outcomes

• Enhanced functionality of implantable medical devices in many application areas

Reduced inflammationMinimization of infection

• Enhanced healing after coronary and peripheral vascular stenting and balloon angioplasty

• Sustained localized delivery of therapeutic proteins and other molecules

Drug Delivery

Growth Drivers• Drivers of revenue growth

Aging populationGreater than 70% of population over 60 have cardiovascular diseaseDrug delivery from next generation stents and other cardiovascular devices – a multi-billion dollar market

Diversification within drug eluting stent marketDiversification into new large disease markets

Peripheral vascular, neurovascular, urology, cardiac rhythm management, wound care, pain management, dental, oncologyLocal drug delivery creates higher device value

• SurModics’ drug delivery technologies address key market needsUnique breadth of drug delivery platforms enables delivery of wide set of drugs for many applications

Small and large molecules with delivery from days to yearsDurable polymers to enhance device functionality in new marketsBiodegradable polymers for cardiovascular and non-cardiovascular disease Protein delivery systemsSurModics is well positioned with considerable intellectual property for both next generation drug eluting stent (DES) and new market opportunities

Drug Delivery

Enabling Technologies

• Bravo™ durable polymer• Biodegradable coatings

SynBiosys™ and Eureka™ SOLO• Protein delivery coatings• Eureka™ DUET biodegradable

protein delivery implants

DeviceDevice

DrugDrug

PolymerPolymer

Drug Delivery

Broad Polymer Offering

Small

Steroids,

Antiproliferatives

Medium

Peptides

Large

Proteins

EUREKA™ SOLO

EUREKA™ DUET

Drug Size

Bio

degr

adab

leD

urab

le

PolyActive™

Bravo™

SynBiosys™

Brookwood PLGA Polymers

Drug Delivery

Bravo™ Durable Polymer System

Scanning electron micrograph (SEM) of a Bravo coating on a

drug eluting stent

• Broad applicability across marketsDelivery of small drugsTunable controlled delivery fromhours to years

• Commercialized on the first-to-market drug eluting stent

Implanted in ~ 3 million patients

• Coating on the I-vation TA helical coil implant for ophthalmic applications

• Multiple paid development programs in progress

Drug Delivery

Biodegradable Polymers• Two biodegradable polymer systems - SynBiosys™ and Eureka™ SOLO • Both polymers meet market needs for cardiovascular applications

Delivery of small drugs Excellent adhesion to stentsTunable controlled drug delivery Polymer goes away after three to six months

• Favorable biocompatibility results from coronary stent animal studyData well received at the TCT interventional cardiology conference Broad applicability beyond stents

• Multiple paid development programs in non-cardio and cardio applications

Expanded (in vitro) 28-Day Explant 90-Day Explant

Drug Delivery

Protein Delivery Coatings• Formulations incorporate

proprietary blends of durable and biodegradable polymer systems

Tunable elution profiles for peptides and proteinsTunable degradation

• Proprietary processing techniques designed for protein stability

• Initial preclinical studies conducted on the I-vation™intravitreal implant

Drug DeliveryEureka™ DUET Protein Delivery Implants

• Proprietary starch-based biodegradable polymer system

• Uniquely protein stabilizing• Active protein release greater

than six months in vitro• Variety of shapes can be

formed• Preclinical studies ongoing

0.51 mm 0.29 mm

After 84-day implantation in a rabbit intravitreal model, approximately 60% decrease in total mass.

0

10

20

30

40

50

60

0 50 100 150 200Time (days)

% C

umul

ativ

e El

utio

n

Drug Delivery

Customer Example: CardioMind• Product: Ultra low profile stent

system for the treatment of coronary and peripheral artery disease

• Collaboration on drug eluting stent coating

• Biodegradable coating provides desirable drug elution, degradation, and adhesion properties with the CardioMind stent

CardioMindSparrow™ Stent

BalloonExp Stent

Ophthalmology Division

Paul LopezPresident of Ophthalmology Division

Ophthalmology

Background• InnoRx acquired in January 2005

Founded by Dr. Eugene de Juan, Retinal SurgeonTechnology licenses from Johns Hopkins & Doheny Eye InstituteDevelopment agreement signed between SurModics and InnoRx in 2002

• Ophthalmology business unit established in June 2005 in Irvine, CA

Small team with 60 years ophthalmic experience (B&L, Pharmacia, Allergan, AMO, etc.)

Ophthalmology

Key Accomplishments

• Licensed Genistein rights to Bausch & Lomb in December 2005• Licensed I-vation platform and TA product to Merck in June 2007

$20M upfront; $288M in future development milestonesPaid development workMerck proprietary compoundsI-vation manufacturing supplierAble to work with other partners

• Multiple other paid development programs in processBoth back and front of the eye applicationsLarge and small molecules

Ophthalmology

Key Market Needs• Aging population and increasing prevalence of serious retinal diseases

Age-related macular degeneration is the leading cause of legal blindness and vision impairment in adults over the age of 60Diabetic macular edema affects 500,000 Americans and is a common cause of blindness in patients younger than 50 years of age.

• Many back of the eye drugs (large and small molecule) in developmentCompetitive landscape will require that new therapies include an innovative and effective drug delivery system

• Need for improved patient outcomesLonger therapeutic window vs. bolus injectionsReduced side effects through controlled deliveryLower drug concentrations=less risk for toxicity=new ocular application for new and old drugs

• Need for improved patient compliance and safetyReduced treatment frequency: every 12-24 mos. vs. 4-6 weeksMinimally invasive implant vs.injectionReduced treatment risks by fewer procedures

• Extending IP and market protection for novel drug compounds

Ophthalmology

Key Market NeedsOvercoming Limitations for Treatment of Retinal Disease

•Repeat Procedures•Dose Related Side Effects•Poor Patient Acceptance

IntraocularInjections

•Limited Penetration•Poor Patient ComplianceEye Drops

•Limited Penetration•High Dosing•Risk of Systemic Toxicity

Oral Drugs

Ophthalmology

Growth Opportunities and Goals• Drivers of Revenue Growth

I-vation TA and other Merck compounds (up to $308 million in fees and milestones, plus development revenue and royalties)Secure new licensees for I-vation platformDevelopment and licensing of new ocular sustained delivery platformsMultiple development programs in processContinued industry investment in therapeutic treatments for retinal disease

• SurModics’ sustained delivery technologies address key market needs

Durable and biodegradable platforms with extended deliveryDelivery capability for both small and large moleculesI-vation TA Phase I profile is very positive

Ophthalmology

Drug Delivery PlatformsBiodegradable Implants• For delivery of both small molecules and biologics

• Preclinical proof of concept

I-vation Intravitreal Implant• For delivery of both small molecules and biologics

• 2+ years delivery

• Clinical proof of concept

Microparticles (Brookwood)• Subconjuctival

• Intravitreal

• BOE and FOE applications

Subretinal Implants• Biodegradable and durable

• Preclinical proof of concept

Intrvitreal Injection• Standard of Care

Ophthalmology

Extensive Polymer Systems

Small

Steroids,

Antiproliferatives

Medium

Peptides

Large

Proteins

EUREKA™ SOLO

EUREKA™ DUET

Drug Size

Bio

degr

adab

leD

urab

le

PolyActive

Bravo™

SynBiosys™

Brookwood PLGA Polymers

OphthalmologyI-vationTM Sustained Drug Delivery System

• Targeted Intravitreal Delivery• Novel Helical Design

Minimally Invasive Implantation (through <25 gauge needlestick)Maximum Surface Area for Drug Delivery (>1mg capacity)Self-anchoring within Sclera

• Removable• SurModics Polymer Coating Technology

Tunable Drug Elution RatesCompatible with Range of Molecules

Ophthalmology

Subretinal Drug Delivery System

• Most direct treatment of target tissues• Potential solution for large molecular weight drugs• Lowest dosing• Reduce/eliminate side effects

3 mm

Ophthalmology

I-vation TA Phase I Study• Prospective, randomized, double-masked study to

evaluate safety and tolerability• 2 formulations of I-vation TA• Patients with DME• 4 sites• 31 patients• 3 year follow-up• Enrollment completed March 2006

New Drug Limited by US Federal Law to Investigational Use Only

Ophthalmology

“Quiet” Surgical ProcedureDay 7Day 1

Implant Cap

16 mmHg

1/27 (4%)

0

27/27 (100)%

12/27 (44)%

156 µm

27*6 Months

18 mmHg

1/27 (4%)

0

23/27 (85%)

9/27 (33%)

100 µm

27*9 Months

Safety:Mean IOP

Cataract (PSC/CE IOL)

Study-related SAEs

Efficacy:Stabilized or improved

(<15 ltr. loss)

20/40 or Better BCVA

Mean Reduction OCT

Patients

Ophthalmology

I-vation™ TA Phase I Summary

*Patients completing visits through 9 months

Ophthalmology

Phase I: Experience to Date

• Good safety profileNo uncontrollable intraocular pressuresNo reportable serious adverse events

• Patient acceptance/tolerability excellent• Routine implant and explant procedure• Retinal thickness data confirms sustained

steroid effect

Orthopedics Business Unit

Steven J. KeoughSenior Vice President, General Manager

Orthopedics, & Chief Intellectual Property Counsel

Orthopedics

Background• Organized in 2005 to focus on orthopedics applications

utilizing SurModics technologies• Established relationships with key physician thought leaders

Orthopedics voice of customer within SurModicsFocus on unmet clinical needs through orthopedic surgeon contact

• Heavy emphasis on IP protection and working with customers within their areas of strength

• Revenue generated and to be generated through paid development, milestones, royalties and product sales

• Paid feasibility customers and license with large ortho company; all details remain confidential

Orthopedics

Key Market Needs• Antibiotics administered systemically are showing

lesser efficacy against implant associated infections, leading to an increase in implant removal

• Current treatment limitations for post-operative pain results in many patients suffering from chronic debilitating pain

• Aging, active population resulting in increasing incidence of chronic joint pain, leading to an increase in the number of knee and hip replacements

• Limitations, such as loss of flexibility and mobility, related to current standard of care for degenerative disc disease have led to interest in technologies providing improved range of motion

Orthopedics


Generate revenue and cash flow from major orthopedic company licenseeExpansion of paid development work to accelerate healing and recovery in wound and orthopedic applicationsConversion of paid development work into long term licenses

• SurModics technologies that address key market needsConvergence of drugs and devices creating new treatment modalities for site specific orthopedic/wound applicationsBroad portfolio of proven durable and degradable carrier materials for delivery of active agentsCoatings know how enables unique and proprietary solutions for customers

Orthopedics

Key Enabling Technologies• Drug Delivery

BRAVO™ durable and EUREKA™ SOLO biodegradable coatings, microparticles, and implants

• HydrophilicHARMONY™ coatings and blends

• RegenerativeFINALE™ prohealing coatings

• Coatings and polymer know howCoating equipment and polymer performance

Orthopedics

Applications of Technology• Leverage SurModics technologies to enable or

enhance clinical outcomes related to:Infection controlPain managementPatient recovery

• Primary areas of focus – based upon voice-of-customer input:

TraumaJoint repair, revision & reconstructionSpinalAdjacent tissue & skin Dental

Orthopedics

ProTis™ Trauma Wound Spacer

• Military and civilian applications• High rate of infection in extremity

war wounds (as high as 40%)• Use in theater currently requires

time and supplies to create beads in a tactical situation

• No FDA cleared pre-made bead spacer packing device yet available in the U.S.

• Other pipeline products in development

Orthopedics

Zone of Inhibition

Inoc 106 @ t= 6 hrsPhoto @ t= 72 hrs

Tobramycin in durable polymer blend to prevent bead from bacterial colonization while resident in a dirty wound bed.

Brookwood Pharmaceuticals

Art Tipton, Ph.D.President of Brookwood Pharmaceuticals

Brookwood PharmaceuticalsBackground

• Established in January 2005 by merging the Drug Delivery Group of Southern Research Institute with the acquired external polymer business of Alkermes (NASDAQ: ALKS)

• Three primary delivery platforms focused on parenteral applications—broad range of clinical indications

• Over 100 customers for biodegradable polymer• More than 2 dozen drug delivery partnered programs

from preclinical to Phase III• Current revenue from client-funded R&D, clinical trial

manufacturing, and polymer salesGrowth through expanded work for current clients, new clients, and milestones and royalties


Revenue Growth

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2002 2003 2004 2005 2006

Thou

sand

s


Staff History


Why Drug Delivery

• Peak and trough avoidance

Improved efficacyFewer side effects

• Assure compliance• Fewer procedures

(injections, capsules, physician visits)

• Extend patent life• Permit local delivery• Enhance utility of

medical devices


Key Market Needs• By avoiding peak and trough, provide products

with improved efficacy and less toxicity • Provide high local concentration where

systemic administration is not optimalAddresses key market opportunities including ocular, orthopedic and pain

• Improve patient compliance• Ability to deliver large molecule drugs

Proteins, peptides, and biogenerics


Growth Drivers• Our technologies address key market needs

Systemic and site specific drug delivery from days to monthsAbility to deliver small-to-large molecules

• Drivers of revenue growthExecute on robust partnered pipeline – including products serving diabetes, oncology, pain and ocular indicationsRevenue mix to reflect increasing portion of revenue from milestones and royalties Continue aggressive marketing to identify other partners and clinical application

Extend patent life – drugs going off patent by 2011: $49 billion in sales

• Smaller number of competitors due to mergers or focus on “specialty pharma” model

• Significant hurdles to market entry for potential competitors • Ongoing and growing need for delivery of

biopharmaceuticals

“…What can Big Pharma do? The industry needs to orient itself toward new dimensions of performance--not necessarily better effectiveness against a condition, but factors such as convenience, accessibility and safety. Instead of just developing better drugs, they need to develop better ways to deliver medication. ″

—Clayton M. Christensen Harvard Business School


Key Trends


Technology Platforms• Microparticles

Microparticulate formulations for delivery of small molecules, peptides, and proteins using various routes of systemic or local administration Solid lipid microparticles for increased bioavailabilityVAXCAP™ vaccine delivery

• Injectable solid implantsImplantable rods of polymer and drug for systemic or local delivery

• Biomaterials (biodegradable polymer & biomaterials)Commercial synthesis of PLGs at lot sizes up to 30 kgContract manufacturing of biomaterials and excipients

• Injectable hydrophobic drug particles• Modified polymer surfaces

SurModics/BrookwoodYour Drug Delivery Solution Provider

√Biodegradable polymer supply

√Coatings

√Microparticles

√√Solid implants

√√Large molecule drug delivery

√√Small molecule drug delivery

√Systemic drug delivery

√√Site-specific drug delivery

√Durable drug delivery polymer platforms

√√Biodegradable drug delivery polymer platforms

BrookwoodSurModics

√Biodegradable polymer supply

√Coatings

√Microparticles

√√Solid implants

√√Large molecule drug delivery

√√Small molecule drug delivery

√Systemic drug delivery

√√Site-specific drug delivery

√Durable drug delivery polymer platforms

√√Biodegradable drug delivery polymer platforms

BrookwoodSurModics


PipelineTECHNOLOGY

AGENCY REVIEW MARKET

In V

itro

Ani

mal

PK

Opt

imiz

atio

n

Opt

imiz

atio

n

EXCIPIENT

Biodegradable Polymer

CONTRACT MANUFACTURING

CNS Hydrophobic Microparticles*

Oncology Liposome

DRUG DELIVERY PARTNERED PRODUCT

Ambrilia octreotide prolonged release*

Clinuvel PLE Implant

elbion Naltrexone Microparticle

Metabolic Disease Microparticle

Ophthalmic Microparticle

Metabolic Disease Microparticle

Orthopedic Microparticle

Ophthalmic (5)

Orthopedic Implant

Orthopedic Microparticle

Neurological Microparticles

Neurological Implant

CNS Microparticle

Urological Microparticle

CNS Microparticle

Pain Microparticle

Veterinary Implant

CNS Implant

Pain Microparticle/Implant

Metabolic Microparticle

Pain Microparticle

Ophthalmic Microparticle

MEDICAL DEVICE PARTNERED PRODUCT

Oncology Microparticle

Vascular Stent* Technology transfer is complete

PRECLINICAL CLINICAL STUDIES

P1 P2 P3


Customers• Sales of biodegradable polymer to >100

customers• More than two dozen client drug delivery

programs• Drug delivery customers include 8 Top 50

pharma, 2 Top 10 medical device


Illustrative Client• One injection expected to

provide up to 2 months protection from UV sun damage

• Peptide stimulates melanocytes to produce natural melanin

• Phase III ongoing for PMLE• Multi-year effort starting prior

to launch of Brookwood• Partnered with Clinuvel

(formerly Epitan), a publicly traded Australian company

“This formulation is the result of a strategic collaboration agreement with Southern Research Institute. The ability to take an implant from laboratory to clinic in under two years is a testament of the good working relationship between Southern and Epitan.”


Collaborations

“Brookwood Pharmaceuticals’scientific team has industry-leading experience in a wide range of drug delivery systems, with particular depth in long-acting parenterals such as microparticles and solid implants.”

Dan Hayden, Senior Vice President and General Manager of Genzyme Pharmaceuticals

SurModics/Brookwood PharmaceuticalsA Powerful Combination of Drug Delivery Solutions

• Long track record of leadership in site specific and systemic drug delivery

• Proven results with over 100 customer products on the market• Long-term relationships with more than 110 customers,

including leading medical device, pharmaceutical, and biotechnology companies

• Established history with the FDA and other regulatory organizations

• Strong balance sheet and long track record of growth• Deep expertise in diverse range of technical fields, including

31 Ph.D. scientists on staff• Quality systems in place• Clinical trial manufacturing and expertise

Hydrophilic TechnologiesBusiness Unit

Charlie OlsonVice President and General Manager

Hydrophilic Technologies


Background• Established in 2004 when SurModics was reorganized into

business unitsFirst licensed customer in 1990First commercially launched product 1991

• Our gold-standard HarmonyTM advanced hydrophilic coatings platform is based on our patented PhotoLink® chemistry

Clear market leader• Revenue performance driven by a diverse base of customers

and increasing market penetration Strong experience in Vascular and Non-Vascular market segments

• Success in leveraging Hydrophilic customer base to expand opportunities with SurModics’ Drug Delivery and Regenerative Technologies product platforms

Hydrophilic TechnologiesKey Market Needs

• Increasing demand for the use of medical devices to facilitate minimally invasive procedures have been driven by…

Reducing procedural risk and complicationsReducing patient discomfort and accelerated recoveryReducing hospital staysResulting in quality of life improvements

Hydrophilic TechnologiesGrowth Drivers

• Key drivers of revenue growthIncrease the number of licensed customersIncrease the number of customer products incorporating hydrophilic coatingsResulting in continuing royalty growth from licensing model execution

• SurModics’ hydrophilic technologies address key market needs through:

Improved access (ease of device insertion)Improved deliverability (enabling lesion crossing and reducing profile)Improved predictable deployment (device tracking and device control)Full-service provider of integrated chemistry and process excellence

Reduced Friction = Enhanced Performance

0

0.2

0.4

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0.8

1

Coe

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ent o

f fric

tion

Silicone PU Pebax HDPE PVC

CR

M le

ads

Perip

hera

l gu

idew

ires

Sten

t del

iver

y

Acc

ess

syst

ems

Uro

logy

cat

hete

rs

Lower is better

Uncoated

HarmonyTM

Hydrophilic coating


Leveraging Proven Clinical Performance

Common substrates


Licensed Customer ApplicationsProven Hydrophilic Solutions to Optimize Medical Device Performance

CardiovascularCoronary stent systems

NeurologicalInfusion catheters

Hydrocephalic shunts

Stroke treatment

Embolic protection

OphthalmologyAccess instruments

Cardiac Rhythm ManagementCRT leads

Pacemaker leads

Lead delivery catheters & guidewires

Electrophysiology (mapping & ablation) catheters

UrogenitalIncontinence devices

Penile implants

Stents / Catheters

Contraceptive systems

Peripheral VascularEndovascular graft systems

Peripheral stent delivery catheters

Atherectomy / Thrombectomy systems

Intravascular imaging

Vascular closure devices

Surgical DevicesEndoscopy accessories

Obesity management

Chest would drainage

Specialty guidewires

Chronic total occlusion devices

Angioplasty catheters

Percutaneous heart valves

Access systems

Defect repair delivery systems

Hydrophilic TechnologiesInterventional Cardiovascular Growth Opportunities

• Bare metal (BMS) & drug eluting stent (DES) systems

Next generation materials being accessed for bare metal stent DES platforms using biodegradable stents, dedicated bifurcation systems and small vessel micro-stents

• Alternative or complementary therapies to stentingThrombectomy and atherectomyAnti-restenosis therapy via drug eluting balloon systems

Proven Ability to Support Customer Needs

Hydrophilic

Technologies

Result: 80+ licensed customers120+ device classes

Hydrophilic TechnologiesIntegration of Performance and Process

SurModics and OakRiver Technology Collaborate on Advanced Coating Equipment

EDEN PRAIRIE, Minnesota – October 31, 2007 SurModics announced today an agreement with OakRiver Technology, Inc. to collaborate on the development, manufacture, distribution and ongoing support of advanced coating equipment for the medical device industry.

OakRiver Hydrophilic CoaterPhotoLink chemistry

We Continue to Successfully Grow Our Customer Pipeline

• Emerging technologies partnersIntroduction of disruptive technologies

• Midsized partnersExpansion of market opportunities

• Multinational corporate partnersAbility to drive market share through full product lines and bundling strategies

Regenerative TechnologiesBusiness Unit

Lise DuranVice President and General Manager

Regenerative Technologies


Background• Established in 2004 when SurModics was reorganized

into business units• Encompasses the convergence of biology, engineering,

and medicineCreation of biofunctional materials that rely on natural mechanisms to augment or recover damaged tissue, organ, or medical device performanceFocused on novel, early stage tissue engineering technologies designed to meet significant, poorly addressed market needs

Cardiac dysfunction associated with cardiovascular diseaseRestenosis and late stent thrombosis associated with BMS and DES, respectively

• Revenue generated from customer-funded development activities, milestone fees, royalties and product sales


Key Market Needs• Current pharmacologic interventions and surgical

treatment options do not restore function to damaged tissues caused by aging

Organ assistance and substitution devices needed to manage patients with end-stage diseasePromising cell and protein therapies require new delivery approaches

• Delayed healing is associated with many current medical devices which lead to:

Impaired or lost functionComplications resulting in extended morbidityNeed for effective prohealing approaches



Development and licensing of technology to prevent restenosis and late stent thrombosis associated with drug eluting stents and bare metal stentsDevelopment and licensing of technology with tissue healing properties to enhance multiple medical device applicationsDevelopment and licensing of technology for protein and cell delivery

• SurModics’ regenerative technologies address key market needs

Regenerative technologies can repair age-related tissue damage extended healthy life spansRegenerative technologies accelerates the natural healing processes and heal injuries that cannot heal on their own potential for improved efficacy, fewer side effectsMultiple technologies focused on protein and cell delivery


FINALE™ Prohealing Coatings• Promote endothelialization through

extracellular matrix (ECM) proteinsApplicable to broad range of medical devices

• Developed in collaboration with Dr. Stuart Williams

• Strong early data support improved tissue healing of implantable medical devices

• In late-stage preclinical development• Announced partnership with Paragon IP in

July 2007

• Employs PhotoLink®

technology

• Improves tissue healing ofimplantable medical devices

• Uses nature’s own healingmechanisms

• Signals relevant cell types topromote vessel healing

Lack of endothelial cells on DES without Finale coating

DES shows improved cell overgrowth with a

Finale prohealing coating


FINALE™ Prohealing Coatings


Customer Example: Paragon IP

• Paragon is developing the PROTEX™ cobalt alloy stent system

Novel stent design: ultra low profile and minimal elastic recoilFINALE prohealing coating: acceleration of the natural healing response

• Paragon has a license for using the FINALE™ coating on bare metal stents

SurModics and Paragon announced their collaboration in July 2007SurModics has an investment in Paragon

• Preclinical and clinical evaluations of the PROTEX™ stent Data from rabbit and porcine models demonstrated a safety profile equal to or better than BMS in thrombogenicity, inflammatory scores and endothelializationA first in human trial is planned to begin in 2008

Regenerative TechnologiesTissue Engineered Materials

• EUREKA™ Naturally Biodegradable Matrix Platform

Degradable polymers based on natural plant-based polysaccharidesMaterials can be engineered for a variety of applications such as bioresorbable medical devices, scaffolds, and space fillers Formulations for a variety of applications are in early research to preclinical evaluationsSeveral commercial development programs in the areas of cardiology, vascular surgery, ophthalmology, and orthopedics

• CELLabration™ Cell Encapsulation SystemCo-developed with and licensed to Novocell for the treatment of diabetes


EUREKA™ Resorbable Implants• Potential Applications:

Medical devicesMechanical scaffoldsSpace fillers

• FeaturesVariety of shapes can be formed: Coils, stents, filaments, and foams have been fabricatedShape memory properties allow it to be delivered in one shape and then have it return to the original shapeDevices undergo enzymaticallycontrolled surface-mediated degradation

0.51 mm 0.29 mm

After 84-day implantation in a rabbit intravitreal model, approximately 60% decrease in total mass.

Eureka™ DUET Biodegradable Polymer System:Shape Memory Deployment

Eureka™ DUET Biodegradable Polymer System: In Situ-Forming Matrix

• Potential ApplicationsInjectable biodegradable reservoirs for:

Proteins Cells

Conformal devicesTissue repair structures

• FeaturesEasy to deliver low-viscosity liquid componentsVariety of potential delivery methods:

Dual-barrel syringesSpraysDual-lumen microcatheters

dual chambers

microcatheter

spray

In Vitro TechnologiesBusiness Unit

Peter GinsbergVice President, Business Development and

Strategic Planning

In Vitro Technologies

Background• Established in 2004 when SurModics was reorganized into

business unitsLed by Doug Astry, who joined SurModics in 2003 from 3M

• Product focused business model Manufacture and sell products to end-users and OEM customersDistribution model – direct, distributors, catalogs

• Exclusive distribution agreement with DIARECT in July 2006 relating to antigens

• Acquired BioFX in August 2007A leading producer of substrates for diagnostic tests

• Target markets servedDiagnostic kit manufacturersCell culture

April 2007 launch of Corning® Labware with SurModics ECM technologyPositive early feedbackCurrent efforts focused on technology platform buildout

• Increase sensitivity and speed to test resultAbility to detect lower levels of disease markers (e.g., cancer, markers, pathogens, metabolic markers, etc.)Reduce factors that could lead to false-negative results

• Stability to provide accurate, consistent test resultsExtend kit shelf-life while reducing storage constraintsReduce factors that could lead to false-positive results

• User-friendly kits Achieve consistent results with reduced need for ongoing validation More convenient storage, simplified inventory management Fewer steps required – obviate the need to mix or dilute test components


Key Diagnostic Market Needs

• Drivers of revenue growth for diagnostic test componentsGrowing diagnostics marketExpanded product offerings Increasing market shareCustomers purchasing multiple diagnostic components from SurModicsTrend towards component outsourcing

• SurModics technologies address key customer needs:StabilitySensitivityValueTechnical/product support


Growth Drivers

Ease of use ConsistencyFlexible packaging


Diagnostics Products

Stabilization Products

SlidesStabilization

Products

SlidesBiologicals

Substrates

2004 2007• Stabilization Products• Slides

• Stabilization Products• Slides• Substrates• Antigens• AntibodiesRevenue Breakdown

Revenue Breakdown


BioFX Substrate Overview• Colorimetric

~ $60M marketPerformance leaderMarket leaderMarket synergy

• Strategic Elements of BioFX AcquisitionHigh value, quality componentsBest in class product performanceExpanded customer baseAbility to leverage our sales efforts

• Chemiluminescent~ $200M marketCompetitive productsGrowth opportunityNew markets


Substrate Stability

In Vitro TechnologiesChemiluminescent Products Performance

In Vitro TechnologiesStabilization Products Performance

Wet Stability Dry Stability

Performance of StabilZyme® and StabilCoat®

SurModics Customers:• “We’d like to see SurModics cover everything in immunoassays--

stabilizers, antigens, substrates…”• "If our company is presented with alternatives from SurModics, we will

gladly see if they can be used to better our own products…”

Industry Consultant:• “BioFx is very focused on substrate manufacturing and have quality,

stable products that are well characterized and contain ‘user-friendly’chemicals."

BioFX Customers:• “We changed over to them because of their high quality stability and

performance. Reliability of delivery, tech support.”• “The best product out there. Highest sensitivity, lowest background

available,”• “Incredible, long stability - two years or more. Outstanding products.”


Voice of the Customer

In Vitro TechnologiesCustomer Example: Leading Life Science/Diagnostics Co.

• One of BioFX’s top substrate customers“Their recipe far exceeds any other on the market”BioFX revenue generated from this customer grew 22% in CY2006 and is up sharply again in CY2007

• Not a current customer for SurModics’ stabilization products or antigens

Excellent cross-selling opportunityPositive meetings have taken place between SurModics/BioFX and the customer with the goals of:

Continuing substrate sales growthGenerating initial sales of stabilization products and antigens

Financials

Phil AnkenySenior Vice President and

Chief Financial Officer

Revenue10th Year of Record Revenue Since 1998 IPO

$9.8$13.5

$18.3$22.7

$29.5

$43.2$49.7

$62.4

$73.2$69.9

$0

$10

$20

$30

$40

$50

$60

$70

$80

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

$ in millions

SurModics Operating Segments

• Drug DeliveryDrug DeliveryOphthalmologyBrookwood Pharmaceuticals

• Hydrophilic and OtherHydrophilic TechnologiesRegenerative TechnologiesOrthopedics

• In VitroIn Vitro Technologies

Revenue MixA More Balanced Portfolio

Drug Delivery Hydrophilic and Other In Vitro

FY2004Revenue = $49.7M

FY2007Revenue = $73.2M

Merck AgreementAccounting Treatment

• Falls within EITF 00-21 “Revenue Arrangements with Multiple Deliverables”

• Payments recognized over the economic life of the technology licensed to Merck

Up front license feeMilestone paymentsCommercial research & development

Revenue Mix

$0

$5

$10

$15

$20

$25

3Q07 4Q07

R&D

Product Sales

Royalties andLicense Fees

$17.8

$21.3

$ in millions

Revenue MixNear-Term Impact

3Q07 4Q07

R&D

Product Sales

Royalties andLicense Fees

75%61%

17%

21%

8%18%

$1.04

$1.33$1.27

$0.99

$0.78

$0.44$0.38

$0.22$0.13$0.12

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

1998

1999-A 200

0

2001-A 200

2200

3

2004-B

2005-C

2006-D

2007-E

A As adjustedB Excludes $16.5M asset impairment charge C Excludes $30.3M IPR&D charge, $2.5M asset impairment chargeD Excludes a $4.7M non-cash impairment loss E Excluding $15.6M IP R&D charge

Diluted EPS(Non-GAAP)

$50.7

$35.3

$26.0$23.2

$17.1$14.3

$7.8$7.4$4.4

$2.1$0$5

$10$15

$20$25$30$35$40$45

$50

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Operating Cash Flow44% Growth in FY2007

$ in millions

Strong Balance Sheet

• $70.2 million in cash and investments as of September 30, 2007

• Putting the balance sheet to workBusiness DevelopmentShare Repurchase

Business DevelopmentOver $110 Million of Capital Committed

Technology In-Licensing• OctoPlus biodegradable polymers• InnoCore biodegradable polymers• Intralytix biodegradable polymers• University of Arizona (prohealing)• Abbott DiagnosticsStrategic Investments• OctoPlus – drug delivery• Paragon IP – prohealing cardiovascular stent• Novocell – diabetes• ThermopeutiX – stroke therapyAcquisitions• InnoRx• Brookwood Pharmaceuticals• BioFx Laboratories

Share Repurchase

• FY2007 Share Repurchase Program$35 million authorizationRepurchased over 1 million sharesApproximately 5% of shares outstandingAverage price of $34.76 per share

• New Share Repurchase Program$35 million authorizationNo fixed expiration date

Forward Strategy: Fiscal 2008 Company Goals

Bruce BarclayPresident and Chief Executive Officer

SurModics’ Customer Base Today92 Licensed Customers

Novocell

Growing Pipeline FeedsNear- and Long-Term Growth

Products on the Market

Licensed Products Not Yet Launched

“Major”Non-Licensed

Licensed Projects

100 94 75

9/30/06 83 84 69

9/30/07

(Excluding Brookwood Pharmaceuticals Pipeline)

FY2008 Corporate Goals

• Sign 18 licenses with customers.• Exceed $10 million in cash (pro forma

revenue) from our customers for commercial research and development.

• Launch 10 new product classes by our customers.

FY2008 Ophthalmology Goals

• Sign a second customer license using SurModics drug delivery technology.

• Initiate the next phase clinical trial for I-vation™ TA.

• Complete a development milestone under the Merck license and research collaboration agreement.

FY2008 Cardiovascular Goals

• Customer conducts a first-in-man procedure with a next generation drug eluting device incorporating SurModics technology.

• Achieve a first-in-man implant with our Finale™ prohealing technology.

• Medtronic to launch the Endeavor® DES device in the U.S. with SurModics hydrophilic technology.

FY2008 Brookwood Pharmaceuticals Goals

• Sign a customer license agreement relating to Brookwood technology.

• Sign a development agreement with a Top 50 pharma company.

• Exceed $17.5 million in revenue.

FY2008 In Vitro Technologies Goals

• Exceed $4.0 million in revenue from BioFX products.

FY2008 Technologies Goals

• Sign our first customer license using SurModics’ Eureka™ biodegradable polymer.

• Generate further data related to delivering proteins on a sustained basis.

investor day -...

Documents