surmodics, inc. annual meeting of...
TRANSCRIPT
2008 Annual Meeting of Shareholders
Today’s Agenda
• Formal Business• Board Introductions• Officer Introductions• Financial Highlights• Brookwood Pharmaceuticals• Genzyme Pharmaceuticals• CEO Remarks• Q & A
Bryan Phillips, Esq.Kendrick MelroseBruce BarclayPhilip AnkenyArthur TiptonDaniel HaydenBruce BarclayBruce BarclayPhilipAnkeny
2008 Annual Meeting of Shareholders
Safe Harbor Statement
Some of the statements made during this meeting may be considered forward-looking statements. The 10-K for the fiscal year 2007 identifies certain factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statements made during this meeting. The 10-K and subsequent filings are available through the Company or online.
2008 Annual Meeting of Shareholders
Purpose of Meeting
• To set the number of directors at ten (10).
• To elect Class III directorsKenneth H. Keller, Ph.D.Robert C. Buhrmaster
2008 Annual Meeting of Shareholders
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
2008 Annual Meeting of Shareholders
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
Upfront license feeMilestone paymentsCommercial research & development
2008 Annual Meeting of Shareholders
Revenue Mix
$0
$5
$10
$15
$20
$25
$30
1Q07 1Q08
R&D
Product Sales
Royalties andLicense Fees
$16.7
$23.8
$ in millions
2008 Annual Meeting of Shareholders
Revenue MixNear-Term Impact
1Q07 1Q08
R&D
Product Sales
Royalties andLicense Fees
79%
55%
16%
22%
5%23%
2008 Annual Meeting of Shareholders
$1.04
$1.33$1.29
$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
*20
0020
01*
2002
2003
2004
**20
05**
*20
06**
** 2007
* As adjusted** Excludes $16.5M asset impairment charge and non-cash equity compensation expense *** Excludes $30.3M IPR&D charge, $2.5M asset impairment charge and non-cash equity compensation expense**** Excludes non-cash equity compensation expense and a $4.7M non-cash impairment loss on the Company’s
investment in Novocell
Diluted EPS(Non-GAAP)
2008 Annual Meeting of Shareholders
(000's) 1Q08 1Q07 Growth
Revenue: Royalties and license fees $13,178 $13,219 0% Product sales 5,207 2,726 91% Research & development 5,444 795 585%Total Revenue 23,829 16,740 42%Cost of Sales 2,782 1,086 156%Operating Expenses 13,476 7,545 79%Operating Income 7,571 8,109 -7%Investment Income 1,720 1,329 29%Income Taxes (3,645) (3,446) 6%Net Income $5,646 $5,992 -6%
EPS $0.31 $0.32 -3%
First Quarter Results
2008 Annual Meeting of Shareholders
$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
2008 Annual Meeting of Shareholders
Strong Balance Sheet
• $72.5 million in cash and investments as of December 31, 2007
• Putting the balance sheet to workBusiness DevelopmentShare Repurchase
2008 Annual Meeting of Shareholders
Growing Pipeline FeedsNear- and Long-Term Growth
Products on the Market
Licensed Products Not Yet Launched
“Major”Non-Licensed
Projects
100 105 93
12/31/06 89 80 80
12/31/07
Arthur J. TiptonPresident, Brookwood Pharmaceuticals
Vice President, SurModics
Daniel O. HaydenSenior Vice President and General Manager
Genzyme Pharmaceuticals
Brookwood & GenzymeCollaboration
Brookwood Pharmaceuticals
A product-focused, drug-delivery companythat uses patented and proprietary drug delivery technologies to formulate improved pharmaceutical products
Success through
– Drug delivery expertise
– Biodegradable polymer expertise
– Clinical trial manufacturing expertise and facilities
– Multiple patented technologies
– Project management and client communications
– Research/development of new technologies and biomaterials
End Goal: Marketed Products
Topics for Today
• Synergies between SurModics and Brookwood
• Overview – Medical device – Pharmaceutical industries – Trends
• Introduction to Genzyme – Review Genzyme/Brookwood collaboration
Meeting Drug Delivery Needs Across the Healthcare Industry
MEDICAL DEVICES PHARMA / BIOTECH
SURMODICS BROOKWOOD
EXPANDED CAPABILITIESEXPANDED CAPABILITIES
Joint Marketing Highlights
• Notification campaign after announcement
• Introductions via trade shows– Participate in our 5th this week – Approximately one every 5 weeks
• Joint customer calls– Weekly joint marketing efforts
Joint Technical Highlights
• Both immediate benefit and long term value
• Immediate Benefit– Existing programs with surface
characterization and particle analysis– Protein characterization– Consulting
Value goes beyond dollars
Joint Technical Highlights
• Long term value– Consulting on new polymers– Use of Scientific Advisors– Joint efforts with
• Microparticles composed of Eureka DUET• Microparticles in Eureka SOLO coatings and filaments• Nanoparticles for antiproliferative coating• Evaluation of novel biodegradable polymers
What do these value-creating research programs have in common?
• Market and product focused
• New ways to formulate existing materials
– Broader technology to solve clinical issues
– Improve release and duration from coatings
– Nano particles and microparticles formed into devices
• World class talent in development of new polymers for injectable drug delivery
Top 10 Medical Device Companies by revenue, 2006 data
$4.9BStryker10
$6.3BBoston Scientific9
$7.5BPhilips Medical Systems8
$9.2BSiemens Medical Solutions7
$9.5BTyco Healthcare6
$9.8BCardinal Health4
$9.8BBaxter International 4
$10.1BMedtronic3
$12.1BGE Healthcare2
$17.7BJohnson and Johnson1
Top 10 Pharmaceutical Companies by Revenue, 2006 data
1 Pfizer $45.1B
2 GlaxoSmithKline $39.2B
3 Sanofi-Aventis $37.4B
4 Novartis $29.4B
5 AstraZeneca $26.5B
6 Johnson&Johnson $23.7B
7 Merck $22.6B
8 Roche $16.9B
9 Lilly $15.7B
10 Wyeth $15.6B
Size of the pharmaceutical industry
$10 Billion
$5 Billion
$4 Billion
$3 Billion
$2 Billion
Number of Drugs, Sales Greater than $1 Billion
Size of the pharmaceutical industry
1$10 Billion
4$5 Billion
11$4 Billion
23$3 Billion
45$2 Billion
105Number of Drugs, Sales Greater than $1 Billion
Some data
• The top selling single drug generates more revenue than all but the single largest medical device company
• 33 drugs generate more revenue than the 20th
largest medical device company, Smith+Nephew
• Pharma companies larger than Stryker, the 10th
largest medical device company: Teva, Astella, Alcon, Nycomed
Some trends
• Drug and devices are converging
• Patent protection, always important, is critical
• Pharmaceutical companies value outsourcing
• The drug products of biotechnology will require drug delivery
Drug Delivery is Part of the Solution
“…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
40
Our Global Corporation
>10,000 employees worldwideHelping patients in more than 80 countries16 manufacturing sites9 genetic testing lab sites14 major marketed products2007 revenue $3.8 billion* 4th largest Biotech (market cap.) 73 locations in 32 countries
*preliminary, unaudited revenue
41
Corporate Major Marketed Products and Services
Thymoglobulin®
Hectorol®
Renal
Renagel®Fabrazyme®
Genetic Diseases
Aldurazyme®
Cerezyme®
Oncology / Endocrinology
Synvisc®
SepraTM Products
Orthopaedics/ Biosurgery
Carticel®MACI® Thyrogen®
Campath®
Clolar®
Transplant / Immune Disease
Myozyme®
Genetics / Diagnostics
ReproductiveOncologyInfectious DiseaseCardiovascular
PharmaceuticalsPharmaceuticalsMaterials / Technologies / ServicesMaterials / Technologies / Services
Custom ManufacturingCustom Manufacturing
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Allston, MA Facility
Genzyme Corporation Manufacturing Infrastructure
16 GMP Manufacturing sitesMassachusettsNew JerseyAustralia BelgiumDenmarkFranceIrelandSwitzerlandUnited Kingdom
1 Gene Therapy facility4 Diagnostic facilities9 Genetic lab testing sites
43
Genzyme Technology PlatformsBiologics
Protein TherapiesGene TherapiesMonoclonal & Polyclonal Antibodies
Synthetic MoleculesSmall MoleculesTherapeutic Polymers
BiosurgerySurgical Biomaterials & DevicesCell and Tissue Therapies
Diagnostics/GeneticsGenetics/Genomics Rapid DiagnosticsDiagnostic Enzymes
Drug DeliveryCNSExtended Circulation
45
Our Focus
Research &Development
Scale-up andpreparation for launch
Quality & Regulatory supportfor commercial products
46
Genzyme Pharmaceuticals Business Unit
1 of 10 operating business units within Genzyme Corporation
Manage to our own P&L
Current business focus in the AAD/Peptide, Lipid and Drug Delivery Technology markets including Custom Manufacturing
125 Employees at 3 sites
Both financial & strategic value contributions to the Corporation
cGMP Manufacturing FacilityLiestal, Switzerland
*Dedicated 100,000 sq. ft.
*Multi-product/ purpose facility
*Custom manufacture of APIs &
Critical pharmaceutical intermediates
47
Genzyme Pharmaceuticals Products & Technologies
CustomManufacturing
(Liquid Crystals)
Amino AcidDerivatives
& Peptides Strategic
Relationships
BROOKWOODPHARMACEUTICALS
Welchol / Cholestagel
Drug DeliveryTechnologies
Lipids
Driven by market and technical synergy
Formal collaboration began May 2006
Brookwood/Genzyme Team has resources, capabilities, and facilities- develop and commercialize new drug delivery technologies- develop and manufacture drug delivery materials- modify active pharmaceutical ingredients- provide formulation and manufacturing services
The Brookwood – Genzyme Pharmaceuticals Collaboration
Develop and provide drug delivery products and services to the pharmaceutical and biotech industry
Generate new drug delivery intellectual property- Materials- Formulations- Active ingredients (peptides)
Generate revenue- Product development - Manufacturing- Intellectual property income
Genzyme – Brookwood Collaboration Goals
Combining existing drug delivery technologiesGenzyme drug delivery
- Lipid based technologies -- LipoBridge® and LipoMask™- Peptide manufacturing
Brookwood drug delivery- Microparticles, nanoparticles, implants, biomaterials
Develop new drug delivery technologies- Formulations- Materials
Combine and expand marketing strengthsReach clients earlier in drug developmentImprove product success
Genzyme – Brookwood Collaboration Strengths
Development / Marketing Stage- Design for Peptide DeliverySM
- Designing peptides to match drug delivery platforms
Research Stage- Blood brain barrier delivery- Polymer and lipid nanoparticles
Genzyme – Brookwood Collaboration Activities
2008 Annual Meeting of Shareholders
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
2008 Annual Meeting of Shareholders
Our Revenue Diversification Strategy is Working14 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
2008 Annual Meeting of Shareholders
R&D Spending(dollars in millions)
4.5 5.26.8
89.7
11.8 12.6
16.1
20.4
28.5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
2008 Annual Meeting of Shareholders
Ophthalmology
Key Business Objectives
• Provide sustained drug delivery technologies to treat both front-of-the-eye and back-of-the-eye diseases
• Provide customers with the broadest number of innovative solutions to deliver their drugs into the eye
2008 Annual Meeting of Shareholders
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
2008 Annual Meeting of Shareholders
Ophthalmology
Key Accomplishments
• Licensed I-vation platform and TA product to Merck in June 2007
$20M upfront; $288M in future milestones and feesPaid development workMerck proprietary compoundsI-vation manufacturing supplierAble to work with other customers
• SurModics expands licensing agreement with Merck in January 2008
• Eleven (11) paid development programs in process –small and large molecules
2008 Annual Meeting of Shareholders
Ophthalmology Markets
• Back-of-the-EyeAge-Related Macular Degeneration (AMD)
Leading cause of blindness in people over 601.75 M people
Diabetic Macular Edema (DME)A leading cause of blindness in people under 501 M people at high risk of losing vision
• Front-of-the-EyeGlaucoma
Affects 65 M people worldwide, 2nd leading cause of blindnessTotal U.S. market of $1.7BTreated today with eye drops 1-2x/day
2008 Annual Meeting of Shareholders
OphthalmologyComponents of the I-vation TA Implant
• Non-ferrous metallic scaffold• Triamcinolone Acetonide active• BravoTM polymer drug delivery matrix
Controlled drug release > 1 year> 1mg drug payload
2008 Annual Meeting of Shareholders
Ophthalmology
Phase I: Experience To Date
• Good safety profileNo uncontrollable IOPsNo reportable SAEs
• Patient acceptance/tolerability excellent• Routine implant and explant procedure
Over 50 implant procedures to dateOver 20 explant procedures to date
• Retinal thickness data confirms sustained steroid effect
2008 Annual Meeting of Shareholders
Drug DeliveryPolymers
DurableBiodegradable
Multiple Ways to Participate in DES Market$4.5 Billion Worldwide Market
Stent Delivery SystemsHydrophilic coatings
Anti-Thrombotic Coatings
HeparinBiodegradable polymersProhealing
2008 Annual Meeting of Shareholders
In Vitro Technologies
Diagnostics Products
• Acquired BioFX in August• Combines current stabilization and antigen products
with new substrates product line for diagnostic kits
2008 Annual Meeting of Shareholders
Hydrophilic Technologies
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
2008 Annual Meeting of Shareholders
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 systemic drug delivery
• SurModics has a strong potential to grow shareholder value well into the future