Investor Day -...
Transcript of Investor Day -...
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
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
Surface Modification Drug Delivery In Vitro
HydrophilicBiocompatibleHemocompatibleProhealingCell Encapsulation
Applications:
CardiovascularOphthalmology OrthopedicsDiabetes
End Markets:
Site SpecificDrug Eluting StentsOphthalmic Implants
SystemicInjectionsImplants
Applications:
CardiovascularOphthalmologyOrthopedicsOncologyDiabetesCentral Nervous SystemPain
End Markets:
Focus: Applications & 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
Surface Modification Drug Delivery In Vitro
HydrophilicBiocompatibleHemocompatibleProhealingCell Encapsulation
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:
Focus: Applications & 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
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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
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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…
Leading to More People In Need of Diagnosis and Treatment….
Source: NHANES: 1999 - 2004
• … 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
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f Pop
ulat
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Males Females
Leading to More People In Need of Diagnosis and Treatment….
Source: NHANES: 1999 - 2002
• … 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
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f Pop
ulat
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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 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.
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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
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
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
Growth Drivers• Drivers of revenue growth
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 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
Brookwood Pharmaceuticals
Revenue Growth
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Brookwood Pharmaceuticals
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
Brookwood Pharmaceuticals
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
Brookwood Pharmaceuticals
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
Brookwood Pharmaceuticals
Key Trends
Brookwood Pharmaceuticals
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
Brookwood Pharmaceuticals
PipelineTECHNOLOGY
AGENCY REVIEW MARKET
In V
itro
Ani
mal
PK
Opt
imiz
atio
n
Opt
imiz
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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
Brookwood Pharmaceuticals
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
Brookwood Pharmaceuticals
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.”
Brookwood Pharmaceuticals
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
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
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Hydrophilic Technologies
Leveraging Proven Clinical Performance
Common substrates
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
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
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
Regenerative Technologies
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
Regenerative Technologies
Growth Drivers• Drivers of revenue growth
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
Regenerative Technologies
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
Regenerative Technologies
FINALE™ Prohealing Coatings
Regenerative Technologies
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
Regenerative Technologies
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: 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
In Vitro Technologies
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
In Vitro Technologies
Growth Drivers
Ease of use ConsistencyFlexible packaging
In Vitro Technologies
Diagnostics Products
Stabilization Products
SlidesStabilization
Products
SlidesBiologicals
Substrates
2004 2007• Stabilization Products• Slides
• Stabilization Products• Slides• Substrates• Antigens• AntibodiesRevenue Breakdown
Revenue Breakdown
In Vitro Technologies
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
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.”
In Vitro Technologies
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
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
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 Technologies Goals
• Sign our first customer license using SurModics’ Eureka™ biodegradable polymer.
• Generate further data related to delivering proteins on a sustained basis.