SurModics, Inc. Annual Meeting of Shareholderslibrary.corporate-ir.net/library/80/803/80353/items/276961/2008... · 2008 Annual Meeting of Shareholders ... • Falls within EITF 00-21

SurModics, Inc.Annual Meeting of Shareholders

January 28, 2008

WelcomeKendrick B. Melrose

Chairman

Formal Business Matters

Bryan K. Phillips, Esq.Corporate Secretary

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


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.


Purpose of Meeting

• To set the number of directors at ten (10).

• To elect Class III directorsKenneth H. Keller, Ph.D.Robert C. Buhrmaster

Board of DirectorsIntroductionsKendrick B. Melrose

Chairman


Retiring Directors

Dale R. Olseth David A. Koch

Officers & Guests Introductions

Bruce J BarclayPresident and Chief Executive Officer

FinancialsPhilip D. Ankeny

Senior Vice President andChief 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


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


Revenue Mix

$0

$5

$10

$15

$20

$25

$30

1Q07 1Q08

R&D

Product Sales

Royalties andLicense Fees

$16.7

$23.8

$ in millions


Revenue MixNear-Term Impact

1Q07 1Q08

R&D

Product Sales

Royalties andLicense Fees

79%

55%

16%

22%

5%23%


$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)


(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


$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

• $72.5 million in cash and investments as of December 31, 2007

• Putting the balance sheet to workBusiness DevelopmentShare Repurchase


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

SurModics’ Shareholder Meeting28 January 2008

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

Synergies

• A dedicated team working on integration

• Highlights today – Marketing– Technologies

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

Shareholder MeetingJanuary 28, 2008

Genzyme Corporation Overview

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

42

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

Genzyme Genzyme PharmaceuticalsPharmaceuticals

OverviewOverview

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

The Brookwood – GenzymePharmaceuticals Collaboration

The Brookwood – Genzyme Pharmaceuticals Collaboration

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

Brookwood is happy to be part of SurModics

Visit us anytime in Birmingham

Thank You

Growth in 2008 and Beyond

Bruce J BarclayPresident and Chief Executive Officer


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


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


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


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


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


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


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


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


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


Drug DeliveryPolymers

DurableBiodegradable

Multiple Ways to Participate in DES Market$4.5 Billion Worldwide Market

Stent Delivery SystemsHydrophilic coatings

Anti-Thrombotic Coatings

HeparinBiodegradable polymersProhealing


In Vitro Technologies

Diagnostics Products

• Acquired BioFX in August• Combines current stabilization and antigen products

with new substrates product line for diagnostic kits


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


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

Question & Answer Session

Documents

SurModics, Inc. Annual Meeting of Shareholderslibrary.corporate-ir.net/library/80/803/80353/items/276961/2008... · 2008 Annual Meeting of Shareholders ... • Falls within EITF 00-21