false 2021 Q1 0000924717 --09-30 us-gaap:ProductMember us-gaap:ProductMember P8Y10M24D P11Y6M P14Y1M6D P8Y10M24D P11Y6M P14Y1M6D us-gaap:OtherAssetsNoncurrent us-gaap:OtherAssetsNoncurrent us-gaap:OtherAccruedLiabilitiesCurrent us-gaap:OtherAccruedLiabilitiesCurrent us-gaap:OtherLiabilitiesNoncurrent us-gaap:OtherLiabilitiesNoncurrent 0000924717 2020-10-01 2020-12-31 xbrli:shares 0000924717 2021-02-04 iso4217:USD 0000924717 2020-12-31 0000924717 2020-09-30 iso4217:USD xbrli:shares 0000924717 us-gaap:ProductMember 2020-10-01 2020-12-31 0000924717 us-gaap:ProductMember 2019-10-01 2019-12-31 0000924717 us-gaap:RoyaltyMember 2020-10-01 2020-12-31 0000924717 us-gaap:RoyaltyMember 2019-10-01 2019-12-31 0000924717 srdx:ResearchDevelopmentAndOtherMember 2020-10-01 2020-12-31 0000924717 srdx:ResearchDevelopmentAndOtherMember 2019-10-01 2019-12-31 0000924717 2019-10-01 2019-12-31 0000924717 us-gaap:CommonStockMember 2020-09-30 0000924717 us-gaap:AdditionalPaidInCapitalMember 2020-09-30 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-09-30 0000924717 us-gaap:RetainedEarningsMember 2020-09-30 0000924717 us-gaap:RetainedEarningsMember 2020-10-01 2020-12-31 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-10-01 2020-12-31 0000924717 us-gaap:CommonStockMember 2020-10-01 2020-12-31 0000924717 us-gaap:AdditionalPaidInCapitalMember 2020-10-01 2020-12-31 0000924717 us-gaap:CommonStockMember 2020-12-31 0000924717 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0000924717 us-gaap:RetainedEarningsMember 2020-12-31 0000924717 us-gaap:CommonStockMember 2019-09-30 0000924717 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0000924717 us-gaap:RetainedEarningsMember 2019-09-30 0000924717 2019-09-30 0000924717 us-gaap:RetainedEarningsMember 2019-10-01 2019-12-31 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-10-01 2019-12-31 0000924717 us-gaap:CommonStockMember 2019-10-01 2019-12-31 0000924717 us-gaap:AdditionalPaidInCapitalMember 2019-10-01 2019-12-31 0000924717 us-gaap:CommonStockMember 2019-12-31 0000924717 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000924717 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000924717 us-gaap:RetainedEarningsMember 2019-12-31 0000924717 2019-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:ProductMember 2020-10-01 2020-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:ProductMember 2019-10-01 2019-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:RoyaltyMember 2020-10-01 2020-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:RoyaltyMember 2019-10-01 2019-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember srdx:ResearchDevelopmentAndOtherMember 2020-10-01 2020-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember srdx:ResearchDevelopmentAndOtherMember 2019-10-01 2019-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:LicenseMember 2020-10-01 2020-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember us-gaap:LicenseMember 2019-10-01 2019-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember 2020-10-01 2020-12-31 0000924717 srdx:MedicalDeviceMember us-gaap:OperatingSegmentsMember 2019-10-01 2019-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember us-gaap:ProductMember 2020-10-01 2020-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember us-gaap:ProductMember 2019-10-01 2019-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember srdx:ResearchDevelopmentAndOtherMember 2020-10-01 2020-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember srdx:ResearchDevelopmentAndOtherMember 2019-10-01 2019-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember 2020-10-01 2020-12-31 0000924717 srdx:InVitroDiagnosticsMember us-gaap:OperatingSegmentsMember 2019-10-01 2019-12-31 0000924717 us-gaap:OperatingSegmentsMember 2020-10-01 2020-12-31 0000924717 us-gaap:OperatingSegmentsMember 2019-10-01 2019-12-31 0000924717 srdx:AbbottAgreementMember 2020-10-01 2020-12-31 0000924717 srdx:AbbottAgreementMember srdx:UpfrontPaymentMember 2017-10-01 2018-09-30 0000924717 srdx:AbbottAgreementMember srdx:MilestonePaymentMember 2018-10-01 2019-09-30 0000924717 srdx:AbbottAgreementMember srdx:MilestonePaymentMember 2020-04-01 2020-06-30 0000924717 srdx:AbbottAgreementMember 2020-12-31 0000924717 srdx:AbbottAgreementMember srdx:ClinicalTrialReportMilestoneMember srdx:TranscendClinicalTrialMember 2020-12-31 0000924717 srdx:AbbottAgreementMember srdx:PMAMilestoneMember srdx:TranscendClinicalTrialMember 2020-12-31 0000924717 srdx:AbbottAgreementMember 2019-10-01 2019-12-31 0000924717 srdx:AbbottAgreementMember 2020-09-30 0000924717 srdx:AbbottAgreementMember 2021-01-01 2020-12-31 0000924717 us-gaap:CashEquivalentsMember us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000924717 us-gaap:CashEquivalentsMember us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0000924717 us-gaap:FairValueMeasurementsRecurringMember us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000924717 us-gaap:FairValueMeasurementsRecurringMember us-gaap:AvailableforsaleSecuritiesMember 2020-12-31 0000924717 us-gaap:FairValueMeasurementsRecurringMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000924717 us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0000924717 us-gaap:FairValueInputsLevel2Member us-gaap:CashEquivalentsMember us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0000924717 us-gaap:CashEquivalentsMember us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0000924717 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AvailableforsaleSecuritiesMember 2020-09-30 0000924717 us-gaap:FairValueMeasurementsRecurringMember us-gaap:AvailableforsaleSecuritiesMember 2020-09-30 0000924717 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0000924717 us-gaap:FairValueMeasurementsRecurringMember 2020-09-30 0000924717 srdx:CommercialPaperAndCorporateBondSecuritiesMember 2020-12-31 0000924717 srdx:CommercialPaperAndCorporateBondSecuritiesMember 2020-09-30 0000924717 srdx:OperatingLeaseRightOfUseAssetsMember 2020-12-31 0000924717 srdx:OperatingLeaseRightOfUseAssetsMember 2020-09-30 0000924717 us-gaap:OtherNoncurrentAssetsMember 2020-12-31 0000924717 us-gaap:OtherNoncurrentAssetsMember 2020-09-30 0000924717 srdx:CustomerListsAndRelationshipsMember 2020-10-01 2020-12-31 0000924717 us-gaap:DevelopedTechnologyRightsMember 2020-10-01 2020-12-31 0000924717 srdx:PatentsAndOtherMember 2020-10-01 2020-12-31 0000924717 us-gaap:TrademarksAndTradeNamesMember 2020-12-31 0000924717 srdx:CustomerListsAndRelationshipsMember 2020-12-31 0000924717 us-gaap:DevelopedTechnologyRightsMember 2020-12-31 0000924717 srdx:PatentsAndOtherMember 2020-12-31 0000924717 us-gaap:FiniteLivedIntangibleAssetsMember 2020-12-31 0000924717 srdx:CustomerListsAndRelationshipsMember 2019-10-01 2020-09-30 0000924717 us-gaap:DevelopedTechnologyRightsMember 2019-10-01 2020-09-30 0000924717 srdx:PatentsAndOtherMember 2019-10-01 2020-09-30 0000924717 us-gaap:TrademarksAndTradeNamesMember 2020-09-30 0000924717 srdx:CustomerListsAndRelationshipsMember 2020-09-30 0000924717 us-gaap:DevelopedTechnologyRightsMember 2020-09-30 0000924717 srdx:PatentsAndOtherMember 2020-09-30 0000924717 us-gaap:FiniteLivedIntangibleAssetsMember 2020-09-30 0000924717 srdx:InVitroDiagnosticsMember 2020-09-30 0000924717 srdx:MedicalDeviceMember 2020-09-30 0000924717 srdx:MedicalDeviceMember 2020-10-01 2020-12-31 0000924717 srdx:InVitroDiagnosticsMember 2020-12-31 0000924717 srdx:MedicalDeviceMember 2020-12-31 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember 2020-09-14 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember 2020-12-31 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember 2020-09-30 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember 2020-10-01 2020-12-31 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember srt:MinimumMember 2020-10-01 2020-12-31 xbrli:pure 0000924717 us-gaap:RevolvingCreditFacilityMember srdx:LoanAndSecurityAgreementMember us-gaap:InterestExpenseMember 2020-10-01 2020-12-31 0000924717 us-gaap:CostOfSalesMember 2020-10-01 2020-12-31 0000924717 us-gaap:CostOfSalesMember 2019-10-01 2019-12-31 0000924717 us-gaap:ResearchAndDevelopmentExpenseMember 2020-10-01 2020-12-31 0000924717 us-gaap:ResearchAndDevelopmentExpenseMember 2019-10-01 2019-12-31 0000924717 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-10-01 2020-12-31 0000924717 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-10-01 2019-12-31 0000924717 us-gaap:EmployeeStockOptionMember 2020-10-01 2020-12-31 0000924717 us-gaap:EmployeeStockOptionMember 2019-10-01 2019-12-31 0000924717 us-gaap:RestrictedStockMember 2020-10-01 2020-12-31 0000924717 us-gaap:RestrictedStockMember 2019-10-01 2019-12-31 0000924717 us-gaap:RestrictedStockUnitsRSUMember 2020-10-01 2020-12-31 0000924717 us-gaap:RestrictedStockUnitsRSUMember 2019-10-01 2019-12-31 0000924717 srdx:EmployeeStockPurchasePlanMember 2020-10-01 2020-12-31 0000924717 srdx:EmployeeStockPurchasePlanMember 2019-10-01 2019-12-31 srdx:Segment 0000924717 us-gaap:CorporateNonSegmentMember 2020-10-01 2020-12-31 0000924717 us-gaap:CorporateNonSegmentMember 2019-10-01 2019-12-31 0000924717 srdx:IntellectualPropertyAssetsMember srdx:InnoCoreTechnologiesBVMember 2020-10-01 2020-12-31 0000924717 srdx:IntellectualPropertyAssetsMember srdx:InnoCoreTechnologiesBVMember 2020-12-31 0000924717 srdx:ClinicalResearchOrganizationMember srt:MaximumMember srdx:CROPassThroughExpensesMember 2020-12-31 0000924717 srdx:ClinicalResearchOrganizationMember 2020-12-31 0000924717 srdx:ClinicalResearchOrganizationMember srt:MinimumMember 2020-12-31 0000924717 srdx:ClinicalResearchOrganizationMember srt:MaximumMember 2020-12-31 0000924717 srdx:IntellectualPropertyAssetsMember srdx:MedicalDeviceMember 2018-10-01 2019-09-30 0000924717 srdx:IntellectualPropertyAssetsMember srdx:MedicalDeviceMember 2020-10-01 2020-12-31 0000924717 srdx:EmbolitechLLCMember srdx:IntellectualPropertyAssetsMember 2020-10-01 2020-12-31 0000924717 srdx:EmbolitechLLCMember 2017-10-01 2018-09-30 0000924717 srdx:EmbolitechLLCMember 2020-01-01 2020-03-31 0000924717 srdx:EmbolitechLLCMember srdx:IntellectualPropertyAssetsMember srt:ScenarioForecastMember 2021-10-01 2024-09-30 0000924717 srdx:EmbolitechLLCMember 2020-10-01 2020-12-31 0000924717 srdx:IntellectualPropertyAssetsMember 2020-12-31 0000924717 srdx:IntellectualPropertyAssetsMember 2020-09-30

 

p

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-23837

 

Surmodics, Inc.

(Exact name of registrant as specified in its charter)

 

Minnesota

41-1356149

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9924 West 74th Street, Eden Prairie, Minnesota 55344

(Address of principal executive offices) (Zip Code)

 

(952) 500-7000

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $0.05 par value

 

SRDX

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

    

 

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares of the registrant’s Common Stock, $0.05 par value per share, as of February 4, 2021 was 13,755,611.

 

 

 

 


 

 

TABLE OF CONTENTS

 

PART I.   FINANCIAL INFORMATION

 

Item 1.

Unaudited Condensed Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

 

PART II.   OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

SIGNATURES

 

30

 

2


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

December 31,

 

 

September 30,

 

 

 

2020

 

 

2020

 

(In thousands, except per share data)

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,754

 

 

$

30,785

 

Available-for-sale securities

 

 

18,120

 

 

 

30,313

 

Accounts receivable, net of allowances of $123 and $130 as of

   December 31, 2020 and September 30, 2020, respectively

 

 

8,065

 

 

 

7,675

 

Contract assets — royalties and license fees

 

 

6,566

 

 

 

6,108

 

Inventories, net

 

 

6,261

 

 

 

5,966

 

Income tax receivable

 

 

2,544

 

 

 

2,391

 

Prepaids and other

 

 

3,553

 

 

 

3,370

 

Total Current Assets

 

 

80,863

 

 

 

86,608

 

Property and equipment, net

 

 

30,346

 

 

 

30,103

 

Deferred income taxes

 

 

7,004

 

 

 

7,315

 

Intangible assets, net

 

 

12,945

 

 

 

13,283

 

Goodwill

 

 

27,864

 

 

 

27,185

 

Other assets

 

 

4,534

 

 

 

4,269

 

Total Assets

 

$

163,556

 

 

$

168,763

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

863

 

 

$

1,515

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Compensation

 

 

2,944

 

 

 

6,630

 

Accrued other

 

 

4,086

 

 

 

5,547

 

Deferred revenue

 

 

4,553

 

 

 

5,200

 

Total Current Liabilities

 

 

12,446

 

 

 

18,892

 

Deferred revenue, less current portion

 

 

10,073

 

 

 

10,796

 

Other long-term liabilities

 

 

7,630

 

 

 

8,020

 

Total Liabilities

 

 

30,149

 

 

 

37,708

 

Commitments and Contingencies (Note 17)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Series A Preferred stock — $.05 par value, 450 shares authorized; no shares

   issued and outstanding

 

 

 

 

 

 

Common stock — $.05 par value, 45,000 shares authorized; 13,739 and

   13,672 shares issued and outstanding as of December 31, 2020 and

   September 30, 2020, respectively

 

 

687

 

 

 

684

 

Additional paid-in capital

 

 

16,160

 

 

 

15,369

 

Accumulated other comprehensive income

 

 

5,006

 

 

 

3,174

 

Retained earnings

 

 

111,554

 

 

 

111,828

 

Total Stockholders’ Equity

 

 

133,407

 

 

 

131,055

 

Total Liabilities and Stockholders’ Equity

 

$

163,556

 

 

$

168,763

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


Table of Contents

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

(In thousands, except per share data)

 

(Unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

Product sales

 

$

10,102

 

 

$

9,974

 

Royalties and license fees

 

 

9,334

 

 

 

10,148

 

Research, development and other

 

 

2,861

 

 

 

2,494

 

Total revenue

 

 

22,297

 

 

 

22,616

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Product costs

 

 

3,743

 

 

 

3,203

 

Research and development

 

 

10,882

 

 

 

12,142

 

Selling, general and administrative

 

 

7,023

 

 

 

6,943

 

Acquired intangible asset amortization

 

 

556

 

 

 

594

 

Total operating costs and expenses

 

 

22,204

 

 

 

22,882

 

Operating income (loss)

 

 

93

 

 

 

(266

)

Other (expense) income:

 

 

 

 

 

 

 

 

Investment income, net

 

 

41

 

 

 

250

 

Interest expense

 

 

(60

)

 

 

(40

)

Foreign exchange loss

 

 

(180

)

 

 

(47

)

Other

 

 

 

 

 

1

 

Other (expense) income

 

 

(199

)

 

 

164

 

Loss before income taxes

 

 

(106

)

 

 

(102

)

Income tax (provision) benefit

 

 

(168

)

 

 

250

 

Net (loss) income

 

$

(274

)

 

$

148

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per share

 

$

(0.02

)

 

$

0.01

 

Diluted net (loss) income per share

 

$

(0.02

)

 

$

0.01

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

13,668

 

 

 

13,469

 

Diluted

 

 

13,668

 

 

 

13,769

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


Table of Contents

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

(In thousands)

 

(Unaudited)

 

Net (loss) income

 

$

(274

)

 

$

148

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Net changes related to available-for-sale securities, net of tax

 

 

 

 

 

(5

)

Foreign currency translation adjustments

 

 

1,832

 

 

 

1,041

 

Other comprehensive income

 

 

1,832

 

 

 

1,036

 

Comprehensive income

 

$

1,558

 

 

$

1,184

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Table of Contents

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

 

 

 

Three Months Ended December 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

(In thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balance at September 30, 2020

 

 

13,672

 

 

$

684

 

 

$

15,369

 

 

$

3,174

 

 

$

111,828

 

 

$

131,055

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(274

)

 

 

(274

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

1,832

 

 

 

 

 

 

1,832

 

Issuance of common stock

 

 

81

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Common stock options exercised, net

 

 

3

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Purchase of common stock to pay employee taxes

 

 

(17

)

 

 

(1

)

 

 

(644

)

 

 

 

 

 

 

 

 

(645

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,433

 

 

 

 

 

 

 

 

 

1,433

 

Balance at December 31, 2020

 

 

13,739

 

 

$

687

 

 

$

16,160

 

 

$

5,006

 

 

$

111,554

 

 

$

133,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

 

13,504

 

 

$

675

 

 

$

10,740

 

 

$

396

 

 

$

110,705

 

 

$

122,516

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148

 

 

 

148

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

1,036

 

 

 

 

 

 

1,036

 

Issuance of common stock

 

 

125

 

 

 

7

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Common stock options exercised, net

 

 

8

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Purchase of common stock to pay employee taxes

 

 

(44

)

 

 

(2

)

 

 

(1,856

)

 

 

 

 

 

 

 

 

(1,858

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,393

 

 

 

 

 

 

 

 

 

1,393

 

Balance at December 31, 2019

 

 

13,593

 

 

$

680

 

 

$

10,361

 

 

$

1,432

 

 

$

110,853

 

 

$

123,326

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Table of Contents

Surmodics, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

(in thousands)

 

(Unaudited)

 

Operating Activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(274

)

 

$

148

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,860

 

 

 

1,804

 

Stock-based compensation

 

 

1,433

 

 

 

1,393

 

Payment of contingent consideration obligations in excess of

   acquisition-date value

 

 

 

 

 

(608

)

Deferred taxes

 

 

310

 

 

 

(194

)

Provision for credit losses

 

 

(7

)

 

 

(27

)

Other

 

 

87

 

 

 

50

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable and contract asset

 

 

(830

)

 

 

1,726

 

Inventories

 

 

(236

)

 

 

(413

)

Prepaids and other

 

 

(357

)

 

 

(800

)

Accounts payable

 

 

(485

)

 

 

529

 

Accrued liabilities

 

 

(4,236

)

 

 

(3,112

)

Income taxes

 

 

(165

)

 

 

(59

)

Deferred revenue

 

 

(1,370

)

 

 

(1,346

)

Net cash used in operating activities

 

 

(4,270

)

 

 

(909

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,319

)

 

 

(1,671

)

Payment for acquisition of intangible assets

 

 

(1,000

)

 

 

 

Purchases of available-for-sale securities

 

 

(5,820

)

 

 

(21,758

)

Maturities of available-for-sale securities

 

 

18,013

 

 

 

7,425

 

Net cash provided by (used in) investing activities

 

 

9,874

 

 

 

(16,004

)

Financing Activities:

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

6

 

 

 

91

 

Payments for taxes related to net share settlement of equity awards

 

 

(646

)

 

 

(1,964

)

Payment of contingent consideration obligations

 

 

 

 

 

(2,592

)

Payments for acquisition of in-process research and development

 

 

(150

)

 

 

 

Net cash used in financing activities

 

 

(790

)

 

 

(4,465

)

Effect of exchange rate changes on cash

 

 

155

 

 

 

23

 

Net change in cash and cash equivalents

 

 

4,969

 

 

 

(21,355

)

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

30,785

 

 

 

30,361

 

End of period

 

$

35,754

 

 

$

9,006

 

Supplemental Information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

9

 

 

$

4

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment, net of refundable credits in other current assets

    and liabilities

 

 

82

 

 

 

167

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

44

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7


Table of Contents

Surmodics, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Period Ended December 31, 2020

(Unaudited)

 

1. Basis of Presentation

Overview

Surmodics, Inc. and subsidiaries (“Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic (“IVD”) immunoassay tests and microarrays. Surmodics is pursuing development and commercialization of highly differentiated medical devices that are designed to address unmet clinical needs and engineered to the most demanding requirements. This key growth strategy leverages the combination of the Company’s expertise in proprietary surface technologies, along with enhanced device design, development, and manufacturing capabilities. The Company mission remains to improve the detection and treatment of disease. Surmodics is headquartered in Eden Prairie, Minnesota.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all accounts and wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). All intercompany transactions have been eliminated. The Company operates on a fiscal year ending on September 30. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited consolidated financial statements of the Company. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the fiscal year ended September 30, 2020, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The results of operations for the three months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the entire 2021 fiscal year.

Risk and Uncertainties

The COVID-19 pandemic is having, and will likely continue to have, an adverse effect on our business, results of operations, financial condition, and cash flows, and its future impacts remain highly uncertain and unpredictable. The Company has considered the disruptions caused by COVID-19, including lower than forecasted sales and customer demand and macroeconomic factors, that may impact its estimates. The Company has assessed the potential impact of the pandemic on certain accounting matters including, but not limited to, estimated sales-based royalties revenue; allowance for doubtful accounts; inventory reserves; and the valuation of goodwill, intangible assets, other long-lived assets and investments, as of December 31, 2020 and through the date of this Quarterly Report on Form 10-Q. As of the date of issuance of these unaudited condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity or results of operations is uncertain. For further information, refer to “Risk Factors” in Part II, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

New Accounting Pronouncements

Recently Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Statements. This ASU requires a financial asset (or a group of financial assets) measured at an amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. We adopted this guidance using the modified respective method in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact Company’s condensed consolidated financial statements.

8


Table of Contents

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation and to the methodology for calculating taxes during the quarters, as well as clarifies the accounting for enacted changes in tax laws. We adopted this guidance using a prospective approach in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact Company’s condensed consolidated financial statements.

No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s condensed consolidated financial statements.

2. Revenue

The following table presents the Company’s revenues disaggregated by product classification and by reportable segment.

 

 

 

Three Months Ended

 

 

 

December 31,

 

(In thousands)

 

2020

 

 

2019

 

Medical Device

 

 

 

Product sales

 

$

4,561

 

 

$

5,023

 

Royalties

 

 

7,909

 

 

 

8,898

 

Research, development and other

 

 

2,301

 

 

 

2,234

 

License fees

 

 

1,425

 

 

 

1,249

 

Total Revenue — Medical Device

 

 

16,196

 

 

 

17,404

 

In Vitro Diagnostics

 

 

 

 

 

 

 

 

Product sales

 

 

5,541

 

 

 

4,952

 

Research, development and other

 

 

560

 

 

 

260

 

Total Revenue — In Vitro Diagnostics

 

 

6,101

 

 

 

5,212

 

Total Revenue

 

$

22,297

 

 

$

22,616

 

Contract assets totaled $6.6 million and $6.1 million as of December 31, 2020 and September 30, 2020, respectively. Fluctuations in the balance of contract assets result primarily from changes in sales-based and minimum royalties earned, but not collected at each balance sheet date due to payment timing and contractual changes in the normal course of business. For discussion of contract liability (deferred revenue) balances and remaining performance obligations, see Note 3 Collaborative Arrangements.

3. Collaborative Arrangement

On February 26, 2018, the Company entered into an agreement with Abbott Vascular, Inc. (“Abbott”) whereby Abbott has exclusive worldwide commercialization rights for Surmodics' SurVeilTM drug-coated balloon (“DCB”) (the “Abbott Agreement”). Our SurVeil DCB is used to treat peripheral arterial disease in the upper leg (superficial femoral artery) and is currently being evaluated in our TRANSEND pivotal clinical trial. Abbott also received the option to negotiate an agreement for Surmodics' below-the-knee SundanceTM DCB product, which is currently in development. Surmodics is responsible for conducting all necessary clinical trials and other activities required to achieve U.S. regulatory clearance for the SurVeil DCB, including completion of the ongoing TRANSCEND pivotal clinical trial. Abbott and Surmodics participate on a joint development committee charged with providing guidance on the Company’s clinical and regulatory activities with regard to the SurVeil DCB product. Upon receipt of regulatory approval for our SurVeil DCB, Abbott will have the right to purchase commercial units from the Company and Surmodics will realize revenue from product sales to Abbott at an agreed-upon transfer price, as well as a share of net profits resulting from third-party product sales by Abbott. To account for the Abbott Agreement, the Company applied the guidance in ASC Topic 808 (Collaborative Arrangements) as the parties are active participants and are exposed to significant risks and rewards dependent on commercial success of the collaborative activity.

9


Table of Contents

As of December 31, 2020, the Company has received payments totaling $45.8 million under the Abbott Agreement, which consist of the following: $25 million upfront fee in fiscal 2018, $10.0 million milestone payment in fiscal 2019, and $10.8 million milestone payment in the third quarter of fiscal 2020. As of December 31, 2020, the Company may receive up to $45 million of additional contingent milestone payments, pursuant to the terms of the Abbott Agreement, consisting of: (i) $15 million following receipt by Abbott of the clinical study report and related materials from the TRANSCEND pivotal trial demonstrating that the primary safety and primary clinical endpoints are non-inferior to the control device and (ii) $30 million upon premarket approval (“PMA”) of our SurVeil DCB by the U.S. Food and Drug Administration. As of December 31, 2020, consideration from these potential clinical and regulatory milestones was fully constrained and excluded from the contract price, due to the high level of uncertainty of their achievement as of December 31, 2020.

Revenue recognized from the Abbott agreement totaled $1.3 million in both the three months ended December 31, 2020 and 2019. Revenue recognized from the Abbott Agreement, which was included in the respective beginning of fiscal year balances of deferred revenue on the condensed consolidated balance sheets, totaled $1.3 million for both the three months ended December 31, 2020 and 2019.

As of December 31, 2020 and September 30, 2020, deferred revenue from the upfront and milestone payments received under the Abbott Agreement of $14.6 million and $15.9 million, respectively, was recorded in the condensed consolidated balance sheets.

As of December 31, 2020, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed contracts with an original duration of one year or more totaled $14.6 million. These remaining performance obligations relate to the Abbott Agreement, exclude potential contingent milestone payments under the Abbott Agreement, and are expected to be recognized over the next five years through fiscal 2025 as services, principally the TRANSCEND clinical trial, are completed.

4. Fair Value Measurements

Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation. In valuing Level 3 assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs.

Assets and liabilities measured at fair value on a recurring basis by level of the fair value hierarchy were as follows:

 

 

 

December 31, 2020

 

(In thousands)

 

Quoted Prices in

Active Markets

for Identical

Instruments

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

24,865

 

 

$

 

 

$

24,865

 

Available-for-sale securities

 

 

 

 

 

18,120

 

 

 

 

 

 

18,120

 

Total assets

 

$

 

 

$

42,985

 

 

$

 

 

$

42,985

 

10


Table of Contents

 

 

 

 

September 30, 2020

 

(In thousands)

 

Quoted Prices in

Active Markets

for Identical

Instruments

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

Fair Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

18,634

 

 

$

 

 

$

18,634

 

Available-for-sale securities

 

 

 

 

 

30,313

 

 

 

 

 

$

30,313

 

Total assets

 

$

 

 

$

48,947

 

 

$

 

 

$

48,947

 

There were no transfers of assets between amounts measured using Level 3 fair value measurements during the three months ended December 31, 2020 and 2019.

5. Investments

The amortized cost, unrealized holding gains and losses, and fair value of available-for-sale securities were as follows:

 

 

 

December 31, 2020

 

(In thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Commercial paper and corporate bonds

 

$

18,120

 

 

$

5

 

 

$

(5

)

 

$

18,120

 

Total

 

$

18,120

 

 

$

5

 

 

$

(5

)

 

$

18,120

 

 

 

 

September 30, 2020

 

(In thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Commercial paper and corporate bonds

 

$

30,313

 

 

$

19

 

 

$

(19

)

 

$

30,313

 

Total

 

$

30,313

 

 

$

19

 

 

$

(19

)

 

$

30,313

 

 

6. Inventories

Inventories consisted of the following components:

 

 

 

December 31,

 

 

September 30,

 

(In thousands)

 

2020

 

 

2020

 

Raw materials

 

$

4,147

 

 

$

3,758

 

Work-in process

 

 

939