SurModics Reports Fourth Quarter and Fiscal Year 2009 Results

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Twelfth Consecutive Year of Record Revenue Since IPO
EDEN PRAIRIE, Minn.--(Business Wire)--
SurModics, Inc. (Nasdaq: SRDX), a leading provider of drug delivery and surface
modification technologies to the healthcare industry, today reported financial
results for the fourth quarter and fiscal year ended September 30, 2009.

Fiscal Year 2009 Summary:

* GAAP results:

* Record revenue of $121.5 million, up 25%
* Operating income of $57.5 million
* Net income of $37.6 million
* Diluted EPS of $2.15
* Revenue by market:

* Therapeutic:

* Cardiovascular - $39.8 million, down 16%
* Ophthalmology - $52.1 million, up 408%
* Other Markets - $13.1 million, down 27%

* Diagnostic - $16.5 million, down 23%

* Non-GAAP results:

* Revenue of $86.8 million, down 22%
* Operating income of $27.7 million
* Net income of $18.7 million
* Diluted EPS of $1.07

* Operating cash flow of $31.3 million
* Cash and investments of $47.9 million, with no debt
* Achieved five of seven 2009 goals by fiscal year-end and a sixth shortly
thereafter:

* Executed a total of 22 new licenses with SurModics customers
* Executed 2 new customer licenses at SurModics Pharmaceuticals
* Executed 2 new customer licenses using SurModics drug delivery technology
outside ophthalmology
* Introduction of 12 new licensed product classes by our customers
* Returned over one-third of our operating cash flow to shareholders with the
repurchase of $15 million of SurModics stock; and
* Achieved a sixth goal on October 5th with the execution of the Ophthalmic
License and Development Agreement with Roche and Genentech regarding Lucentis
(ranibizumab injection)

Fourth Quarter Summary:

* Financial highlights:

* Revenue of $19.2 million, down 17% year-over-year; up 6% sequentially
* Operating income of $4.0 million
* Net income of $2.7 million
* Diluted EPS of $0.16
* Results include approximately $0.5 million of one-time expenses
* Revenue by market:

* Therapeutic:

* Cardiovascular - $9.8 million, down 12%
* Ophthalmology - $1.9 million, down 29%
* Other Markets - $2.9 million, down 41%

* Diagnostic - $4.6 million, up 2%

* Operating cash flow of $6.6 million

* 4 new licenses with SurModics customers, including 2 new licenses at SurModics
Pharmaceuticals
* 2 new product classes introduced by our customers

"While SurModics experienced a challenging year in fiscal 2009, as did many
companies in this difficult economic environment, through the hard work of our
talented employees we achieved significant progress against our strategic
initiatives, allowing us to better withstand the economic turbulence and
ultimately thrive when conditions improve," said Bruce Barclay, president and
CEO. "The new ophthalmic license and development agreement we signed last month
with Genentech and Roche for the development and commercialization of a
sustained drug delivery formulation of Lucentis, and potentially other
compounds, confirms the value of our technologies and reinforces our optimism
for the future. This historic agreement also marks the third license agreement
signed by our SurModics Pharmaceuticals unit in the last three months,
demonstrating the important progress we are making with our business model, as
well as our success in licensing our proprietary drug delivery technologies to
pharma and biotech customers."

"There are numerous additional examples of the progress we made in fiscal 2009,"
continued Barclay. "Our overall cardiovascular franchise is strengthening, as
innovative device manufacturers continue to choose our technology for their
higher value proprietary products, such as drug-eluting balloons, percutaneous
valves, stent grafts, and drug-eluting stents. Excluding Cypher related revenue,
cardiovascular revenue increased sequentially in the fourth quarter. In
addition, our ophthalmology business, of which the Genentech program is just one
part, is making exciting progress, and we continue to have multiple customer
supported projects in development. Also, several of our highest potential
programs utilizing SurModics` technologies continued to successfully advance in
clinical studies, including our SynBiosys biodegradable polymer, our Finale
Prohealing coating, and our I-vation TA (triamcinolone acetonide) intravitreal
implant. Moreover, the innovation we apply to our customers` commercial products
and SurModics` technology pipeline remains a consistent source of strength and
optimism. At year end, we had a total of 291 current and potential commercial
products diversified across approximately a dozen different clinical
indications."

"Importantly, SurModics` successful technology development is a key component of
the Company`s strategic initiatives. A central element of our strategy is
broadening the technologies we make available to our customers through both
internal R&D and external acquisitions. Our November 2008 purchase of certain
assets from PR Pharmaceuticals is an example of this initiative. Another
strategic priority is diversifying our revenue streams. We have made significant
progress on this front, as the percentage of SurModics` revenue derived from
Johnson & Johnson including the Cypher drug-eluting stent has decreased
significantly. In fiscal 2009, J&J constituted 11% of total revenue, down from
20% last year and a high of 52% in fiscal 2004. Further, we continued to protect
and enhance core businesses that generate recurring revenue, including product
sales, which grew each quarter throughout the year to a high in the fourth
quarter, with improved product gross margins compared with 2008. Finally, as a
benefit of our prudent expense management, we increased our investment in our
business and are near completion of our world class cGMP facility, which will be
utilized for our program with Genentech, among others," added Barclay.

Revenue for the fourth quarter of fiscal 2009 was $19.2 million, compared with
$23.2 million in the year-earlier period. Operating income was $4.0 million,
compared with $5.3 million in the prior-year period. Net income was $2.7
million, compared with a net loss of $0.8 million in the same period last year.
Diluted earnings per share was $0.16, compared with ($0.05) in the fourth
quarter of fiscal 2008. Results for the fourth quarter of fiscal 2008 include a
$4.3 million (or approximately $0.24 per diluted share) one-time, non-cash
impairment loss on the Company`s investment in OctoPlus.

Fiscal 2009 revenue was a record $121.5 million, a 25% increase compared with
fiscal 2008 revenue of $97.1 million. The Company reported operating income of
$57.5 million, compared with $27.3 million in the prior year; net income of
$37.6 million, compared with $14.7 million last year; and diluted net income per
share of $2.15, compared with $0.80 in fiscal 2008. On a non-GAAP basis, for
fiscal 2009, total revenue was $86.8 million, operating income was $27.7
million, net income was $18.7 million, and diluted net income per share was
$1.07. On a non-GAAP basis, for fiscal 2008, total revenue was $111.2 million,
operating income was $41.4 million, net income was $27.7 million, and diluted
net income per share was $1.51. Non-GAAP results for fiscal 2009 exclude the
recognition of previously deferred revenue totaling approximately $35 million,
in connection with Merck`s termination of its agreement with SurModics.

SurModics` cash and investment balance totaled $47.9 million as of September 30,
2009, with no debt. Operating cash flow for the fourth quarter was $6.6 million,
compared with $16.2 million in the fourth quarter of fiscal 2008. For fiscal
year 2009, operating cash flow was $31.3 million, compared with $39.8 million in
fiscal year 2008.

"Given our optimism for the future, we continued to leverage our strong balance
sheet and invest in our business in fiscal 2009, as we enhanced the Company`s
positioning for profitable long-term growth," said Phil Ankeny, senior vice
president and chief financial officer. "We are in excellent financial condition
as a result of our strong operating cash flow and healthy balance sheet with
zero debt. In addition, we maintained our disciplined deployment of capital with
a goal of enhancing shareholder value, principally in the areas of
facilities-related and corporate development investments, as well as share
repurchases."

Live Webcast

SurModics will host a webcast at 5:00 p.m. ET (4:00 p.m. CT) today to discuss
the quarterly and full year results. To access the webcast, go to the investor
relations portion of the Company`s website at www.surmodics.com, and click on
the webcast icon. If you do not have access to the Internet and want to listen
to the audio by phone, dial 800-762-8779. A replay of the fourth quarter and
fiscal year 2009 conference call will be available by dialing 800-406-7325 and
entering conference call ID 4178397. The audio replay will be available
beginning at 7:00 p.m. CT on Wednesday, November 4, until 7:00 p.m. CT on
Wednesday, November 11.

About SurModics, Inc.

SurModics` vision is to extend and improve the lives of patients through
technology innovation. The Company partners with the world`s foremost medical
device, pharmaceutical and life science companies to develop and commercialize
innovative products that result in improved diagnosis and treatment for
patients. Core offerings include: drug delivery technologies (coatings,
microparticles, nanoparticles, and implants); surface modification coating
technologies that impart lubricity, prohealing, and biocompatibility
capabilities; and components for in vitro diagnostic test kits and specialized
surfaces for cell culture and microarrays. SurModics is headquartered in Eden
Prairie, Minnesota and its SurModics Pharmaceuticals subsidiary is located in
Birmingham, Alabama. For more information about the Company, visit
www.surmodics.com. The content of SurModics` website is not part of this release
or part of any filings the Company makes with the SEC.

Safe Harbor for Forward-Looking Statements

This press release contains forward-looking statements. Statements that are not
historical or current facts, including statements about beliefs and
expectations, such as our expectations about our ability to withstand economic
turbulence and ultimately thrive when conditions improve, our ability to
successfully develop and commercialize our technologies, our ability to achieve
our company goals, our ability to successfully implement our business model and
grow, the build-out and future utilization of our Alabama facility, and our
performance in the near- and long-term, including our positioning for profitable
long-term growth, are forward-looking statements. Forward-looking statements
involve inherent risks and uncertainties, and important factors could cause
actual results to differ materially from those anticipated, including the
following: (1) realizing the full potential benefits of the Company's agreement
with Genentech requires the development of new products and applications of
technology, and the successful build-out of our Alabama facility in compliance
with applicable regulatory requirements; (2) our reliance on third parties
(including our customers and licensees) and their failure to successfully
develop, obtain regulatory approval for, market and sell products incorporating
our technologies may adversely affect our business operations, our ability to
realize the full potential of our pipeline, and our ability to achieve our
company goals; (3) costs or difficulties relating to the integration of the
businesses of SurModics Pharmaceuticals and BioFX Laboratories, and the drug
delivery assets and collaborative programs acquired from PR Pharmaceuticals,
Inc., with SurModics` business may be greater than expected and may adversely
affect the Company`s results of operations and financial condition; (4)
developments in the regulatory environment, as well as market and economic
conditions, may adversely affect our business operations and profitability; and
(5) other factors identified under "Risk Factors" in Part I, Item 1A of our
Annual Report on Form 10-K for the fiscal year ended September 30, 2008, and
updated in our subsequent reports filed with the SEC. These reports are
available in the Investors section of our website at www.surmodics.com and at
the SEC website at www.sec.gov. Forward-looking statements speak only as of the
date they are made, and we undertake no obligation to update them in light of
new information or future events.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted
accounting principles, or GAAP, SurModics is reporting non-GAAP financial
results including non-GAAP revenue, non-GAAP net income and non-GAAP diluted net
income per share. We believe that these non-GAAP measures provide meaningful
insight into our operating performance as it relates to our Merck agreement
accounting treatment and provide an alternative perspective of our results of
operations. We use these non-GAAP measures to assess our operating performance
and to determine payout under our executive compensation programs. We believe
that presentation of these non-GAAP measures allows investors to review our
results of operations from the same perspective as management and our board of
directors. We believe these non-GAAP measures facilitate investors' analysis and
comparisons of our current results of operations and provide insight into the
prospects of our future performance. We also believe that the non-GAAP measures
are useful to investors because they provide supplemental information that
research analysts frequently use. The method we use to produce non-GAAP results
is not in accordance with GAAP and may differ from the methods used by other
companies. These non-GAAP results should not be regarded as a substitute for
corresponding GAAP measures but instead should be utilized as a supplemental
measure of operating performance in evaluating our business. Non-GAAP measures
do have limitations in that they do not reflect certain items that may have a
material impact upon our reported financial results. As such, these non-GAAP
measures should be viewed in conjunction with both our financial statements
prepared in accordance with GAAP and the reconciliation of the supplemental
non-GAAP financial measures to the comparable GAAP results provided for each
period presented, which are attached to this release.

SurModics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)

Three Months Ended Year Ended
September 30, September 30,
2009 2008 2009 2008
(Unaudited) (Unaudited)
Revenue
Royalties and license fees $ 9,465 $ 11,214 $ 75,464 $ 51,788
Product sales 5,571 5,698 19,333 20,052
Research and development 4,171 6,327 26,737 25,211
Total revenue 19,207 23,239 121,534 97,051

Operating costs and expenses
Product costs 2,167 2,574 7,508 8,476
Customer research and development 2,936 4,473 13,183 19,187
Other research and development 5,962 5,610 21,179 21,311
Selling, general and administrative 4,204 5,257 17,200 20,816
Restructuring charges (35 ) - 1,763 -
Purchased in-process research and development - - 3,200 -
Total operating expenses 15,234 17,914 64,033 69,790
Income from operations 3,973 5,325 57,501 27,261

Investment income 227 415 2,023 3,945
Impairment loss on investment - (4,314 ) - (4,314 )
Income before income taxes 4,200 1,426 59,524 26,892

Income tax provision (1,490 ) (2,240 ) (21,974 ) (12,153 )
Net income (loss) $ 2,710 $ (814 ) $ 37,550 $ 14,739

Basic net income (loss) per share $ 0.16 $ (0.05 ) $ 2.15 $ 0.82

Diluted net income (loss) per share $ 0.16 $ (0.05 ) $ 2.15 $ 0.80

Weighted average shares outstanding
Basic 17,367 17,898 17,435 18,026
Diluted 17,404 17,898 17,469 18,330

SurModics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)

September 30, September 30,
2009 2008
Assets (Unaudited)
Current assets
Cash and short-term investments $ 20,568 $ 24,627
Accounts receivable 11,320 14,589
Inventories 3,330 2,651
Other current assets 1,796 4,642
Total current assets 37,014 46,509

Property and equipment, net 66,915 41,897
Long-term investments 27,300 47,351
Intangibles, net 17,458 16,870
Goodwill 21,070 18,001
Other assets 15,805 20,400

Total assets $ 185,562 $ 191,028

Liabilities and Stockholders` Equity
Current liabilities * $ 7,078 $ 8,191

Deferred revenue (current and long-term) 1,528 37,578

Other liabilities 4,584 3,453

Total stockholders` equity 172,372 141,806

Total liabilities and stockholders` equity $ 185,562 $ 191,028

* Current liabilities exclude current portion of deferred revenue.

SurModics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)

Year Ended
September 30,
2009 2008
(Unaudited)
Operating Activities:
Net income $ 37,550 $ 14,739
Depreciation and amortization 5,912 6,071
Stock-based compensation 6,853 9,652
Purchased in-process research and development 3,200 -
Restructuring charges 1,763 -
Impairment loss on investment - 4,314
Net other operating activities 8,670 (3,946 )
Change in operating assets and liabilities:
Accounts receivable 3,269 1,548
Accounts payable and accrued liabilities (2,387 ) (264 )
Income taxes 2,656 (5,003 )
Deferred revenue (36,050 ) 11,452
Net change in other operating assets and liabilities (115 ) 1,259

Net cash provided by operating activities 31,321 39,822

Investing Activities:
Net purchases of property and equipment (29,364 ) (23,834 )
Business acquisition (8,585 ) (3,219 )
Collection of note receivable - 5,870
Net other investing activities 18,377 (5,326 )

Net cash used in investing activities (19,572 ) (26,509 )

Financing Activities:
Issuance of common stock 679 3,037
Purchase of common stock to fund employee taxes (568 ) (1,674 )
Repurchase of common stock (14,998 ) (13,971 )
Net other financing activities (602 ) 859

Net cash used in financing activities (15,489 ) (11,749 )

Net change in cash and cash equivalents (3,740 ) 1,564

Cash and cash equivalents
Beginning of year 15,376 13,812
End of year $ 11,636 $ 15,376

SurModics, Inc. and Subsidiaries
Supplemental Non-GAAP Information
For the Year Ended September 30, 2009
(in thousands, except per share data)

(Unaudited)

Merck Agreement Adjustments
Deferred Adjusted
As Reported Revenue Billed Other Non-GAAP
GAAP (1) Recognized Activity Adjustments (2)

Revenue:
Royalties and license fees $75,464 ($28,578) (3) $-- (4) $46,886
Product sales 19,333 19,333
Research and development 26,737 (6,200) (3) -- (4) 20,537
Total revenue $121,534 ($34,778) $-- $86,756

Income from operations $57,501 ($34,778) $-- $4,963 $27,686
$37,550 ($21,939) $-- $18,742
Net income (5) (5) $3,131 (5)

Diluted net income per share (6) $2.15 $1.07

Balance at Deferred Balance at
September Revenue Billed September
30, 2008 Recognized Activity 30, 2009
Merck deferred revenue (7) $34,778 ($34,778) $--
$--

(1) Reflects operating results in accordance with U.S. generally accepted
accounting principles (GAAP). GAAP revenue includes a $9 million milestone
payment and a $1.2 million research and development payment from Merck which
were billed and recognized in the period.

(2) Adjusted Non-GAAP amounts exclude the $34,778 of previously deferred revenue
recognized in the period associated with the termination of the Merck agreement
under GAAP; and exclude the restructuring charges of $1,763 and in-process
research and development charge of $3,200 associated with the acquisition of PR
Pharmaceuticals, Inc. assets.

(3) Reflects recognition of revenue for the Merck agreement in accordance with
GAAP for the period presented that previously had been deferred.

(4) Reflects amounts billed and deferred under the Merck agreement for the
period presented.

(5) Reflects the after tax impact of the adjustments utilizing the Company`s
effective tax rate for the period presented.

(6) Diluted net income per share is calculated using the diluted weighted
average shares outstanding for the period presented.

(7) Reflects the activity for the period presented in the deferred revenue
balance sheet accounts associated with the Merck agreement. This agreement
terminated in December 2008.

SurModics, Inc. and Subsidiaries
Supplemental Non-GAAP Information
For the Year Ended September 30, 2008
(in thousands, except per share data)

(Unaudited)

Merck Agreement Adjustments
As Adjusted
Reported Revenue Billed Other Non-GAAP
GAAP (1) Recognized Activity Adjustments (2)

Revenue:
Royalties and license fees $51,788 ($2,109) (3) $11,000 (4) $60,679
Product sales 20,052 20,052
Research and development 25,211 ($1,073) (3) 6,336 (4) 30,474
Total revenue $97,051 ($3,182) $17,336 $111,205

Income from operations $27,261 ($3,182) $17,336 $-- $41,415
$14,739 ($1,943) $10,585 $27,695
Net income (5) (5) $4,314 (6)

Diluted net income per share (7) $0.80 $1.51

Balance at Balance at
September Revenue Billed September
30, 2007 Recognized Activity 30, 2008
Merck deferred revenue (8) $20,624 ($3,182) $17,336
$34,778

(1) Reflects operating results in accordance with U.S. generally accepted
accounting principles (GAAP).

(2) Adjusted Non-GAAP amounts exclude the revenue recognized in the period
associated with the Merck agreement under GAAP and include amounts billed
associated with the Merck agreement; and exclude the impairment loss on
investment.

(3) Reflects recognition of revenue for the Merck agreement in accordance with
GAAP for the period presented.

(4) Reflects amounts billed under the Merck agreement for the period presented.

(5) Reflects the after tax impact of the adjustments utilizing the Company`s
effective tax rate for the period presented.

(6) Reflects adjustment for the impairment loss on our investment in OctoPlus of
$4,314. The impairment loss does not generate a tax benefit.

(7) Diluted net income per share is calculated using the diluted weighted
average shares outstanding for the period presented.

(8) Reflects the activity for the period presented in the deferred revenue
balance sheet account associated with the Merck agreement.

SurModics, Inc.
Phil Ankeny, Senior Vice President and Chief Financial Officer
(952) 829-2700

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