Surmodics Inc (SRDX) 2002 Q3 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the SurModics third quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. If anyone should need assistance at any time during the conference, please press the * followed by the 0 and then the operator will assist you. As a reminder, this conference is being recorded today Tuesday the 16th of July 2002. I would now like to turn the conference over to Ms. [INAUDIBLE]. Please go ahead ma'am.

[INAUDIBLE]: Thank you Steve. Thanks to all of you for joining us today. With me are Dale Olseth, Chairman and CEO of SurModics, who will provide a short overview and highlights of this quarter, Jim Powell, President and Chief operating Officer, who will discuss operating highlights and technical developments and Steve Hathaway, Vice President and CFO, who will present a financial review of the quarter as well as an outlook for the remainder of fiscal 2002. Following the call, we will host the question and answer session. Before we begin, I must express our comments with the Safe Harbor statements. Some 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 result to differ are identified on Page-17 of the company's fiscal 2001 annual report to shareholders. With that I will turn the call over to Dale Olseth.

Thank you [INAUDIBLE]. Good afternoon and thanks to all of you for joining us this afternoon. As you will note from the earnings release, we had an excellent third quarter with record revenues of $7.6 million, up 34% from a year ago. Operating income increased 54% to $2.9 million.

The first call analyst consensus estimate was $0.10 per share and we have reported earnings of $0.11 per diluted share. These results are in line with the release issued on June 24 reaffirming our outlook for the quarter. We had another outstanding quarter in the coatings portion of our business. Royalties were $2.3 million, a 17% increase over the prior year period. Commercial development was $1.8 million, up 74% over the year ago period and reagent sales, which provide an indication of future royalty trends, were a record $1.8 million, more than triple the level of the previous year. Traumatics drug-coated stent program continues to generate significant excitement for the company. As you know, Cordis Corporation of Johnson & Johnson Company launched their drug-coated stent onto the European market in April. Royalties from this product will commence in the September fourth quarter. Our prospects for the J&J relationship are large in terms of future royalties, continued reagent sales, and ongoing development projects. I would like to comment on some recent changes to our Board of Directors. We are sorry to say that our long-time director and former head of the National Institutes of Health, Dr. Don Frederickson died several weeks ago due to the coronary.

He was a gentleman and an outstanding medical scientist and a productive, confident, and relevant board member. We will miss him deeply. Also Jim Grierson, our director since 1988, and a former senior financial executive of Honeywell, retired from the board. We value both men's many and important contributions. We are actively seeking independent replacement candidates at this moment and will update you on our progress in completing these searches. As announced earlier this quarter, we brought into the senior management team the addition of Bob Elliot, who joined the company in May as Vice President - Licensing Counsel and now is leading all licensing activities of the company. This is a most key position and we were pleased to attract such a highly skilled and experienced individual. Also in this quarter, we enhanced the investor relation section of SurModics website by adding information about insider stock holdings. This was done to eliminate confusion and to make the most recent trading activity accessible to all investors at the same time. SurModics officers and directors currently own 19% of the company's outstanding shares. Finally in June of this year, SurModics was ranked number 36 on the Fortune small business list of the 100 fastest growing small companies in the United States. Awards like this are testament to our solid financial model and to the strength of our ongoing coatings business. Now I would like to turn our call over Jim Powell, President and Chief Operating Officer. Jim?

Thanks Dale. We had a very busy quarter in the commercial development group as total coatings revenue reached $6 million, a 62% increase over last year. Our work on J&J's drug-coated stent accounted for much of this quarter's activity as we continued to support additional clinical trials in United States and around the world. Our relationship with J&J continues to grow and additional products with J&J are already underway. SurModics performed a significant amount of development work for its second licensed stent manufacture during the quarter. In addition, we began coating work for a third and fourth stent manufacturers during the quarter and initiated discussions with several others. While no additional licenses have been signed, we see sustained and growing interest in our drug delivery program. The level of stent coating activity reflects the size of the market. The long-term opportunity for SurModics in drug-coated stent is large. Certain analysts suggest that the drug-coated stent market will reach an estimated $5 billion within two or three years. This means that even a 1% market share captured by a drug-coated product would generate significant royalties to SurModics. That is why we believe it is so important to work with multiple players in this market, both large and small, as each could produce a significant revenue stream in the future.

Since we are now working with several stent manufacturers, SurModics coated devices have the opportunity to gain perhaps 50% of the market. That will fuel our growth for quite sometime. In our call last quarter, we mentioned plans for additional capacity in the coatings area. We just initiated construction on six new coating suites in our Bloomington, Minnesota facility. When completed, these suites will be primarily geared toward developing drug delivery application. These suites should be ready for occupancy for later this fall. During the quarter, SurModics signed two additional licenses both [INAUDIBLE] coatings, giving us five new agreements for the year. One of these is with a new licensee Lake Region Manufacturing. Some of you may recognize its' name, Lake Region a private company, based here in the twin cities, is one of the largest OEM supplier of products to the medical device industry. They have licensed our advanced lubricity technology for use on their guidewires and wire-formed products. We believe this is an important new relationship with significant growth potential. Overall, our license pipeline remains strong both in terms of additional license prospects and coated products moving to market. We are confident about our future growth prospects for the core coatings business. Our work with [INAUDIBLE] on a tissue engineering opportunity, for treating diabetes is also progressing. [INAUDIBLE] has begun their pre-clinical primate studies to test the selling capsulation technique. Those studies need to run for about six months before [INAUDIBLE] can file with the FDA to begin phase I human clinical trials.

To date we are very impressed with the early primate results. We recently added some new expertise to our scientific team - surface characterization. This new group gives us the capability to provide customers with even more information about the smoothness, thickness, uniformity, and durability of our coatings. This function has improved our overall service capabilities and speeds up the commercial development process. To summarize, we are pleased with the number and quality of the initiatives in which SurModics is engaged. The activity level in drug-coated stents is especially brisk and our other ventures ae moving forward as well. Now, hear is Steve with the financials.

Thanks Jim. Revenue for the third quarter of fiscal 2002 increased 34% to $7.6 million from $5.7 million in fiscal 2001. Coatings revenue increased 62% to $6.0 million, primarily to drug delivery activities especially pervading the quarters. A significant portion of the commercial development revenue was stent-porting work for Cordis for use in their many human clinical trials. In addition, we are performing other development projects for them. Our goal is to be a strong partner with Cordis for many generations of drug-coated stents. We are off to a good start in this regard. Like all of our other plants we also sell Cordis the reagent chemicals used in the coating process. Their purchases were a big reason why the reagent sales more than tripled over the last year. This is the third in a row that Cordis has purchased significant quantities of reagents, quickly becoming our largest buyer of reagent chemicals.

Based on forecast received from them we expect this trend to continue and possibly increase as they move closer to US launch. However, as discussed last quarter, we will be reducing the price of J&J's reagent chemicals after we scale up our manufacturing capacity. This will likely reduce the total reagent revenue received from J&J. However, the impact of J&J's royalties from the sale of drug-coated stents will more than offset any reduction in reagent pricing. Coatings royalties increased 17% to $2.3 million. This does not yet include any royalties from the sale of drug-coated stents. Diagnostic royalties from [INAUDIBLE] decreased 33% between years to $719,000. This was due to over $400,000 of one-time settlement payments that were received last year from third parties' infringing these tests. As you may know, [INAUDIBLE] recently announced that they did not receive FDA approval to resume manufacturing of their diagnostic test kits for sale in the U.S. This means that we do not anticipate seeing much growth in the [INAUDIBLE] royalties. Our expectation is that quarterly diagnostic royalties should be in the $600,000-650,000 range for the foreseeable future. Total operating expenses rose 24% over the third quarter of last year as we continued to invest in the business. The biggest components were increases in compensation and benefits and facility costs. We now have 145 employees compared to 134 one year ago. Most of the new hires are in the research and development organization, primarily to support drug delivery activities.

As discussed last quarter, most of the increased facilities costs relate to the fixed cost of owning the research building purchased at the end of 2001. Fixed expenses associated with this building are being charged to G&A category until we gradually transition our operations into the space. A portion of these costs [INAUDIBLE] R&D department when the new coating suites are completed in the first quarter of fiscal 2003. The net result was a 54% increase in operating income to $2.9 million and operating margins of 38%. These operating margins could potentially grow even higher as we begin to receive royalties from the sales of drug-coated stents. Net income increased 21% to $2 million. As has been the case all year, net income was constrained by a $300,000 reduction in investment income due to lower investment gains and overall reduced yields. In addition, the company recorded a $100,000 loss on the impending sales from excess property. The impact of these two non-operating items is a decrease in net income of more than $0.01 per share after taxes. At quarter end, we have a clean balance sheet with over $40 million of cash and investments and no debt. This represents an increase of $3 million in cash and investments since March 31st. Turning to our outlook, the management currently expects fourth quarter revenues to be at record levels with revenue and operating income growth in the 15-20% range.

This growth would have been even higher except for the impact of the $1 million milestone license payments received from Motorola Life Sciences last year. If that one-time payment were excluded, expected revenue growth would be in the 35-40% range. This payment also impacts the year over year earnings comparisons, which will be somewhat flat due to the exclusion of this 100% margin revenue source, coupled with lower investment income. Even with the Motorola payment considered the company will exceed its previously stated annual goals of 25% revenue growth with higher operating income growth. At this time, management is not prepared to release detailed guidance for next year. Overall fiscal 2003 looks to be a very strong year and we currently expect to exceed our historical growth rates. However, the most significant factor in providing guidance is the success of J&J's drug-coated stent program. These royalties are expected to generate an even greater positive impact on fiscal 2003, but those expectations are influenced by many variables including market acceptance, product pricing, reimbursement levels, competition and especially the timing of the anticipated FDA approval in the U.S. We do not control most of those factors. Therefore, it is difficult for us to estimate future royalties until we begin to receive some accurate market data. SurModics' future opportunities continue to be large especially in the drug-coated stent market. SurModics' goal is to capture 50% or more over this market with our coating natures. If we can accomplish that it should allow us to deliver a growing time margin recurring revenue stream for many years to come. That concludes our prepared comments, now we would like to open up the call for questions. Operator?

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the * followed by the 1 on your pushbutton phone. If you would like to decline from the polling process, press the * followed by the 2. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order that they are received. If you are using speakerphone equipment you will need to lift the handset before making your selection. One moment please for our first question. Our first question comes from Steve Hamill of RBC Capital Markets. Please go ahead.

[BILL _____]: Good afternoon guys. This is [Bill] for Steve. Okay just real quick question. With regards to J&J's reagent purchases, can you comment on whether this appears to be stocking in all, I know if we stocked about next couple of quarters out, can we say whether or not this is stocking and if so is there a potential of risk that this could reverse itself at all?

It's Jim Powell. We can't say whether it's stocking or not. I don't believe it is. We believe it is wrapping up and so that's about all we can say.

[BILL _____]: But for the foreseeable future anyway should we think about these sort of levels then, is that correct?

As far as, this is Hathaway, as far as quantity, yes. As I mentioned in my portion there is possibility that pricing will come down, but we have seen some forecast for them as going out in next year and the quantity levels will be at this level or greater as we go forward. So we really do not believe that any of this is stocking. It is normal [INAUDIBLE] for getting a product on the market.

[BILL _____]: I see. Thanks a lot Hathaway.

Next we have a question from Pamela Lund with Miller Johnson. Please go ahead.

Hi guys. I have a number of questions so I shall start pretty quickly. One of my first was on the licenses, you had indicated in the second quarter I think, that you had one large one that you expected to fall in the third quarter. Is that the one you just talked about from Lake Region?

Yeah.

It is. So can you give us some kind of a clue as to if that then falls in the 1 million potential plus?

It is possible.

Okay, so that would be classified by you as a big one then?

Correct.

It's a home run.

Sorry.

This is Dale it's a home run.

Hi Dale. Home run one, really terrific good.

This is a very established company in the medical device arena and it is OEM, but it is a very, very good company from size.

What kind of revenue level do they have? Can you tell me that?

It is private.

So, no information on that for us.

Right.

Okay, but definitely an important license.

Yes important license

Good, that's great. And the other thing, looking at the new products introduction and looking at last year's third quarter, when you had expressed some disappointment in some new products that were moving somewhat slower than expected and it was your first quarter last year, I think, you had a big introduction. I am wondering how that is going, what's the story on those, somewhat disappointing starts on some of the new products last year or is it early this year?

This is Stephen. We have added more products during the quarter this quarter. We are actually up to 64 products on the market [INAUDIBLE].

So, how many did you add this quarter, did you say?

Five to seven products.

This particular quarter?

Those are just getting into the market. When I say getting on the market, they have received approval. We have not really received royalties from them yet, but they have got an approval. They have not hit our numbers, but it's early and a lot of these have not yet taken off.

Well that would be already ten then at least for the year so far? If I am right, I think you had three in the first quarter, one big, two in the second?

Correct.

And you are now saying that an additional, how many got approved in the third?

We are up to sixty-four products application ... sixty-four products on the market.

How many was it at the end of the second quarter?

I believe 57.

That's a lot.

Yeah.

Okay that's good. There was one in the first quarter that you had indicated ... one of the three that you had indicated was a big product, potentially?

Yes, it was one in the first quarter that was a little larger and we are starting to see some royalty from that line.

Okay it's quite a lag, in terms of when you begin to really see the large, obviously it is a quarter lag, but it takes a bit to really get them moving, and actually my initial question had been, I don't be too long winded this, this time last year you had had some significant introductions and that they had been, I think one or two had been going a little slower than you thought, now I was just wondering if that had turned? Or is that something just to look at?

I would have to go back and look at it for last year.

Don't worry. Okay let me talk about that another time. The other thing in question is Motorola Sales ... it looked like they were disappointing ... the freight sales again this quarter. Can you give us a little bit of information on what's going on with Motorola, as obviously there has been a ton of rumors and expectation that the division would be acquired?

I am not sure, why you say this. They are disappointing.

You know what they were perhaps little low than I had expected. They may not have been disappointing because I may have had two high an estimate, but ...

We from their development efforts here and their freight sales, we believe, their business is growing and regarding the rumor of sales, we don't comment on that, you would have to ask Motorola about that.

Fair enough. Okay I will pass it on and come back later if there is a chance.

Okay next question.

Our next question comes from James Terwilliger of Morgan Keegan. Please go ahead.

Hi guys. Can you comment it all about the pipeline visibility within your commercial development business, that number was very strong and is that a good number to move forward with?

Jim, take this.

Yes, it is very strong, and I believe its good. Our commercial development, you are talking about other than stent-coating business or just stent-coating business?

Well, both actually just kind of what's in the commercial development ... can you just talk about the pipeline, how many people are knocking at your doors, it seems to me that the clinical results of the drug-coated stent would just augment other companies to come to you, to try to see if they get can get the same set of clinical results, whether it is drug-coated stents or other clinical applications, may be moving on lubricity so I am just trying to get the sense from management regarding your tone in terms of the visibility of the pipeline in the commercial development and that business going forward?

We are extremely busy. As we mentioned in this tax year that we are trying to get the Bloomington, Minnesota facility up and running, because we need more space to accommodate all the people knocking on our doors. So our pipeline is full and we would like to increase the diameter of that pipe by adding some new facility and getting it online real quick.

You closed last quarter with 57 products, and now you closed this quarter with 64. Is that correct? Are those good numbers?

This is Stephen, yes, those numbers are correct.

The seven new products, you have yet to receive any royalty from these seven new products, is that correct?

Most of them get approved during the quarter and then start selling after a point in time. So these are the products that we know of that have received approvals to begin sales, some of may have started, but they got approval during this quarter, the sales would be royalties for the next quarter. So most of them would not have any royalties during the current quarter.

And some companies, oddly enough, don't introduce and start selling as soon as the approval is obtained, and so they wait on product rollout and they time them with meetings and things like that. I think the main use of that number is just as an indicator of growth in business potential.

All right thanks, I am going to jump back in queue. Thank you.

Next we have question from Robin Swanberg of SunTrust Robinson Humphery. Please go ahead.

Hi guys, nice quarter. I just wanted to go back to the reagents, it seems that this line of reagent sales is tough for us to budget. Can you give us any sense going forward as to how we look at this sum, the $1.8 million I think, and what sort of number we should look for on a more discernible trend?

Robin this is Dale, that's a very good question and a tough one. But this is a reflection of, I think, the introductions now in the stent arena and these are meaningful numbers and until we get enough history to know how things are going out in the market place, that's going be tough for us to forecast also, but it is meaningful and it is the best barometer we have of what the royalty stream is going to look like in the future, and its our best indicator of how the pipeline is doing at retail in effect. We are not going to see cripples constantly and so it was a very large quarter for us in reagents and most of that was of course J&J because their launches now are getting close and I suspect that they are having the same [BREAK IN AUDIO].

Okay, in terms of the second, third and fourth coated stent partners that you were mentioning, when we will see any of these get to a meaningful number, either in your reagent stream or perhaps in commercial development, and then falling into the royalty revenue. How far off is that, Dale, for that business sale, the other, all other exchange rate.

That's still way down and remember, the price per gram of the drug delivery reagent today is going to come down significantly due to scale up, so the reason we probably spent as much time as we did on the reagent sales is because we have got a huge number now but it is based on a very small scale production put in the high price and we are in the process of finishing the scale up and the price will come down. The volume of reagent will not come down but the price will come down, so you will see some dollars come off for that.

So the absolute dollar level is going to come down, would that happen in the fourth quarter?

Yes.

So you are at scale now.

Yeah, we just have to finalize that process with J&J.

I had another question, as it related to Motorola. Can you just walk me through the Motorola situation? I had expected a payment in the fourth quarter, which you had last year, you don't have this year, Steve or somebody, could you walk me through that.

Sure, I will take that. I thought we have indicated in the past that there is, as part of the original Motorola contract, there were three license related payments, one we got upfront when the license was signed, a second payment when we completed a technical milestone, and there is one more technical milestone payment which is out there that we said probably would not accomplished this year, it is more likely a 2003 transaction that we will complete the technical milestone. So that is still out there and that is something that we are looking for sometime next year.

What is that tied to Steve?

We cant' go into the details, but it is tied to a specific technical progress we need to make, an accomplishment that has been defined under the contract.

Was that something that was expected in 2002, you have fallen short, or you have always known that it wasn't going to hit in this year?

We have pretty much always known it wasn't going to hit in this year based on... it's tougher than the first one, and it was a little longer-term milestone out there.

How do you give us confidence that it happens next year? Or don't you know?

It depends on the progress we make and what this joint development committee house working on, and we are going to push and try to get it done next year, you know, we are pushing out, but it is not the top priority of our joint development work.

Okay, I will get back in the queue. Thank you.

We are ready.

Next we have a question from Douglas Eayrs with Dougherty & Company. Please go ahead.

Good afternoon.

Hi, Douglas.

Hi. Just one thing that there has been some discussion in the market place, I don't know if it is real or no, that Johnson & Johnson, there is some rumor that they are trying to move to another polymer test something internally or something like that. Can you just address that, regarding the clinical trials that they have underway with their drug-eluding stent and the one that they are now launching, and your relationship with them again?

Jim, go ahead.

This is James Powell. Doug we are extremely busy, we hope we are working on lots of different projects, though in our foreseeable extended future, we don't see that happening.

Its safe to say that you are tied in with their pipeline at least for the current product plus probably their pipeline in the drug eluding area for at least the next few years, is that a safe statement.

I believe so.

This is Steve. We have additional projects and we are working on with them that we can't go on any detail on, but it takes us beyond the current product that we are quoting today, and we see us working together for several years to come just on those current projects.

Okay and then just quick thing on the Board of Directors that Dale had mentioned there, what type of individuals... I notice there has been some talk here with Wall Street, just the type of people that you should be looking for, may be one or two additional, and the timeline to fulfill additional board seats, could you address that?

This is Dale. That's under consideration right now and we would like to add continuing strength in the technical side and with medical device experience. We are now onto some shortlist now and as soon as we finalize that we will of course announce it. We have been blessed with a very, very good board and we want to continue that process. Our board meets on Monday and that is the subject that will be on the agenda, this meeting now. As soon as we know, we will announce.

Okay, thank you.

Ladies and gentlemen, if there are any additional questions please press the * followed by the 1 at this time. As a reminder, if you are using speakerphone equipment, you will need to lift the handset before making your selection. Next question comes from [Blake Kutner] with [Venture Capital]. Please go ahead.

[BLAKE KUTNER]: Hi guys, just a couple of questions. My first question just relates to the royalty outline. I guess last quarter there was the $150,000 adjustment that was made and so if I kind of back that out of last quarter, it looks like royalties were about the same as they were last quarter. Is that fair, and the question then would be, has there been any sort of change in the different royalty streams that you are obtaining from your different partners there?

This is Steve. That is a fair comment. The royalties on some of our larger contracts were relatively flat between quarters and as we talked about before, some of these newer applications, we are just getting on there in the market; we have not yet received the royalty stream from those contracts. So as we work forward, we see those royalties building, but right now it is not in those numbers that you are saying.

[BLAKE KUTNER]: My second question just relates to the second partner, any insights at all. Is it the partner you guys announced quite a while ago, can you even tell us if they are inching any clinical trials here with the stent?

No we cannot comment on their progress. Sorry, we just don't talk about that aspect of our customer business.

[BLAKE KUTNER]: Okay thanks.

Our next question is a followup by James Terwilliger of Morgan Keegan. Please go ahead.

Hi guys, I just wanted to clarify, right now you are doing work with four different distinct companies in the stent industry. You could be doing multiple applications for each company but basically you are doing work with four different distinct companies for drug-coated stent.

That's correct. Two of them are licensed. Two of them are testing.

Could you repeat that?

Two are licensed and two of the others are having product coated and they are doing evaluations, they have not licensed yet.

One other question. You have got 64 products at the end of this quarter. Can you tell me how many companies represent that figure of 64 products? i assume you may have multiple products with the same company, can you just give the number of companies?

The number of companies is fifty. We have licenses with fifty different companies. Not all those companies have products in the market at this point. To answer your question, I don't have the exact number of how many companies are represented by those 64 products in the market; it's less than fifty. I misread your question at first.

Okay thanks.

Our final question today comes from [Alan Kestler] with Oracle Partners. Please go ahead.

[ALAN KESTLER]: Hi Stephen, just a quick question. I am trying to get to the investment income number that you guys are going to be using in the fourth fiscal quarter because I am having a difficult time resolving how your operating income is going to be up 15%-20%, and you are still going to reflect a flat profitability level in the fourth fiscal quarter?

The investment income in the fourth quarter should be fairly consistent with what it has been all year, in the same range of $320,000 to $350,000.

[ALAN KESTLER]: And then, what is the nature of investments that are included in that?

Most of our investments we have with the money market funds, obviously for short-term investments, but our longer-term investments are with an outside manager who is investing it in different bonds to mimic the Lehman Brothers one-to-three-year government portfolio. So it's a very safe investment vehicle with the intention of just giving us a little higher return edge in the money market. There are no equities in that what so ever.

[ALAN KESTLER]: It looks like you are going to be adding about seven customers for the fourth fiscal quarter and I guess I was attempting to understand, what is the fact is going to be the revenue that you are going to reflect from the J&J royalty on soaps, [INAUDIBLE] in Europe during the fourth fiscal quarter, I guess that is going to be reflected from what is transpired during the June quarter that J&J has sold in terms of the dollar amount.

We do not have that number at this point of time.

[ALAN KESTLER]: You are in fact just estimating, that's going to be, is it accurate to stay around $250,000?

We cannot estimate it. We cannot comment on estimates.

[ALAN KESTLER]: Right. Thank you very much.

Thank you.

We have one further question from Pamela Lund with Miller Johnson. Please go ahead.

Actually most of it has been asked. But let me just ask one of those things since I have got in here. Of these seven new products that you enter in the market this year, what range are there? Are there are any big ones in that? Not the license, I am talking about the actual new products being introduced?

There are, if I recall, I don't have the list in front of me, but there are one or two that are larger. Obviously, one of them is the J&J stent which is very large which is in there, but then there are a couple more that are using our baseball analogy, doubles or more, the rest are probably in the singles range.

Okay thanks.

Mr. Olseth, there are no further questions at this time. Please continue.

Thank you. This is Dale Olseth again. Thanks for participating in our conference call this afternoon. We are pleased to report record revenue and operating income. In our fourth quarter, we will see the first royalties from J&J's drug-coated stent program. We expect this royalty stream will pick up and speed up after FDA approval. It will be a growth catalyst for this company well into the future, especially as other clients bring drug-coated products to the market. Our management team and workforce are highly energized by this opportunity. We appreciate your continuing interest in the company and look forward to updating you at the end of our fiscal year in October, thank you.

Ladies and gentlemen, this concludes the SurModics third quarter earnings conference call. If you wish to hear a replay of today's conference, please dial 1800-405-2236 and use the pass code 484 202. Once again, that phone number is 1800-405-2236 and the pass code is 484 202. Thank you for your participation, you may now disconnect.