Surmodics Inc (SRDX) 2003 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the SurModics third quarter of 2003 conference call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference call, please press the star, followed by the zero. As a reminder, this conference is being recorded Thursday, July 17, 2003.

I’d now like to turn the conference over to Ms. Marian Briggs.

Please go ahead.

Good afternoon and welcome to the fiscal 2003 third quarter conference call for SurModics. Thank you for joining us today. With me are Dale Olseth, Chairman and Chief Executive Officer of SurModics who will provide an operations update. Phil Ankeny, SurModics new vice president and chief finanical officer will give us an overview of the quarterly financial results, and Loren Miller, Vice President and Controller who is available during the q-and-a session.

Before we begin, I must [indiscernible] all 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 results to differ are identified on Page 17 of the company’s fiscal 2002 annual report to shareholders.

Now, I will turn the call over to Dale Olseth.

Thank you, Marian.

Good afternoon and thanks to all of you for participating today in our call. This was a very exciting quarters at SurModics. Just days after our last quarterly conference call, Cordis Corporation announced the news we had all been awaiting for some time. The FDA approved SurModics coated drug-eluting CYPHER stent for sale in the large U.S. market. This was wonderful news for us and for the many thousands of patients and their physicians who have postponed surgeries until this breakthrough product was available. It has been gratifying to see the rapid acceptance of drug-eluting stents in the United States over the past 2 months. As expected, this product launch had a significant impact on our bottom line financial results, which Phil will discuss in more detail shortly.

Needless to say, we are proud to be part of the team responsible for the CYPHER stent. I want to reiterate to all of you that we continue ongoing development work with Cordis and intend to be an important participant in Cordis’ next generation of drug-eluting stents as well.

We also had a busy quarter on the licensing front and signed four new agreements, bringing the total number of licensed clients to 56. SurModics has now signed nine licenses in the first months of this fiscal year compared to five in the same period in fiscal ’02 and six in fiscal ’01. In addition, one new license was signed in the fourth quarter that began July 1. This is an important license and it builds on the capabilities in drug delivery and is for the controlled release of a drug from the service of the device. We cannot disclose much at this early point, other than to state this device is not a stent and the application is outside the field of cardiology.

As some of you are aware, Phil Ankeny joined the company’s management team this quarter as vice president and chief financial officer. Phil’s extensive experience in investment banking, mergers, and acquisitions will be invaluable as we map our growth strategies at SurModics. Furthermore, his engineering background and business development experience will be especially important as SurModics cultivates partnerships and pursues new initiatives. We are very pleased to have Phil onboard and I want to publicly welcome him this afternoon.

Now I’d like to say a few words about a search for a new chief operating officer. Finding the best candidate for this critical important position is of the highest priority for the board and for me. To date, we have been blessed with a strong field of candidates who have been assessed and are being evaluated by myself and members of the board of directors. Because of the significance of this selection, our board has assumed a very active role of the evaluation and decision process. We made an important decision to the board of directors this quarter with the appointment of John Benson in May. John is a long-time veteran and leader of the 3M company, most recently as executive vice president of their large and successful healthcare business. He has wide-ranging experience in the medical device industry and pharmaceuticals, plus a deep grounding in chemical engineering. We are delighted to add his experience to our already strong and highly experienced board. This brings the total number of directors to nine, seven of whom, including John now, are from outside the company.

From a financial performance standpoint, the third fiscal quarter was outstanding. SurModics posted sizable gains in both revenue and earnings. We are gratified that the hard work of our employees landed SurModics #52 spot on the Fortune small business ranking of the 100 fastest-growing small companies in America.

With that prelude, I’d like to turn the call now over the Phil Ankeny to discuss the financials.

Thank you, Dale.

As you’ll note from the earnings release, and Dale’s comments, we had a very strong third fiscal quarter. Revenue was up 69% over the prior-year period to 12.8m. Operating income increased 140% to 7m, and the company’s net income more than doubled to 4.6m. We exceeded analysts’ expectations for the quarter, reporting $0.26 cents per diluted share versus the consensus estimated of $0.13 cents and versus last year’s $0.11 cents per diluted share. For the nine-month period, revenue increased 47% to 30.6m. Operating income rose to 94% to 13.8m, and net income was up 83% to 9.5m, or $0.53 cents per diluted share, versus 5.2m, or $0.29 cents per diluted share, in the year ago period. Overall, the [coatings] [ph] portion of SurModics business was the primary driver of our strong performance again this quarter, up 91%.

Now, I’ll take you through the revenue components for the quarter. As noted in the release, coatings royalties total 7.4m, up 226% over the year ago quarter. The majority of the increase in revenue is related to recognizing royalties from the sale of the CYPHER stent in the United States. Allow me to elaborate here. Since most of our customers do not report their quarterly sales to us in sufficient time to record the associated royalties in the same order, that royalty revenue is generally not reflected in our financial statements until the subsequent quarter. Now that Cordis has received FDA approval and launched their CYPHER drug-eluting stent in the United States, and given the extremely high visibility of this marketplace, we sought and received CYPHER sales data from Cordis in sufficient time to enable us to recognize royalty revenue from Cordis stents sold in the United States and abroad in the same quarter that sales occurred. Accordingly, we have recorded the royalty revenue in the June quarter.

This simply reflects sound accounting. Royalties also included a lump-sum payment of approximately $1m in back royalties from one of our 56 licensed customers. We anticipate royalties from this customer to continue in the future but at reduced levels. License fees were $534,000 in the third quarter, up from $110,000 in the previous year. This includes a milestone payment from our genomics partner, Amersham Biosciences, for a product that was recently introduced to the market. The SurModics CodeLink product line that Amersham cells offers strong competitive advantages. Essentially it is a higher performance genomics product, both more sensitive and more accurate. We look forward to earn royalties from Amersham exceeding the contractual minimums in the future.

As Dale mentioned earlier, we signed four new licenses in the third quarter and have already signed a significant new license agreement in the fourth quarter. Reagent sales increased 17% to more than $2.1m. As in previous quarters, much of this growth reflects increased polymer purchases by Cordis as they launch their drug-eluting stent in the United States. As anticipated, commercial development decreased 23% from the year ago period. Chiefly, because last year, we were performing such a large amount of coating [indiscernible] for Cordis in preparation for their CYPHER stent launch. Although Cordis now is engaged in fewer clinical trials and we are performing less coating work on a relative basis, SurModics is still doing meaningful development related to future generations of Cordis stents.

Furthermore, we are pleased with the quantity and quality in the commercial development pipeline and ended the quarter with a record 28 nonlicensed projects in paid development. In total, coatings revenue rose 91% to 11.4m from 6.0m in the prior year period. The items that comprised other revenue decreased but represented a small percentage of SurModics total revenue.

Turning to expenses. Total operating expenses rose 25% in the year fiscal third quarter to 5.9m, as the company continues to invest for future growth. The increase in G&A expenses primarily reflect expenses related to certain contract advisory services. Construction at our new Bloomington facility is proceeding on time and on budget, and we anticipate completion in the fall of 2003. At that point, we will begin transitioning, manufacturing to this site on a customer-by-customer basis.

On to the balance sheet. It is very strong. We generated $7.1m of cash from operations in the third quarter. As of June 30, SurModics had 47.1m in cash and investments, 94.5m in total assets, shareholder’s equity of 81.7m, and no debt. Overall this was a very good quarter.

Looking ahead, while we are not providing specific fourth quarter guidance, due to the many variables associated with CYPHER stent sales that we do not control, we can tell you that we expect the year to show strong growth, and our deep portfolio of patented core technologies coupled with SurModics higher visibility are leading to accelerating customer activity, so we are optimistic.

That concludes our prepared comments and now we would like to open up the call to questions.

Operator?

Yes. 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 star, followed by the one, on your pushbutton phone. If you would like to decline to the polling process, please press the star, followed by the two. You will hear three-tone prompting acknowledging your selection. Your questions will be polled in the order that they received. If you are using speaker equipment, you will need to lift the handset before pressing the numbers.

One moment, please, for our first question.

Our first question comes from [Jason Bedford] [ph] with Adams, Harkness. Please, go ahead.

Hi, guys. Congratulations on a nice quarter. Can I just breakdown the royalty revenue a little bit. In terms of you had the million dollar from back royalties, which brings the 6.4m. How much of that was J&J?

Jason, we’re not breaking out the royalty line specifically to the Cordis royalties.

How many other products do you have on the market generating earned royalties?

I believe it’s 56.

And was that the same amount as last quarter?

Excuse me, Jason, it’s 68, and it’s up. I believe there was – and this is Loren – I believe there were two additional products that went on the market this quarter.

Okay. And then in terms of recognizing J&J CYPHER-related revenue, are you going to do it on a – is there going to be a quarter lag or is this going to be consistent going forward in that you recognize the quarter that J&J recognizes it?

We anticipate that will be consistent. It clearly is dependent on them providing us with the information, but we don’t think that’s going to be a problem. Contractually, they’re required to report it to us within 60 days at the end of the quarter, but I suspect that they will provide us with the information we need so it’s timely.

Okay. Now just on switching gears a little bit to the new license signed in July. Can you just give us a little flavor as to the market opportunity and then when you expect to receive royalty revenues or when that product will actually be in the market?

This is Dale. It’s too early for any projections on timing, but this is a major initiative. It’s a small company but with very strong people and in an attractive area and it will utilize drug delivery and I think that’s about all we can say now, other than this has the potential to be a very significant client for us, and it’s probably a year to two from clinicals. So it’s going to take some time, but it will serve a large market with a very innovative new device. Okay?

Okay. Thanks, guys.

The next question comes from James [Williger] [ph], Morgan [indiscernible]. Please, go ahead.

Hey, Dale, can you hear me?

Yes. Speak up, though.

Let me run through some numbers – let me just make sure I’ve got a good summary here. You’ve got 56 licensed customers, is that correct?

Yes.

And you’ve got 68 products on the market that you are collecting royalties from.

Yes.

And you’ve got 28 products that you’re currently doing commercial development work for.

Paid development.

Paid developments.

That’s correct.

Now we have others that are in the works but those are feasibilities and some of it’s – I call it getting acquainted but we start really hitting the P&L with those where they pay us to help them develop their products and a lot of that is an effect to synthesize the surface and that’s been building now for a good period of time, so they’re starting to kick in now. What we tried to say in our script here, our activity level is very high in the company now, very high. I would say it’s probably – there are so many things now that are flowing in that we’re very busy.

Would you feel comfortable in giving me the number of products or customers that you’re “getting to know each other?”

That’s hard, James. That would be for me to put my hand in the air and just – it’s a very dynamic process, especially now in the entire stent arena. Now that the drug stent is out, that whole field is in a turmoil literally, but drug delivery in other things is really going to take on momentum now so we’re seeing a lot of prospects there now.

Can you tell me how many stent players you’re working with? You have broken that out in the past before.

Well, we’ve had, you know, 4, 5, 6, but that also has become a more dynamic process in that some that are – I think that we can say that over a period of time that pretty much everybody who is in the stent arena we know and that we have spent some time with. Some of them end up as prospects and some that – and we don’t really start counting on until it pulls to paid development and that also has become more of a dynamic number now because of the competitive arena just in the last couple of three days. You see that Guidant had a major announcement. Medtronic had an announcement today, I think. So they’re all working hard now because of the CYPHER now. It is a very dynamic field at work right now. Dynamic.

And can you tell me how many stent players you have in “paid development?” Is that that 4-6 range that we’ve historically talked about?

It’s been running 3, 4, 5 – somewhere in there. It’s probably more in the lower end than that higher end. I would say 3, 4 probably right now.

Lastly, any visibility on the diabetes application?

They’re making progress. They did have a press release a week or 10 days ago, and if you haven’t seen that we will make that available to you. That evidenced some meaningful progress and we would echo that in what we’re seeing with them. We want you to be mindful, this is a small company, and it’s in a very big arena, but selling capsulation is making progress, and we were pleased with the press release.

And are you guys going to give any guidance going forward on growth and the reagent chemicals – reagent revenue?

Yes, go ahead, Loren.

Hi, James. This is Loren.

Hi, Loren.

We get some forecast from Cordis on their requirements for material, but at this point it’s somewhat volatile. They are still learning how to manufacture it themselves and I doubt that we’re going to get anything very solid that we can provide good guidance on for awhile, until there’s some stability.

All right. Dale, one last question for you. You had a great quarter and congratulations. Is there any correlation between the EPS upside and the size of the fish that you caught in Canada? That’s what I would like to know.

Well that’s probably the toughest question we’re going to get here. Incidentally, the picture – I didn’t think the photos would ever get to me, but the Indian guy, they popped up in my office this week, so that is the biggest one I’ve ever had so I – but this is probably the biggest quarter we’ll ever have. But so now I have the photos to document that fish.

I want to see them because, you know the old stories about fish stories, but I trust you. Congratulations on the quarter, and congratulations on the fish.

Thank you.

Next question comes from Douglas [indiscernible]. Please, go ahead.

Can you hear me?

Speak up.

Okay, judge, a couple of things. On the quarter that was reported here, you did have a couple items that you broke out to a million from the one-time catchup, I think, and then 500,000 for Amersham. So in the fourth quarter, but we also had part of the quarter of U.S. CYPHER stents. Do you expect the fourth quarter total revenue to be somewhat flat with the third quarter, up a little bit, down a little bit? Can you given any guidance on the revenues, the sequential revenue from Q3 to Q4?

The impact of Cordis this quarter, it’s going to be very difficult to say.

And then on the R&D line, you know, you’ve obviously had this deceleration on the top line. You’ll be walking that up some, I think, right? You were at 3.1m, I think, this quarter on the R&D and as your top line you keep on increasing the R&D a little bit, too, right?

Well we have not firmed up our ’04 operating plans yet and this quarter was one stronger than we anticipated. We look at the R&D investment level more by specific projects and it’s manpower related. So it’s really more of a longer-term process, so we will have increased fix because of the new facility. That will finish now. It’s on schedule the new plant, but we manage R&D more by the initiative and the projects identified versus percentage of revenue growth. Some day we may do that, but right now we don’t.

Hey, Doug, this is Loren. I think what Dale was trying to say was just because of the increase in Cordis royalties isn’t going to necessarily equate to a proportionate amount of increase in R&D. What will drive that next year is our transition to the new building. You’ll see a lot of the costs will be influenced by that.

Okay. Good. And then just two other areas I wanted to ask about real quick. Amersham, you did get a payment from Amersham. Do you have any increased visibility on kind of the outlook for their Micro Array business over the next few quarters? That’s not flowing much through your revenue line yet, right?

That’s correct, Doug. Right now most of the activity you’re seeing is minimal royalties and then this particular technical milestone. I suggest if you would like to get a little more clarity on that, you could probably go to Amersham’s web site and they actually disclose and talk about our product there, or the product we’re associated with, and they might be able to give you a little more guidance on that.

Okay. And then also the last point. I know you had done an agreement with a contract manufacturer I think of guidewires, and I know today on the Guidant call they were talking about the guidewire businesses accelerating and they think the number of stenting procedures in general is accelerating as well with respect to the stenting and the balloon angioplasty. So you get some peripheral, independent of the CYPHER stent, does your other revenue lines accelerate a little bit when there are more balloon angioplasty procedures done more, more stenting procedures being done from some of your other coatings relationships?

You were talking about the guidewire applications specifically, and I know we talked about [Lake Region] [ph] probably about a year ago or so, and from the last forecast I’ve heard, they intend to be on the market with SurModics coated device, I believe, by the end of Q4.

Is that calendar Q4 or your Q4.

I believe it’s our Q4.

Okay. September, October.

Yes.

Okay. Because that was mentioned this morning that actually some of the ancillary guidewires and things are all so – Guidant said their business has been accelerating from procedure volumes. They think the procedure volumes are accelerating in U.S. and Europe. Okay. Great. Thank you.

Next question comes from Steve [Tinelski] [ph] with [Copper Hodge] [ph] Capital.

Hi. Can you give us more details on the process and timing of recognizing revenues in the U.S. sales? My understanding is that there is a three-month lag, but it sounds like you get interim reports that you can recognize revenue from?

Steve, this is Loren. I think what you’re referring to is historically there was what I guess you would call a three-month lag, but it was related to the contractual obligation of Cordis to provide SurModics with the sales information we needed to record the revenue. The have for whatever reason provided the information to us in realtime, not according to the contract, so it’s in time for us to book it as it should be, and that is in the period that it is earned.

Okay. So you’re getting those in realtime.

Absolutely.

So this quarter then had the 40,000 stents in inventory plus anything – and J&J hasn’t told us exactly how many stents, but everything that J&J sold this quarter as well.

It includes everything that J&J sold during the quarter-ended June 30 of 2003. That is correct. U.S. and outside the U.S.

And are you guys going to give guidance for next year? I understand that the problems getting for one quarter as this thing ramps, but are you planning to give it for next year?

We have that on the scale. We have that under evaluation. The dynamics are so incredible in the stent arena now and of course because of our involvement with the CYPHER, that is dominating. Until we know we get better data in what’s happening competitively that with the gross margins that we get from that business, it would be a disservice if we ended up providing guidance that was off mark because of volatility and changes that we weren’t [indiscernible] to. We can’t control that. So until we – when we are able to give guidance with meaningful credibility, we will do that, but until the dynamics settle down and the dominance of the CYPHER stent and the share movements and – so we want to be careful.

Okay. Thanks.

Next question comes from [Blake Goodner with Bridger Capital] [ph]. Please, go ahead.

Yes. Hi, guys. I just wanted to confirm one thing. So we recorded two quarters of J&J CYPHER royalties in this quarter, is that correct?

Blake, no. We were under a minimal royalty arrangement with Cordis, so there is no doubling up on Cordis CYPHER stent royalties. We booked what was earned in this quarter.

So, if I just can take a step back.

Sure.

In the June quarter, you recognized the royalty on all of J&J’s CYPHER sales both in the U.S. and in Europe in the June quarter?

That’s correct.

But then when did you recognize the royaliteis on J&J CYPHER sales that they recognized in the March quarter? When did you recognize those royalties?

Well, I didn’t do a very good job of explaining that in the previous response. We were under a minimal royalty situation there and the sales did not exceed the minimum, so this was actually the perfect quarter to have J&J provide that information to us, because there was no doubling up on CYPHER stent sales, royalties.

I’m sorry. Could you explain that one more time, and I apologize.

No problem. Because were under a minimal royalty situation with Cordis in the prior quarter, they audit the contractual amount of money regardless of how many stents were sold. Did that make sense?

Maybe I can just follow up with you offline. It’s a little confusing, but that’s okay. I had one other question.

We want to make it clear so.

Essentially our contracts are structured such that a royalty is calculated based on the dollar amount sold, multiplied by a royalty rate, and essentially there is a floor such that if that multiplication product does not get to the floor, then we get the so called minimal royalty. And so in prior quarters, you know, that sales number just wasn’t big enough to get to the hurdle and, therefore, under the contract the minimal royalty is what was actually paid and recorded in our financials.

And those minimum royalties under the J&J contract were recognized in the same quarter as the sales nodded a lag?

Correct.

Okay. Whereas your other clients – when your clients begin selling product, would you recognize a royalty from and it’s not a minimum royalty, that historically going forward for your other clients is at a one-quarter lag but J&J is not?

Well it depends on when the royalties are reported. It may or may not be on a lag. The important thing to remember is we report it when we get the information.

Okay. That’s great. I’ve taken enough time. I’ll follow up offline. Thanks.

Thanks, Blake.

Our next question comes from [Kent Olden with Gagnon Securities] [ph]. Please, go ahead.

Good evening, gentlemen. Congratulations. I also wanted to drill down into the timing issue, and I think the prior caller did a pretty good job. Just for clarification, the minimum that you booked for the March quarter was how much?

We didn’t disclose that.

Okay. Thank you.

Your next question comes from [Matthew Buton with Argus Partners] [ph]. Please, go ahead.

Thank you. And also congratulations. The 1m in back royalties, can you provide a little more color on the duration and period where those royalties were earned?

No. I don’t think we’re going to. It was for a period of more than a year, but it was on some products that just because of some administrative issue the licensee did not report them. We don’t think it was malicious or intentional or anything like that and in case the name of the individual is ever disclosed or something, we would rather not. They are a partner of ours and we appreciate how it all came out so. I can tell you, though, on a going-forward basis, it’s going to approximate maybe $40,000 to $50,000 a quarter. I think that’s probably what you wanted anyway.

Yes. I just [indiscernible].

Good question.

Your next question comes from [Allen Kessler with Oracle Partners] [ph]. Please, go ahead.

Hi, guys. I just wanted to follow up on this Amersham royalty. I’m assuming that this is still retained from the original Motorola contract, and my understanding with that payment is that there were three one-time million dollar payments. I wanted to understand how this splits up and if this is half of the remaining 1m that was left over at the time of the change of control and, therefore, should we be looking for an additional 500,000, and is that it, or this associated with ongoing minimums? And then I’ve got another couple questions.

Okay. Well, we’ll start with that one. May I compliment you on – you’re probably the first person that has ever saw through this and asked that question. There was a million dollars left at the time that we transitioned this contract to Amersham, and through subsequent talks, they asked if we would split the $1m milestone into three separate milestones, and so what – just as you surmised, this is the first of three half-million, and that would leave two quarter of a million dollar payments left to equal the total $1m. Does that make sense?

That sounds great and it would be recognized over is there a specific time frame associated with that?

Well these two are based on technical achievements, so we but we would expect them to be met probably this year or the next fiscal years – over the next two fiscal years.

Okay. And was there a royalty payment associated with the actual U.S. approval of the CYPHER stent as well?

Excuse me? I didn’t catch that.

Was there a one-time royalty payment associated with the milestone of the U.S. approval of the CYPHER?

No. It’s all based on the actual sales. No type of milestone on that.

Okay. Thank you so much.

Okay. We have a followup question from Steven Tinelski. Please, go ahead.

Hi. On the minimum. On the floor that you booked in the March quarter, is there a catch up provision so you back that out of this quarter or is that just sort of a floor that they had to pay contractually and that you get the royalties for this quarter?

I think I understand what you’re asking, Steve. If they are in excess of the minimum, we just get paid what we actually would have earned. So there will be no catch up with the minimum.

So you get the minimum and that quarter was done, and so this quarter you booked all of the real stent sales? They paid you an amount last quarter, which was a floor, even though it wasn’t approved in the U.S., and this quarter it gets approved, does that floor get subtracted, I guess, is the question?

No. It does not get subtracted.

Okay. Thanks.

Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the one at this time. As a reminder, if you are using speaker equipment, you will need to lift the headset before pressing the numbers.

One moment, please, for the next question.

Our next question comes from Paul Smith with Smith Capital.

Hi. How are you doing? I’m just a bit confused, as I think a few people are. You’re saying that in the March quarter, J&J did not hit the minimum, so you received some sort of prenegotiated fee? Is that correct?

That’s correct.

Now, my question is this – was that fee recognized as revenue in the March quarter or the June quarter?

Yes. That was recognized based on the passage of time and it was earned in that period and it was recognized in that period.

Could you give us the amount of that?

No. We are not disclosing the amount of the minimum.

All right. And that minimum amount from the March sales was not recognized in June, is that correct?

That is correct.

So June revenues only includes from quarters whatever was sold in June and not any March royalties or any other adjustments or any other stipulations.

Correct. Just reiterate. The revenue that we recognized on the royalties from the sale of CYPHER stents is based solely on the sale of stents in this quarter. Nothing else played into the calculation of that particular royalty.

Okay. Is there a reason why you don’t give out specific dollar amounts on quarters or anything?

Well not really. I guess if J&J would disclose that, we would probably be forced to, but I don’t think that we are going to be at any time soon disclosing that specific piece.

All right. No offense, but it’s kind of a problem for a shareholder, because we have to know what we’re buying and what the components of revenue are, and I’m having greater trouble holding something not knowing exactly what’s driving the revenue. You can understand this is frustrating for us.

The data that we’re paid on, that comes from Cordis and we are not permitted to disclose their data. Now if they’re prepared to, then you can probably back into some stuff, but we are not permitted to disclose any financial results from clients. That’s part of our contracts.

Okay. That’s unfortunate. Thank you.

Okay. There are no further questions at this time, so I would like to turn the conference back over to Mr. Dale Olseth.

This is Dale again, and we want to thank you again for participating in this conference call. We’re pleased to report another, we think, excellent quarter, and are excited about our near to intermediate future prospects. We look forward to speaking with you all again here in October when our year will finish. Thank you.

Ladies and gentlemen, this concludes the SurModics third quarter 2003 conference call. You may now disconnect and thank you for using teleconferencing. If you would like to listen to a replay of today’s teleconference, please dial 800-405-2236, with the passcode of 544001. That does conclude our conference. You may now disconnect.