Surmodics Inc (SRDX) 2004 Q3 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the SurModics Third Quarter 2004 Earnings Conference Call. At this time, all participants are in a listen-only mode. Along today's 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". As a reminder, this conference is being recorded today Wednesday, the July 21, 2004. I would now like to turn the conference over to Ms. Marian Briggs. Please go ahead Ma'am.

Thank you. Good afternoon and welcome to the fiscal 2004 third quarter conference call for SurModics, thank you for joining us. With me are Dale Olseth, the Company's Chairman and Chief Executive Officer who will give a brief overview of the quarter; Phil Ankeny, Vice President, Business Development and Chief Financial Officer who will cover the financial results; Bruce Barclay, SurModics's President and Chief Operating Officer who will discuss operational highlights; and Loren Miller, Vice President and Controller who is available for the Q&A session

Before we began I must preface 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 result to differ are identified beginning on Page 12 of the Company's fiscal 2003 Form 10-K Annual Report and in the MD&A section of the Company's Form 10-Q filed after the 10-K.

Now I'll turn the call over to Dale Olseth.

Thank you Marian, and good afternoon everybody. We appreciate all of you joining us today. There were many financial highlights in SurModics fiscal third quarter. First, we achieved earnings per share of $0.22 excluding an impairment charge that Phil Ankeny will describe for you.

Second, the Company's overall revenue surpassed $11 million for the eleventh --for the fifth quarter in a row. We came in at $11.4 million, and as you know we generated high gross and operating margins. Number three, the Company's non-Cordis business turned in a strong performance. This marks the second consecutive quarter of sequential growth in non-Cordis revenue. We along with all of you on this call had anticipated that our revenue from Cordis would decline since this was the first full quarter that Boston Scientific TAXUS stent was available in the US. But we remained encouraged by the rapid growth of the drug-eluting stent market, especially in the United States.

Further there were several exciting developments in our drug-delivery offering this quarter, in June we announced four new polymers for site specific drug-delivery applications. Two that we had developed internally at SurModics, and two that we are licensing from another company. Bruce Barclay will give you more details on these polymers but suffice it is to say that this significantly expands our outreach in drug-delivery applications. We also announced two new stabilization products that complement our broad line of products that serve the diagnostics and drug discovery markets.

In short this was a good quarter for our Company and we are pleased with our progress in diversifying SurModics revenue stream. With that I would like to turn the call over now to Phil for a financial review.

Thank you Dale. Revenue in the third quarter was $11.4 million, a decline from $12.8 million a year ago that many had anticipated. We announced on June 22 that we would be recording an impairment charge against our contract manufacturing facility in Bloomington, Minnesota. The amount of the non-cash impairment charges is $16.5 million, excluding this impairment charge operating income would have been $5.7 million compared with $7 million a year earlier. Net income would have been $3.9 million or $0.22 per diluted share compared with $4.6 million or $0.26 per share in the third quarter of fiscal 2003. A potential sale of our Bloomington facility is an out growth of SurModics new strategic plan that emphasizes high value-added businesses and technology development, and acquisition instead of contract manufacturing. At this time, we do not expect any further impairment charges related to the potential sale of the facility.

For the first nine months of fiscal 2004, revenue grew 18% to $36.3 million from $30.6 million in fiscal 2003. This is a record figure for our nine months results; excluding the impairment charge, operating income would have been $18.7 million compared with $13.8 million in the year ago period and net income would have been $12.4 million or $0.69 per diluted share compared with $9.5 million or $0.53 per diluted share in the first nine months of fiscal 2003.

Now let me comment in detail about the components of our total revenue number for the fiscal third quarter of 2004. Quarterly royalties and license fees were $7.5 million, down from $8.5 million a year ago. J&J announced that CYPHER sales for the June quarter were $330 million worldwide compared with $532 million in the March quarter. While Cordis US market share has declined, we are pleased that the US drug-eluting stent market is experiencing impressive growth. Industry experts estimated that drug-eluting stent penetration was approximately 76% of the US stent market at the end of June, up from 53% at the end of December. If you assume roughly constant ASPs, that translates into a 43% growth rate for the US market in just six months.

Internationally, CYPHER sales were $120 million for the June quarter, up from $100 million in the March quarter. Cordis reported a 48% market share and 30% market penetration for the June quarter. On a worldwide basis, the market for drug-eluting stent is expected to exceed $5 billion in 2006.

Turning to product sales, our product sales came in at 2.8 million which was essentially flat with the prior year period. Research and development revenue was $1.1 million, down 23% from the year ago quarter. Much of the historical R&D revenue resulted from coating stent in support of Cordis' clinical trials. Shortly after Cordis received FDA approval, that work declined dramatically. Now the majority of our R&D revenue is generated in support of development programs for our customers' future product offerings, Cordis included. Reflecting our commitment to providing value-added technology and development assistance, R&D revenue rose sequentially again this quarter, as it did last quarter, both in total and for non-Cordis R&D revenue.

On the expense front, I am happy to note that operating expenses for the third quarter were down 7% to $4.9 million through disciplined expense management. Expenses also declined 7% sequentially from the second quarter and are down to the lowest levels since the first quarter of 2003. Investment in R&D continues, however, as it represents the focus of our resources at 26% of revenue for the quarter compared with 25% of revenue in the year-ago period.

Now turning to the balance sheet, its in excellent shape. We have $94.6 million of total assets, $88.4 million in shareholders equity, and no debt. As of June 30, the Company had a cash and investment balance of $54.5 million. The Company continues to have an active business development pipeline as we pursue many interesting opportunities to put our balance sheet to work. At this point I would like to turn the call over to Bruce.

Thanks Phil. Good afternoon everyone. Thank you for joining us as well. As we have outlined in the past, our plan is to move into higher margin, higher value projects with greater opportunity for long-term growth and that’s exactly what we are doing. The third quarter was the first full quarter following the announcement of our corporate reorganization and I am pleased to report that we make meaningful progress in implementing the new organizational structure and in executing our strategic plan.

During the quarter SurModics began to deliver on the goals we set for ourselves by building on our technology platforms to both internal development and external acquisition and improving our resource allocation and operational efficiency. While the new polymers we announced -- with the new polymers we announced in June, SurModics now has the broadest portfolio of 5 specific drug delivery polymers available for license to third parties. Interest in this area has been intense. Drug-coated stents are just the first outgrowth of the conversions of drugs and devices. Any device manufacturers wants to develop product that utilize drug delivery coating, but they face significant hurdle. We are listening to our customers and we've heard about many other problems with other polymers. We believe our offerings can address those shortcomings. Perfecting the timing of the drugs release from the coating is a major challenge, some release the drug too quickly, some release too slowly or not at all. Device manufacturers want the drug to release completely from the polymer, but not so quickly that ultimate efficacy is compromised.

We've heard also about less then ideal surface properties and we believe our ability to tightly control surface properties can solve many of this problems. In an effort to fulfill our stated mission of providing the world’s foremost innovative surface modification and drug delivery technologies and products, we had expanded our polymer offerings. Our expanded polymer portfolio offers customers a more robust tool kit of drug delivery coatings on a wide variety of applications covering all of our target markets -- cardiovascular, ophthalmology, orthopedics and neurology. This is very exciting and we believe bodes well for our future.

The first two polymers we announced, trade named Encore and Accolade, were developed internally at SurModics They give us the freedom to work with rapamycin analogs or rapalogs on drug coated stents outside of our license with Cordis, as well as many other applications. The other two polymers come from OctoPlus, a privately held company based in the Netherlands. These two polymers trade named PolyActive and OctoDEX are biodegradable polymers. It simply means that they degrade naturally in the body over time. They are also more suitable for delivering protein and other large molecule therapeutic agents. These polymers have the ability to be combined with one or more drugs and applied to a medical device.

Our customers have requested biodegradable polymers for some time, so we have a backlog of interested parties. In fact, we already have one customer project in paid research and development incorporating the OctoPlus technology. In sum, demand is strong and we expect it to grow.

Now, I would like to address the drug-coated stent market. As Dale said, the June quarter was the first full quarter that taxes was available in the U.S. As expected CYPHER did lose market share in the U.S., however, there is still plenty of good news in this area. The market for drug-eluting stents are still exhibiting robust growth. It's estimated that 3 out of every 4 stents implanted in the U.S. now has a drug delivery coating.

Penetration rates overseas have been slower and therefore, this represent considerable growth potential. Internationally, CYPHER had a strong quarter growing 20% sequentially from the March quarter. Further, we anticipate a CYPHER market launch in Japan this quarter.

In addition, Johnson and Johnson's distribution partnership with Guidant is still in its infancy and we are encouraged by the opportunity that Guidant opens up for Cordis, particularly in key account where Guidant has strong relationships. We also believe that the trial in process for taxes will run its course and over time a much clear picture of the drug coated stent market place should emerge.

We are encouraged by the opportunity that future may bring us in drug-eluting stent marketplace. We believe that the recent events may give Cordis upside potential. Cordis had said it has additional capacity and will ramp up production to meet potential in the increased demand.

At SurModics, we have an ample supply of reagents to meet any increase in Cordis’ demand as well. In addition, news coming out of PCR over the last quarter suggest that many hurdles remained for other device manufacturers attempting to enter the drug-eluting stent marketplace.

During the quarter, we signed 4 new licenses bringing our total for the year to 10. Already meeting our goal of 10 new licenses for the year. We now have a total of 64 licensed customers, up from 60 last quarter. There are 73 products already generating royalties to SurModics compared with 68 a year ago. Our customers launched 2 new products in the third quarter, which bring the total to 7 new products reaching the market fiscal year-to-date. We continue to expect at least 10 new products to be commercialized this fiscal year compared with 8 in fiscal 2003. Our pipeline remained strong and is growing. The total number of licensed products not yet launched rose to 61 from 58 a year ago. The number of major non-license opportunities under development, which we define as products that have the potential to generate more than 100,000 in annual royalty revenue rose to 58 in the third quarter, up substantially from 21 in the year-ago period.

We are pleased with the quality and the quantity of products on our pipeline. In total, we now have 119 customer-related projects and developments. We call it the most attractive feature of our business model, is the royalties we receive from customers once product get approved for sale. However, along the way we do generate R&D revenue and it still pointed out earlier. R&D revenue is up sequentially for the second straight quarter.

In addition to our polymer products for drug delivery applications, we also announced 2 new stabilization products in the fiscal third quarter. StabilCoat and StabilGuard Choice are their trade names. Although, the revenue impact of these products is relatively small, the announcement confirms our commitment to serve the diagnostic and drug discovery markets with exceptional products and services, and we expect this commitment to continue well into the future. Our work with InnoRx, Novocell and GE Amersham continues to move forward as well. With InnoRx, we are developing a treatment for retinal disease and they expect to file an investigational new drug or IND application with the U.S. Food and Drug Administration by the end of calendar 2004. Novocell, our partner in the diabetes arena, filed an IND application with FDA, April 30, and so expects to begin human clinical trials later this year. And we continue to work through the integration stage with GE who purchased our genomics partner Amersham earlier this year. Incidentally, we were pleased to see that Amersham contributed nicely to the solid earnings performance GE announced earlier this month.

Also, I want to thank all of our employees who work so hard to gain our ISO certification we announced last week. Becoming ISO certified takes considerable time and preparation and it is a significant achievement for the company. SurModics takes quality very seriously. Receiving the certification is an important milestone for us that will directly benefit our customers.

In sum, we have finally -- we have many reasons to be optimistic about SurModics future. We're now executing our strategic plan with our newly organized business units of drug-delivery, regenerative technologies, Hydrophilic technologies, diagnostics and drug discovery and SurModics new ventures. We remained focused on capitalized on significant opportunities in our chosen markets. That concludes our prepared comments and now we'd like to open up the call to 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. If you are using speakerphone equipment, you will need to lift the handset first. One moment please for our first question.

Our first question comes from Richard Rinkoff with Craig-Hallum. Please go ahead.

Thank you. A couple of questions. First of all what is the outlook for R&D fees and product sales over the next couple of quarters. Do should we expect the same trends as we've just experienced?

We want to speak-up but we are not getting you clear right now.

My question is what's the outlook for product sales and R&D fees over the next couple of quarters, should we expect the same trends as you just reported?

Well from an R&D revenue standpoint, we are very encouraged with what we are seeing in our pipeline and as we reported we have now this great quarters with increasing revenue in that category. We would expect that to continue, exactly how we cannot say, but we don’t anticipate that changing for this quarter. Product sales we have mentioned in the past that while our volume is up we do have contractual commitments in our agreement with Cordis which is causing the price individually to go down so that one is a little bit more difficult to predict, and that is I think the bulk of our product sales.

Okay What do you expect the expenses or expense ratios or dollars to be going forward and how does it change given that the building is now reduced in value?

Well, I can speak to the expense and I'll ask one of our financial guys here to speak to the building. We would expect expenses for the fourth quarter to be approximately the same as they were for this quarter, which again as you heard is down given the focus we are placing on that in terms of improving our efficiency there, but R&D investment continues to be a very important part of our growth objective going forward and so that’s not something that we are going to cut into. In fact it will probably grow, but for this quarter we are speaking to it should be approximately the same as it was for Q3.

So R&D should grow in '05 then but not necessarily in the September quarter?

Yeah, overall expense should be the -- three lines of operating expenses, R&D, sales and marketing, and G&A you know in aggregate should be roughly flat in the fourth quarter, so basically you know the depreciation savings that will largely be offset by some investment we continue to make in other areas.

Okay and you indicated that net income, after-tax pro forma was about 3.9, should we use that number or is there a more precise number?

You want to repeat that I am sorry Rich, say it again please.

You indicated that that net income after-tax is $3.9 million is that an exact number or is there more precision that we could have.

That's close enough, you know that's assuming you know kind of a historical average on the tax rate.

Okay and last question, are you making any forward guidance for the rest of this fiscal year and anything about fiscal '05?

At this point we are not, you know what you are seeing in the marketplace right now, is that the drug-eluding stent market continues to be highly dynamic and so the fluctuations that you'll see are probably going to vary month-to-month, week-to-week and we just don't have the visibility on where that's going to go right now, we are certainly encouraged by the trends, but you know we just don’t know where that goes at this point in time.

Thank you.

Thanks.

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

HI guys can you hear me?

Yes, we can. .

Great quarter, so could you just, two real quick things, when you sell the facility could you bring me up to speed in terms of any visibility on the timings of selling the facility and also remind me of the potential expense savings with that? And also your cash balance had a very, very nice sequential path is there anything there in terms of the cash balance that you would like to discuss, what happened. I think it went up 5 or 6 million sequentially?

Sure, I'll comment first on the Bloomington facility, you know what we've had said there is that we believe that the sales process could take a year or more and you know we certainly hope that we might be able to dispose-off that more quickly, but we don't want anybody building their models on the assumption that we will succeed in that, and that the various operating cost that we incur while holding that facility, taxes and insurance and utilities and the like, you know those things just don't go away while you are holding the building even if it's not -- doesn't have any activity in it, so we don't want to set any expectation that would cause anybody to change their models with respective to our expenses. The specific on the expenses are that overall once the building is sold, we believe that the total expense saving, depreciation included is around $2.3 million on an annualized basis. Currently with the write-down on the building, depreciation will be coming down substantially and still beginning in the fourth quarter, the annualized reduction is a little more of a $1 million and you know, we are fine-tuning that as we go. And then lastly with respect to your question on the cash balance, yes that is the first time we have been over $50 million in our history, and if you look back over time as to you know the real contributors there, historically we were investing significant dollars into the Bloomington facility, so that’s where a lot of free cash flow went into CapEx in prior quarters. In addition, if you -- the receivable have been coming down and so collecting the relievable from prior quarters improves our cash balance.

More quick questions, you said earlier you think J&J is going to get -- J&J is waiting for reimbursement in Japan before they launch?

That’s correct, they reported some sales in Japan but the spread really small until reimbursement happens expected to be this quarter.

You mentioned that you had -- your strategic partners launched two new products this quarter, was that two different products that got FDA approval? Is that correct or a CE mark?

They were both in the US, yes.

Was there any -- can you discuss those at all, or the industries, I understand your confidentiality as well, if you could discuss, was there any milestone, any upfront milestone payments associated with that?

Yes, with both of those there was, we can't report the details of the transaction, but it's typical of the arrangements that we entered into with our customers that have a license fee, ongoing commitments in additions to a percentage of sales from the products once they hit the market. They have not been -- our technology has not been associated with those products in the public marketplace by our customers and so as in the past, we are contractually bound to not disclose that.

There were milestones, but you probably didn't get that, I mean the partner probably didn't get a significant launch in the quarter? I mean, the royalties would be coming in behind this, correct?

That is correct, yeah, they will come-in in Q4.

Okay, great, I am going to jump back in queue. Great quarter guys.

Okay, thanks, James.

Our next question comes from Jayson Bedford with Adams, Harkness & Hill. Please go ahead.

Hi, good afternoon guys.

Good afternoon.

Hi.

Couple of quick questions, just on the last question to follow-on the milestone payments, are those in the royalties and the license fee pocket of revenue?

Yes, they are.

Was there anything from Amersham in that?

Not in this quarter.

Okay.

Not in terms of -- I believe you are asking specifically about the remaining milestone payments that are a part of that contract?

Correct.

Yeah, no those are not in this quarter.

Okay, perfect. And then just on staying on the quarter, sales and marketing were a little lower than we had expected. Anything going on there? Was that down it looks like about $300,000. Same with headcount?

I am sorry, could you repeat the question again?

Sure. I am just looking at my model at least and I think its on your P&L that sales and marketing line?

Yes.

Seemed to be a little lower than its historical level?

That’s correct. It reflects a couple of things. One is we made some personnel changes there especially in the marketing administration side. Further, it reflects slightly different model relative to how we are going to promote and sell our products going forward. What you will see going forward is a much more active involvement from our business units and the sales process and as part of the responsibilities of our General Managers of our business units there will become and are becoming much more active in the sales process with our customers. Do we expect to make some additional sales investments in this area in the near future and in fact hopefully in not so distant future we will be announcing a new relationship with an individual or a group that will help us better access the European market place.

Okay. Looks fair and then I know you guys -- you know revenue is largely at your control, but can I ask you in terms of -- due to expect non-Cordis revenue to be up sequentially in the fourth quarter?

At this point Jayson, what you got is a phenomenon of sort of two quarters that are above what we the kind of soft guidance we have given you in the first quarter.

Right.

At that point of time we have said that we expected for the fourth quarter of fiscal '04 that non-Cordis total revenue would be roughly flat. What's emerged was an up quarter in the second quarter and yet another up quarter over the second quarter now in the third quarter here. Whether that growth trend can continue we don’t know. We suspect it will likely be above our first quarter figure, but exactly if we can maintain that growth trend is -- it is too early to tell

What’s encouraging to me, this is Bruce, is that we had revenue generated in the third quarter from all 5 of our business unit for non-Cordis and for me as we look more to diversify our revenue base that’s extremely encouraging and that’s going forward as we operate the business more what we are trying to do.

Okay that’s fair and just a couple of quick questions on the price line. The Encore polymer coating, did you generate any development revenue from that product?

We are in active discussion on that polymer, but it is too soon to comment on specifically at this point

Okay and then you mentioned that you did receive some development revenue on the OctoPlus bioerodible polymer, Utera [ph] just teases with the application for that product?

I really can’t say at this point other then the day the announcement went out was the day we got the call. So it was encouraging

Fair enough. Thanks guys

Thanks Jayson.

Our next question comes from Ryan Rauch with SunTrust Robinson Humphrey. Please go ahead

Yeah good afternoon just two quick questions. Why is the share counts -- what's going on with the share count? Why did it decline sequentially and then how should we look at the share count going forward?

Yeah Ryan it’s Loren. What you are looking with that -- with the share count since we had an operating or net loss for the quarter, the diluted shares didn’t include the dilution from -- it to be equivalent because it resulted in a anti-diluted situation, so we just use the basic share, it's just standard accounting. So if you want to use -- going forward I would stick with like a 17.8 million share number for your model and not look at the 17.5 going forward. This is a one-time thing.

Okay so

Does it make sense?

Yeah, from a continuing ops prospective in the quarter, I mean if we exclude the one-time impairment charge your shares on a profitable basis were about 17.8 million like they were in Q2?

That is correct.

Okay and then secondly, can you just remind us of the Amersham milestones that are left and when you think they will hit your P&L?

Let’s see we have got, I believe one, $250,000 milestone that may hit in the fourth quarter of this year. But it's dependent on Amersham and then there would be one further milestone, I believe, it's one year out from that into -- our fiscal 2005. That's also $250,000, so I wouldn’t spill that into any model here for the next four quarters for sure.

Okay thanks a lot.

Yeah.

Yeah.

Thanks Ryan.

Our next question comes from Tony Campbell [ph] with Dorset Management. Please go ahead.

Yeah, good afternoon gentlemen. I’d just have a couple of small questions and that's for me with your company, but I gathered, I see your interest income went up a lot, what happened there is that a just a function of more cash coming in, higher interest rate, just was surprised with that?

Hi this is Loren. Our investment portfolio manager is approximately above $40 million of their managing. They sold a bond it was a inflation protected bond that had a significant built in gain and that’s what you are seeing there.

Okay and thank you. That’s helpful. And the other thing I noticed is that if I go and look at your other assets category, I am wondering if you could explain that and I see that’s took a jump of about almost 17 odd -- 7 odd million?

Yeah no problem, you are seeing essentially the deferred tax impact of the building impairment that is essentially about 6 million in from change and that makes up most of the difference there. In addition, you will recall that we made an investment in I believe it was InnoRx earlier in the year and so it’s the combination of those two items.

Okay that’s very helpful. Thank you so much.

Thank you.

Our next question comes from Steve DeNelsky with Copper Arch Capital, please go ahead.

Hi, a lot of my questions have been answered but on the product line, you guys have been saying you expected to go down, but it hasn't, has the percentage from Cordis gone down in that line?

That’s a very good question we did expect that to go down and the portion that’s related to Cordis has been fairly stable actually, so we still anticipate that will go down at some point, but you are right on it, that is exactly what it is.

And is that --

You know, its kind of surprising as despite the revenues go from 532 to 331.

What's driving that?

We don't get a lot of insight into exactly how they manage their inventory of polymers and other raw materials for the CYPHER stent, they just don't share that information with us, so how they buy product and inventory in their various plants around the world is just not something that is visible, so your question is a good one if stent volumes logically would be down just given the lower share and the lower revenues would that translate to polymers and to be honest we just don't have the insight into how their manufacturing process works in their overall supply chain to really give you any insight there.

But they are telling you that they think they can ramp up, because I am hearing I guess from doctors at J&J telling them that there is still capacity constraint with the FDA warning that they have got. And is Cordis telling you that they think they can ramp?

Yes, they are, they have given us a specific statement in addition to what they have told us directly, and you know, essentially it’s something that they have already put out on Friday of last week but to repeat, they are definitely committed to serving the market demand for CYPHER, specifically the quote from Ricky Anderson, their President of the Cardiology division of Cordis is that they have the capacity to meet -- to make as many stents as needed and we will ramp up production to meet any additional customer needs.

And I guess a sell-side analyst was throwing around that the 483 that the old 483that change they have and part of it is -- has to do with polymer integrity. Do you guys have anything to do with that in terms of working with them or it that just an issue that J&J is comfortable with and they are going to work through it?

Now, we have no knowledge of that at all. We have -- the evidence we have is that our polymers have extremely good integrity and that has never been an issue.

How was it in housekeeping, what was the cash flow from operations?

I am sorry, ask that question again please.

What was the cash flow from operations?

We are looking -- $6.1 million.

That’s for the quarter.

That’s just the quarter's number, yes.

And can you -- I understand that you don’t want to you know you have contracts that you can't disclose milestone but can you selectively give us what the milestones are for the quarter?

No, we can't.

Okay. That is it. Thanks.

Thank you.

Thanks Steve.

Ladies and gentlemen if there are further questions please press "*", "1" at this time. Well if there are no further questions, I would like to turn the call back to Dale Olseth for any concluding remarks. Please go ahead sir.

Thank you and thank you again for participating in our conference call this afternoon. SurModics has had a good third quarter with important technology innovations to prepare us for future growth. We look forward to speaking with you again in October when we'll finish our fiscal year, and again I thank you for attending and listening today. Thank you.

Ladies and gentlemen, this concludes the SurModics third quarter 2004 earnings conference call. Thank you once again for your participation today. You may now disconnect.