Surmodics Inc (SRDX) 2006 Q3 法說會逐字稿

Welcome to the SurModics third quarter 2006 earnings 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. (Operator instructions.) As a reminder, this conference is being recorded today, Wednesday, the 19th of July, 2006.

I would now like to turn the conference over to Mr. Phil Ankeny, Senior Vice President and Chief Financial Officer of SurModics. Please go ahead, sir.

Thank you very much, Michael. Good afternoon and welcome to SurModics' fiscal 2006 third quarter conference call. Thanks for joining us today.

I am joined on the call by Bruce Barclay, President and Chief Executive Officer, and Lauren Miller, Vice President and Controller, who will be available for the Q&A session. Before we begin, let me remind that you some of the statements made during this call may be considered forward-looking statements.

The 10-K for fiscal year 2005 identified certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made during this call. The 10-K and subsequent filings are available through the Company or online.

Now, I'd like to provide a brief overview of today's call. First, I will cover the quarter's financial results. Bruce will then highlight quarterly operating achievements and progress against our seven point revenue growth plan, and finally we will open up the call to your questions. As you will note from our press release, SurModics posted strong financial and operating results, with record revenue and earnings.

We achieved new revenue records in each of our three operating segments. In addition, we achieved record non Cordis revenue, which grew faster than Cordis revenue for the ninth consecutive quarter. I'll begin with an overview of the third quarter financial results, and then break down the numbers by revenue, component and operating segment. Finally, I will cover expenses and review our balance sheet and cash flow.

Third quarter revenue was 18.1 million, a 10% increase from 16.5 million in the year earlier period. On a GAAP basis, operating income was a record 9.5 million, net income was a record 6.4 million, and diluted earnings per share was a record $0.34. As a reminder, beginning with the current fiscal year, our GAAP results include the expensing of stock options as required by SFAS Number 123R. However, to provide easier comparative analysis for investors, we also present non-GAAP results excluding noncash equity compensation items. Please see our financial tables and the footnotes provided in the press release for a detailed explanation and reconciliation of GAAP and non-GAAP figures.

On a non-GAAP basis, SurModics achieved record earnings again this quarter. Operating income grew 19% to a record 11.1 million, from 9.3 million in the prior-year period. Net income increased 20% to a record 7.4 million from 6.2 million in the same period last year. This period marks the 8th consecutive quarter of record non-GAAP net income. Diluted earnings per share was a record $0.39, an increase of 18% compared with $0.33 in the third quarter of fiscal 2005.

We had a few discrete items affecting our tax provision this quarter, causing the non-GAAP tax rate to be higher than expected. If you were to use our expected non-GAAP tax rate of 37.5%, EPS would have been $0.40. Our unique business model continues to demonstrate excellent profitability producing an operating margin of 61% and a net margin of 41% for the quarter, on a non-GAAP basis.

Now, I will walk you through the revenue component for the quarter. Royalties and license fees were a record 13.9 million, up 10% from the year-ago quarter. These results highlight the value of our broad portfolio of royalty-generating products. As you know, the largest contributor to our royalties and license fees is Cypher, the Sirolimus-eluting Coronary Stent from Cordis Corporation, a Johnson & Johnson company.

Yesterday, J&J announced a strong quarter for Cypher, with worldwide sales reaching 695 million, and J&J continues to be the market leader drug eluting stents with an estimated 50% market share. In the United States, J&J reported that Cypher retains an estimated 47% market share. In Japan, the second largest market in the world, Cypher continues to be the only approved drug eluting stent on the market.

Moreover, J&J's supply and development capabilities should continue to improve as a result of the additional manufacturing capacity recently brought online, as well as resolving their warning letter with the FDA, which they expect to occur this year. In addition to strong Cypher sales, SurModics non Cordis revenue established a new record this quarter, and has exceeded Cordis revenue for the 9th consecutive quarter.

Let's turn now to other lines of revenue. Research and development revenue was a strong 1.5 million for the quarter, a 32% increase from the prior year period.

We believe our R&D efforts highlight the relevance of SurModics' customer-focused technologies, as customers pay us for the work our scientists and engineers do to incorporate SurModics technology on their next-generation products. Wrapping up revenue line items, product sales were 2.7 million for the quarter, essentially flat on a year-over-year basis.

Next I will review our operating segments. I'm pleased to report that all three segments achieved record revenue this quarter. Hydrophilic and other revenue was 5.5 million, growing 14% from the year-earlier period, and 4% sequentially. Second, drug delivery revenue was 8.6 million in the third quarter, increasing 10% year-over-year and essentially flat sequentially.

Finally, diagnostics revenue climbed to 4 million, a 6% year-over-year gain, and up 4% sequentially. On the expense front, excluding product costs and noncash equity compensation, total operating expenses were 6.2 million in the third quarter, compared with 6.5 million a year ago. G&A expenses were down 17% year-over-year, ordinarily $300,000 as the benefits of exiting our Bloomington contract manufacturing facility on April 1st of this year began to materialize.

We continue to demonstrate our commitment to R&D investment and to protecting the products that result from our innovations. We dedicated $4.6 million to R&D during the third quarter, which represents 25% of total revenue and is a 2% increase from the prior-year period.

Further, R&D expense for the quarter constituted 74% of total operating expenses, excluding product costs. Expenses from our new ophthalmology division and costs related to running the I-vation clinical trial were the primary contributors to the growth in operating expenses. In addition, the Company has incurred larger patent related legal costs that have contributed to R&D expense. Allocating funds to patent protection is consistent with our strategy to vigilantly protect our product innovations and technology portfolio, which serve as the foundation of our technology licensing business model.

Finally, let's examine our balance sheet, which remains in excellent condition. At the end of the third quarter, SurModics had a cash and investment balance of 96.7 million, and no debt. Cash flow from operations was $8.9 million in the quarter, compared with 10.1 million in the year-ago quarter. For the first nine months of the fiscal year, cash flow from operations was 27.6 million in 2006, up 55% from 17.8 million in 2005.

We regard our cash position as a valuable asset and will aggressively utilize it to pursue opportunities that support our growth strategy and enhance our market positioning. We continually evaluate all available options in terms of our capital allocation strategy, and are steadfast in our efforts to maximize shareholder value in the long term. With that, I will now turn the call over to Bruce.

Thanks, Phil, and thank you to all of you joining us on the call this afternoon. Our third quarter results demonstrate another strong period of financial and operational performance, including our 8th consecutive quarter of record non-GAAP net income. SurModics is a highly market responsive organization and continues to benefit greatly from a broad and growing technology portfolio.

We are building on our market-leading position in the healthcare space, where we are recognized as experts in the development and application of coatings and biomaterials, for example, in their application with drugs and devices. We believe that our financial results are clear evidence of our progress. To repeat Phil's earlier comments, SurModics again achieved record levels of revenue in the quarter, as did each of our three operating segments. I congratulate our business unit general managers and their teams for their success in the quarter.

Additionally, our commitment to revenue diversification over time is progressing well. We posted another record-setting quarter for non-Cordis revenue, which surpassed Cordis revenue for the ninth consecutive quarter. Importantly, we accomplished this despite the continued strength of Cordis and especially sales of Cordis' Cypher drug-eluting stent.

We are optimistic about the prospects for our technologies in drug delivery, ophthalmology, pro healing and other antithrombotic technologies, cell culture, cell encapsulation through Novocell, and many, many others. Amidst the excitement of these truly enabling technologies, we have never lost sight of the sterling business we have built and continue to grow in hydrophilic technologies. On a year-over-year basis, the hydrophilic and other operating segment was the fastest growing of our three operating segments.

Let me spend a little more time now profiling some of the key aspects of this important business. HT, as we call it, is the home of our advanced lubricity PhotoLink coatings. These coatings enhance the deliverability of medical devices, which is increasingly becoming a competitive advantage for device companies. Importantly, deliverability of a device can have a significant impact on the ultimate sale of the product.

There's an adage in the medical device business that if you can't deliver the device, you can't sell it. And so given the size of some of these markets, like drug-eluting stents, anything to improve the chances for a successful clinical outcome is critical. SurModics hydrophilic coatings utilize our PhotoLink technology to reduce friction on the surface of the device, typically by over 90% compared to uncoated products.

Fundamentally, any device that is inserted into the body can benefit from our lubricious coatings, such as catheters, guide wires, cardiac rhythm management leads, closure devices, and many, many others. The noteworthy industry trend toward minimally invasive devices has greatly increased the list of potential access, interventional and closure devices that can benefit from our hydrophilic coatings.

Anytime patients can avoid general anesthesia or receiving a large incision, patient outcomes are more likely to improve. Further, patient recovery time and the resulting hospital stay are certainly shortened. Catheter and guide wire-based devices are used throughout the vasculature, coronary, peripheral, neurovascular, and the like. Even larger, more complicated implants, such as heart valves, are being developed for minimally invasive procedures using advanced low profile catheter systems.

SurModics is considered the gold standard of hydrophilic lubricious coatings. There are other companies that sell coatings to device manufacturers, but we believe ours are essentially the most lubricious, most durable and the simplest to incorporate into a customer's high-scale manufacturing process. Our hydrophilic technologies coatings have penetrated the drug-eluting stent market very well. We have now disclosed six customers that are using SurModics lubricious coatings on their delivery systems for their DES platforms.

This list includes Cypher Select Plus, the first third generation drug-eluting stent to receive CE mark approval. The Cypher Select Plus features SurModics' highly lubricious coating, coupled with a flexible stent design and a short catheter tip on the delivery system. Cordis plans to launch the product in Europe in September, with full market launch in countries recognizing the CE mark by the end of the calendar year.

It's important to note that this new hydrophilic coating on Cypher Select Plus will be in addition to the dug delivery polymer that Cypher already employs from SurModics, so we will receive royalties for the two SurModics components of the device. While drug-eluting stents represent an extremely large market opportunity, the broad applicability of our hydrophilic coating technology allows us to participate in many customer devices.

With innovation in the device industry continuing to accelerate, and companies focusing increasingly on minimally invasive approaches to delivering products, we believe our hydrophilic technologies business is well-positioned to benefit.

Let me now turn your attention to the product pipeline. As we have discussed in the past, we really manage this pipeline as a portfolio. The pipeline includes some products with extremely large revenue potential, and others that, while important to us, are relatively more modest. Further, we have selected products that may generate revenue in the near term, and others that are immediate or longer term in nature. It is our belief that the balance we have fostered in our portfolio has benefited the Company by reducing the volatility of our revenue streams.

Overall, we now have a total of 81 licensed customers, several with multiple licenses, compared with 75 customers in the prior-year period. Currently, SurModics has 83 licensed product classes on the market generating royalty revenue, compared with 81 a year ago.

The total number of licensed products not yet launched is 81, up 19% from 68 in the third fiscal quarter of 2005. Major nonlicense opportunities as of June 30 stood at 77, up 51% from the 51 licensed - nonlicensed opportunities a year ago. In total, today the Company has 158 potential commercial products in development, up 33% from 119 in the year-earlier period. Additionally, our customers launched 6 new products during the quarter, bringing our year-to-date total to 11. We remain on track to meet or exceed our goal of 12 new product launches from our customers for the fiscal year 2006.

Last quarter we told you that our customers expect to commercialize approximately 30 new product classes by the end of our fiscal year 2007, that's September 30, 2007. This represents a potentially significant increase in the number of royalty-generating products. These products are expected to join the other SurModics products already on the market. Further, the 30 new product classes should not cannibalize existing SurModics technology, but rather offer incremental revenue-generating opportunities. And the 6 launches this quarter is a very nice start.

Now, I'd like to discuss some exciting developments in our rebranded and repositioned In vitro Technologies business unit, formerly known as Diagnostics and Drug Discovery. The focus of this business is to develop and apply SurModics technologies to in vitro markets, and it serves as a nice complement to our various in vivo businesses. Currently SurModics in vitro technologies including our Abbott diagnostic royalties, GE genomics slides, our stabilization product family, and our synthetic extracellular matrix products developed in collaboration with the Donaldson Company.

As announced yesterday, we are building on our strength in in vitro diagnostics, by expanding our relationship with DIARECT AG. DIARECT serves as our exclusive distributor of stabilization products in Europe, and they have done a terrific job for us. DIARECT's core business is the development and commercialization of high quality, genetically engineered antigen products used in diagnostic test kits. Going forward, SurModics will exclusively sell these antigen products to diagnostic test kit manufacturers in North America, and nonexclusively in Japan, the same in vitro diagnostic manufacturers that currently use our stabilization products, or customers that could use our stabilization products going forward. We believe that synergy could be significant and consider this an exciting way to strengthen our participation in this in vitro market.

Also in our In vitro Technologies business unit, our collaboration with the Donaldson Company, and now Corning Life Sciences as announced last quarter, has added an important cell culture opportunity to the business, which expands our reach well beyond simple diagnostics. By way of background, this collaboration was launched in May of 2005 and combines Donaldson's nanofiber technology with SurModics surface modification technology.

The resulting UltraWeb synthetic ECM products were introduced just eight months after the collaboration was announced. Our ECM products provide cell growth conditions that more closely resemble those found in the body, leading to improved outcomes in cell culture, cell-based bioassays, and other in vitro cell-related applications.

In May of 2006, we announced Corning Life Sciences would provide worldwide marketing and distribution for the expanding product line. Importantly, Corning will help develop products for the high-throughput screening segment. This new agreement enables to us to take advantage of Corning's market leading position in plastic and glass labware, to address cell culture and drug discovery applications. We are very pleased to have reached an agreement with Corning, and believe the company will help accelerate the market adoption and penetration of these revolutionary products, thereby assisting us in capitalizing on the full potential of this platform technology.

Let's now look at our licensing efforts, a key input to growing our pipeline of royalty generating products. We had another excellent quarter signing five new licenses with our customers, bringing the year-to-date total to 16, already eclipsing our goal of 15 for the fiscal year 2006. We were particularly gratified by the broad-based success of our licensing activity as new license agreements were signed in four of our six distinct business units.

One of the quarter's new licenses was signed with AbbeyMoor Medical. Under this agreement, we will jointly development products intended to deliver therapeutic agents to treat various diseases of the prostate, such as prostatitis and prostate cancer. Initial feedback on this opportunity has been very positive. We are pleased to join forces with AbbeyMoor in the development of a potentially revolutionary approach to treating diseases of the prostate. This relationship opens up yet another avenue for SurModics to exploit the convergence of drugs and devices, as we have done in the past in both the vascular and ophthalmology markets.

Another new license signed this past quarter was with Bausch and Lomb. This license relates to the use of Genistein in the treatment and prevention of retinal diseases. As a bit of background, Genistein has been shown to reduce retinal vascular damage in diabetic animals. Retinal vascular leakage with subsequent macular edema is one of the leading causes of blindness in the world. Genistein was among the technologies we acquired by SurModics through its acquisition of InnoRX in January 2005.

Moving beyond licenses, let me offer an additional update within opthalmology. We remain very excited about the potential of the I-vation technology in our portfolio of ophthalmology products. Our ophthalmology division's commercial development efforts continue to drive R&D revenue, as the group is very active managing multiple paid feasibility and development programs, evaluating both our drug delivery platforms and polymer matrix technologies. As we have said in the past, at least one of these projects is being sponsored by a major pharmaceutical company. Should these programs move forward to licenses, they could potentially drive significant milestone payments prior to commercialization, and generate significant royalties after commercialization.

In March, SurModics completed patient enrollment in the Phase I clinical study assessing the safety and tolerability of the I-vation intravitreal implant with triamcinolone acetonide or TA, in patients with diabetic macular edema. Initial results relating to the clinical experience have been excellent, clinical follow-up continues, and the trial remains on track.

Finally, I'd like to provide an exciting update on Novocell, our partner in cell encapsulation. In June, Novocell presented preliminary data in a late-breaking poster presentation at the American Diabetes Association scientific session, from its Phase I/II, proof of principal clinical trial for encapsulated human islet allographs. The poster described safety and efficacy results following subcutaneous implants of encapsulated human islet allographs into patients with type 1 diabetes of long standing duration.

The first two partially implanted patients are showing early evidence of encapsulated islet function, reduced dependence on insulin, and a significant reduction in hyper and hypo glycemic episodes. Also importantly there is no evidence of encapsulated islet cell destruction by the immune reactions or allograph rejections. Based on the vast potential of the diabetes market, we continue to regard this as an attractive opportunity.

In closing, SurModics continues to deliver strong financial and operating results, producing record revenue and earnings, and completing several meaningful milestones by providing our customers with the world's foremost innovative surface modification and drug delivery technologies and products. We know that SurModics' value is measured by the results we achieve, and we intend to continue to deliver results that matter. Michael, that concludes our prepared remarks; we'd now like to open it up to questions.

Thank you, Sir. [Operator Instructions] Our first question is coming from Richard Rinkoff with Craig-Hallum. Please go ahead.

Thank you. First of all, on the tax rate, could you please elaborate on what the extra taxes were for? Should we view that as one time, and what's the fourth quarter tax rate likely to look like?

Rick, it's Phil. This is a bit of a complicated answer, because we're kind of in a new world relative to tax calculations. In the old world, there was an ability to sort of smooth an effective tax rate through addition and deletion from cushion and the like. In the world we're in now, several discrete items are typically affected in each individual quarter, and so the tax rate is likely to be more -- a little more volatile.

In this quarter, we had several items. They were things like disqualifying dispositions of ISO's, reversal of a specific tax accrual we had, truing up an ETI credit we have, and also truing up an NOL related to the InnoRx acquisition. And so, given the discrete items, those have at least in this quarter, the outcome of driving the effective tax rate up from sort of what would be a more normalized or expected tax rate of at least on a non-GAAP basis, 37.5%.

So bottom line, we should just assume 37.5% going forward and we should judge your performance this quarter, just reported, as if it had been 37.5%?

Yeah, that's not an unfair way to look at it. And as I said, it will tend to bounce around, but we certainly use that as a planning rate with our tax advisors.

Is that the same issue in the first quarter when your tax rate was low?

Yes.

Second area, you've announced a number of lubricious coatings on drug-eluting stents, including the J&J Cypher Select Plus. Could you give a range of the royalty rates? In other words, who's paying the lowest rate, who's paying the highest rate, and kind of update your statement before, that on average, presumably an arithmetic average, it's better than 1%?

No. Shorter answer is, until our customers publish those rates, I would be uncomfortable doing that, Rick.

Any answers to part of that question?

I really can't shed any light beyond what we've already disclosed publicly, which is that we have rates better than Cypher, and we have rates that are lower than Cypher. Until our customers publicize those, or at least approve our publication of those, we can't add anymore color to that.

And just to be clear as well, you know, the -- as of a quarter ago, we could talk about better than Cypher or worse than Cypher. Now we have the complicating issue of Cypher Select Plus with now two technologies from SurModics that will generate royalties for us. And so what Bruce is referring to there is the historical royalty for Cypher on just the drug delivery polymer technology, and we're comparing the rates on these other products to that sort of more historical run rate on that piece of the business.

Well, I'm assuming that we'll still accept 1% as the accepted Cypher rate. Could you comment on whether the lubricious coating rate is more or less than that 1%?

For Cypher Select?

For the Cypher Select Plus.

No, we can't comment on that.

Last question. As long as you're updating us on all of these numbers, could you tell us how the Donaldson thing is progressing, either revenue-wise through Corning or, and/or what the split might be for every dollar that Corning would take in?

We have no information that's new to pass on. The development teams continue to work extremely well, great progress is being made. The products have not been launched yet by Corning, and it is our hope that we can provide additional color on that in the near future. But at this point, other than those qualitative measures, I really can't pass anything on.

Okay, thanks.

Thank you.

All right. Thank you. Dan Owczarski with Belmont Harbor Capital has the next question, please go ahead.

Hi Bruce, Hi Phil, congratulations on the quarter.

Thank you, Dan.

A question Phil, about the royalties this quarter. Were there any one-time or large milestone payments within that number?

We had, as every quarter we do have modest amounts of milestone payments. We do not have any material ones this quarter.

And then as far as the Cypher Select Plus, obviously you'll see a bump in royalties, but would you see any meaningful bump in product sales as well, reagents or such?

I really can't answer that. I think that's probably a better question for Cordis and J&J. I know they believe, and certainly the information we've seen that's been published suggests that it is a much more deliverable device than the first-generation Cypher. So we would hope it would do well in the marketplace but we have no information that we can pass on that's more detailed than that.

I guess I'm thinking for to see, would you see any impact on your product sales?

Oh, I see.

The reality with reagents for hydrophilic technologies is it's an extremely efficient reagent consumption per unit type of technology, because of how thin the coatings are. And so in terms of dollars and equating them to units, our drug delivery polymer technology tends to require more polymer per finished product because of the process that's used there, as opposed to on hydrophilic where they tend to use less. So as the products are sold, absolutely we'd expect product sales to go up, but given the relatively speaking per unit lower consumption of hydrophilic reagents, we wouldn't expect that to be a material -- it would really depend on volumes.

Then is there anything else you can tell us about the AbbeyMoor product, how it compares to -- it sounds like it could be cleared any day; how does it compare to the existing alternatives that are out there and how is this product better?

The product that's in FDA right now is actually the device without a drug delivery technology on it, so this is the uncoated prosthetic stent. If your question is around that, you know, I think that's probably a better question directed to AbbeyMoor as well. I know that there is a substantial market need for minimally invasive approach to treating diseases of the prostate, and they think the uncoated version has good potential. Beyond that, this technology we're working with them on is in development right now.

Okay. And then just switching to I-vation, I know that in the past you've talked -- or your clinical trial addresses DME, but you've talked about DME and AMD. Is one of these more important for -- than the other right now, near term versus long term; or does one hold more immediate promise, that you -- are they different pathways? Are you focused on one or the other?

We've really looked at both as opportunities for back of the eye treatment. DME and AMD are both individually very large markets. The I-vation product that we own outright with triamcinolone is progressing through FDA for DME. We've had interest from customers with drugs for both AMD and DME, although I would say probably maybe a little bit more interest on AMD at this point. But, you know, frankly we'd be happy with either one.

If we had to choose one or the other I don't know that I could; we'd be happy with either one. They both have advantages, both large markets, and they both need sustained drug delivery platforms to be -- as compared to injectable formulations which are being used today.

Okay. Thank you.

Thank you.

Thanks, Dan.

Thank you, sir. (Operator Instructions) Ross Taylor with CL King has the next question. Please go ahead.

Hi, just two questions related to the hydrophilic business. First, in terms of the sequential growth you saw in the June quarter compared to the March quarter in your hydrophilic revenues, can you comment at all about which products or which partners might have contributed to that growth?

We don't really break out any particular customers in there. You know, it's a particularly in hydrophilics, it's an extremely broad-based group of customers that contributes to that. We have some customers that have grown nicely and have become really outstanding customers for us.

What we've commented in the past, that there are sometimes seasonal nature of certain items in the portfolio, and also some that do have the effect of tiers that can affect the quarter-to-quarter sequential comparisons. We had a little bit that's helping us there on that front, but I wouldn't say that's been the principal driver by any stretch of the imagination.

Okay. And second question related to the hydrophilic: obviously you guys have a bunch of large partners there in drug-eluting stents, and you have Fox Hollow, and you seem to be, maybe a partner of choice is a strong word, but people obviously seem to like the technology. How competitive is that market for hydrophilic coatings? Do you have much leverage in terms of pricing in hydrophilic coatings, because it appears that people do seem to want your technology there.

There are a number of critical success factors, I think, that make us the market leader in that business. The ability of the technologies to perform, obviously, is an important one. But to me, I think increasingly there are other factors that are important as well. We provide a technology that is very, very what I call manufacturing friendly. If you think about applying a hydrophilic coating on a shaft of a delivery system for a drug-eluting stent, where the volumes are what they are, they're huge, you've got to have a very system-friendly technology. It's, you know, solvent-free or at least aqueous solutions, room temperature, high yield, high throughput, access to service, which we provide, access to large scale manufacturing equipment which we can provide. We are certified as critical component suppliers to many of these companies, and so we've been certified by purchasing departments and quality organizations.

If you look at all those various, that we provide bridge-to-market coating capability, I mean, I can go on and on and on. If you look at all those characteristics, there is no company that can offer that breadth of customer services. I think that's what makes us successful, and we'll continue to build own that capability. We really, I think, as the comments reflected today, feel very, very bullish about what's going on in that business unit. I think for us to highlight today was important, not just because of the results, but it's something that maybe we don't talk enough about because of the other exciting opportunities, but it is a very, very important business of ours going forward.

Okay, good. Thanks very much.

Thank you.

Thank you, sir. Gentlemen, there are no further questions at this time. Please continue with any closing questions or comments.

Thank you, Michael. I just want to thank everybody again for participating in the conference call. We are pleased to have again delivered strong financial and operating results with record revenue and earnings. We look forward to speaking with you again when we announce our fourth quarter and fiscal year 2006 results. Thank you.

All right, thank you. Ladies and gentlemen, this does conclude the SurModics third quarter 2006 earnings conference call. You may now disconnect. Thank you for using AT&T Teleconferencing. Have a very pleasant rest of your day.