You certainly can’t accuse Bruce Barclay of standing still.
Since SurModics Inc. (NASDAQ: SRDX) named Barclay CEO in 2005, Barclay has reorganized the drug company’s business units, purchased land, signed licensing agreements, acquired several companies and expanded into ophthalmology and drug development.
Yet the company, based in Eden Prairie, Minn., still has little to show for its efforts — under Barclay, SurModics stock has lost more than half its value. So, perhaps it’s not entirely surprising that the company said late Tuesday that Barclay is leaving the company to become CEO of Hansen Medical Inc. in Mountain View, Calif.
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“SurModics’ earnings growth has deteriorated,” said Ernest Andberg, an analyst with Feltl & Co. in Minneapolis. “Its stock price is down. It doesn’t look like there has been any improvement in prospects over (Barclay’s) five years. He may have run out of time.”
When Barclay assumed control in 2005, he sought to move SurModics beyond its core cardiovascular business. At the time, the company generated most of its revenue from Johnson & Johnson, which licenses SurModics’ drug-delivering polymer coating technology for its Cypher stent. But Cypher sales have been dropping and with it, royalty revenue for SurModics.
In 2007, Johnson & Johnson accounted for 33 percent of SurModics’ total revenue. Last year, it made up only 11 percent of sales. Cypher-related royalty revenue fell 22 percent alone in 2008.
Under Barclay, the company expanded aggressively into ophthalmology, hoping to deliver drugs that can treat eye diseases like age-related macular degeneration and diabetes, both of which can cause blindness. The move seemed to pay off when in 2007, Merck & Co. and SurModics signed a major license and research collaboration agreement for SurModics’ I-vation intravitreal implant technology.
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Merck paid SurModics an upfront license fee of $20 million with the possibility of $288 million more if the company hit certain milestones. However, the following year, Merck terminated the agreement following a strategic review of its business.
SurModics managed to win a licensing agreement with Genentech last year that called for a $3.5 million upfront fee and the possibility of up to $200 million in future payments. But the deal hardly compensates for the loss of Merck, which accounted for 37 percent of Surmodics’ total revenue in 2009.
SurModics also expanded into pharmaceuticals and diagnostics. From 2007 to 2008, the company went on a buying spree, acquiring Brookwood Pharmaceuticals for $42.3 million, BioFX Laboratories Inc. for $11.6 million and intellectual property assets of PR Pharmaceuticals for $3.2 million.
SurModics also spent a hefty $41 million over three years to acquire and build a 280,000-square-foot pharmaceutical manufacturing facility in Birmingham, Ala., which opened just this January.
So what have all of these investments earned SurModics? Very little so far, analysts say.
In 2009, SurModics reported significant revenue losses in all of its business units, with the exception of ophthalmology. But most of that gain came from the now defunct Merck deal. For the six months of fiscal 2010, revenue is down nearly 50 percent from the same period a year ago.
SurModics also doesn’t offer any guidance to Wall Street and rarely speaks to the news media, making an opaque future even more uncertain for investors.
