Surmodics(SRDX) - 2021 Q4 - Annual Report

Forward-looking Statements This section outlines the nature of forward-looking statements, their inherent uncertainties, and key factors that could cause actual results to differ Forward-looking Statements Content This section outlines the nature of forward-looking statements, which are not strictly historical facts but rather expectations or forecasts of future events. It highlights various areas where such statements apply, including the impacts of COVID-19, clinical studies, growth strategies, product development, regulatory approvals, financial projections, and potential risks. Investors are cautioned against undue reliance on these statements due to inherent risks and uncertainties - Forward-looking statements cover expectations regarding the impacts of the global COVID-19 pandemic, clinical studies (results, timing), growth strategies (license agreements, product launches), future product attributes, regulatory submissions and approvals, potential milestone payments (e.g., SurVeil™ DCB), future revenue growth, clinical investment plans, gross margins, operating expenses, cash flow, and potential lawsuits[12] - Key factors that could cause actual results to differ materially include the impacts of the COVID-19 pandemic on revenue and operations, reliance on significant customers (Abbott, Medtronic), clinical and regulatory developments for paclitaxel-coated products (like SurVeil DCB), general economic conditions, liquidity, new product development and approval processes, effectiveness of operating expenses for new technologies, acquisition integration, and other risks detailed in 'Risk Factors'[13][14] Part I This section covers the company's business operations, risk factors, properties, legal proceedings, and executive officer information Item 1. Business Surmodics, Inc. is a leading provider of surface modification technologies for intravascular medical devices and chemical components for in vitro diagnostic (IVD) tests. The company's core strategy is to develop and commercialize highly differentiated medical devices, leveraging its expertise in surface technologies and device manufacturing. It operates through two reportable segments: Medical Device and In Vitro Diagnostics, with primary revenue sources from product sales, royalties & license fees, and research & development services - Surmodics' mission is to improve the detection and treatment of disease, focusing on surface modification technologies for medical devices and chemical components for IVD tests[15] - The company operates two reportable segments: Medical Device (surface modification coatings, drug-delivery coatings, vascular interventional medical devices) and In Vitro Diagnostics (components for immunoassay and molecular tests)[16][17][18] - Primary revenue sources include IVD segment chemical component sales, Medical Device segment reagent chemical sales, vascular intervention medical device sales, royalties from licensing surface modification and medical device technologies, and license fees (e.g., SurVeil™ DCB agreement with Abbott)[19] Medical Device Segment The Medical Device segment focuses on developing a portfolio of highly differentiated vascular intervention products and commercializing surface modification coating technologies through licensing. Key product platforms include drug-coated balloons (DCBs), mechanical thrombectomy devices, and radial access devices, all designed to address unmet clinical needs and improve patient outcomes. The segment also generates significant revenue from licensing its proprietary coating technologies to other medical device manufacturers - The Medical Device segment's strategy is to develop and commercialize highly differentiated vascular intervention products for large, under-penetrated markets, leveraging its surface modification coating technologies and device design capabilities[22][25] - The segment's product pipeline includes Drug-Coated Balloons (DCBs) for peripheral artery disease (PAD) and arteriovenous (AV) fistulae, mechanical thrombectomy devices for clot removal, and radial access devices for lower extremity interventions[25] - Surface modification coating technologies, including PhotoLink™ and Serene™ hydrophilic coatings, are commercialized through licensing agreements, generating royalties and reagent sales. These coatings enhance device performance (lubricity, biocompatibility, drug-delivery)[25][56][58][61][63] Vascular Intervention Products This section details the company's proprietary vascular intervention medical device products, including drug-coated balloons (DCBs), mechanical thrombectomy devices, and radial access devices. It outlines their development stages, regulatory approvals, and strategic partnerships, emphasizing the goal to capture more revenue and operating margin than through licensing alone - The company's strategy for vascular intervention products is to develop and manufacture its own proprietary devices, leveraging surface modification coating technologies and engineering capabilities, to increase relevance and capture more revenue/operating margin[25] Drug Coated Balloons (DCBs) Surmodics has developed multiple DCB devices, including SurVeil DCB (paclitaxel-coated for PAD, EU approved, US PMA pending with Abbott partnership), Sundance™ DCB (sirolimus-coated for below-the-knee PAD, Breakthrough Device designation, SWING study complete), and Avess™ DCB (paclitaxel-coated for AV fistulae, promising early safety data). The SurVeil DCB is a key focus, with a potential $30 million milestone payment from Abbott upon FDA PMA - SurVeil DCB, a paclitaxel-coated balloon for PAD, has received CE Mark approval for EU commercialization and met primary safety and efficacy endpoints in the TRANSCEND pivotal clinical trial. The PMA application for U.S. approval is in its final stages, with additional data requested by the FDA[26][31] - Abbott holds exclusive worldwide commercialization rights for SurVeil DCB and has made $60.8 million in upfront and milestone payments as of September 30, 2021. An additional $30 million (or $27 million if after Dec 31, 2022) milestone payment is contingent upon FDA PMA[29][32] - Sundance DCB, a sirolimus-coated balloon for below-the-knee PAD, received FDA 'Breakthrough Device' designation. The SWING first-in-human clinical study is complete, with the clinical report expected in Q1 fiscal 2022[26][35][36] - Avess DCB, a paclitaxel-coated balloon for AV fistulae in ESRD patients, showed promising early safety and performance in its first-in-human study. Further clinical investment strategy will be informed by the SurVeil DCB PMA process[27][37][38][39] Thrombectomy Devices The company has developed two FDA 510(k) approved mechanical thrombectomy devices: Pounce Arterial Thrombectomy System for arterial clots in legs and ReVene Venous Thrombectomy Catheter for venous clots. These devices aim to provide effective, cost-efficient, single-session clot removal, potentially reducing the need for thrombolytics. The ReVene device was acquired through the Vetex Medical Limited acquisition in fiscal 2021 - Pounce Arterial Thrombectomy System received FDA 510(k) clearance in fiscal 2020, with an indication expansion in fiscal 2021 for smaller vessels (down to 3.5 mm), expanding its applicability to infrapopliteal arteries. Clinical product evaluations show positive results, with minimal blood loss and thrombolytic use[42][44][222] - ReVene Venous Thrombectomy Catheter, acquired via Vetex Medical Limited in fiscal 2021 for $39.9 million upfront, received FDA 510(k) clearance and CE Mark approval. It's designed for large, mixed-morphology blood clots in venous vascular beds, aiming for single-session treatment without capital equipment[45][46][215][216][222] - Process and manufacturing validations for ReVene Venous Thrombectomy Catheter are ongoing through Q2 fiscal 2022, with clinical product evaluations expected to start in H2 fiscal 2022. The company intends to pursue regulatory actions to expand its field of use to DVT, PE, and ischemic stroke[47][49][222] Radial Access Devices Surmodics has developed the Sublime portfolio of radial access devices, including a guide sheath and PTA dilatation catheters, which have received FDA 510(k) approval. These devices are designed for peripheral interventions via radial (wrist) access, offering benefits like improved patient comfort, reduced recovery times, and lower access site complications. Clinical product evaluations have shown strong performance and physician interest, leading to initial commercial orders - The Sublime portfolio includes a guide sheath and .014 RX and .018 RX PTA Dilatation Catheters, all FDA 510(k) approved and purpose-built for above- and below-knee peripheral interventions via radial or transfemoral access[50][52] - Key advantages include the Sublime Guide Sheath's 5F profile up to 150cm length for minimal radial artery spasm and superior trackability, and the Sublime .014 RX PTA Dilatation Catheter being the longest of its kind in the U.S. market (250 cm) for challenging lesions[53] - Clinical product evaluations in fiscal 2021 yielded positive physician feedback, leading to requests for commercial access and orders. The company expects modest but growing revenue from Sublime and Pounce products starting in Q3 fiscal 2022, with potential long-term commercialization