SurModics Inc (SRDX)

[Democritus_of_Abdera]

Impairment loss for OctoPlus holdings...

In the recent CC, Phil Ankeny stated that SRDX recorded a onetime non-cash loss on SRDXs investment in OctoPlus. This mark-to-market impairment amounted to $4.3 million, or approximately $0.24 per diluted share; a substantial hit to quarterly earnings. Taking into account the impairment loss, SRDX generated a net loss for the quarter of $0.8 million. Diluted earnings per share was a loss of $0.05. Note that the original investment in OctoPlus was $6.0M.

This impairment, though prudent and consistent with the mark-to-market mania currently extant, was premature in my opinion. OctoPlus’ stock price, like that of many small biotechs, varies widely. The current low price of about $1/share does not portend OctoPlus’ demise. Indeed, OctoPlus recently signed a new multimillion-dollar licensing deal (see Bridge’s post: #msg-32924615). This was an important milestone for OctoPlus. It allows the company to be cash flow positive from Oct 1, 2008 onwards. And an associated $11M euro upfront payment stabilizes its financial position.

SRDX still owns the OctoPlus shares that have now been written down. The OctoPlus investment is accounted for as an available-for-sale investment and SRDX reports unrealized gains and losses as a separate component of stockholders’ equity. Now that the impairment has been recorded, I expect the unrealized gains/losses to swing even more dramatically than in the past.

In that information about OctoPlus is not easy to find, I have prepared a “Read Me First” file indexing information that has been posted on iHub about OctoPlus. It is accessed in the SRDX ibox.

As an aside, when OctoPlus was discussing its performance for the 1H08, it mentioned that its decrease in Products & Drug Delivery revenues was due in part to lower license revenues from the ongoing contract with SurModics.

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OctoPlus’ share price can be accessed at http://www.octoplus.nl/index.cfm/octoplus/investor-relations/corporate-governance/index.cfm .

Discussion of OctoPlus’ 1H08 performance can be accessed at
http://www.octoplus.nl/index.cfm/octoplus/news-centre/news-releases/index.cfm?news-article=octoplus-announces-2008-first-half-year-results-and-publication-of-2007-annual-report

Note: I can access information on the octoplus website if I hold down the alt key when clicking the links, keeping the alt key depressed until the page has finished loading.