Replies to post #1808 on SurModics Inc (SRDX)

[skiplarson98]

Oh, I did ask someone from invitro who had been with the company about 5 years whether they regretted selling the Bloomington facility. He said that it was too large for them and that their strategy changed after Bruce came aboard in that they no longer chose to engage in the relatively low margin manufacturing business. He seemed to feel there was plenty of room for manufacturing the reagents (and I suppose retinal tacks) at the Eden Prairie site. I'm not quite sure how to reconcile the new Eden Prairie building (which was described as being a couple of blocks away), with that assertion. Or the allusions to manufacturing various products for the Merck contract. I gather the new facility is sort of thought of as the base for the Merck funded Ivation efforts.

The various tentacles developing all over SRDX are fun and exciting, but I find myself wondering how they can be effectively managed. Relationships with just about everybody. Brookwood and SRDX people are striving to meet each others' customers as pairs. Necessary, but something someplace is going to be a problem.

Oh, I met the new head of business development. I remember thinking how much Phil was taking on his plate when he was given that responsibility along with his financial duties. Now it has been offloaded.

I hope there is something in here of value to you and that I've not inadvertantly revealed any proprietary information. This company still seems quite extraordinary to me.

Best, L.

[DewDiligence]

>I could be mistaken, but I believe Bruce indicated that this announcement falls within the potential $288mm mentioned in the original licensing agreement.<

You’re correct—he did say that potential milestones under the “new” license fall within the $288M figure.

>given the accounting treatment, it will result in more amortised R&D revenue offset by even greater R&D expense for the next few quarters.<

Maybe not! My supposition has been that SRDX was already being paid by MRK for the “new” license and that the unusual accounting treatment (which, as you noted, violates the spirit of GAAP) was selected by SRDX in order to mask the nature the MRK’s payments from investors. If I’m correct, the total payments from MRK will not go up much (maybe not at all) because some payments for the “new” license were already in the mix during the past few quarters.

[Democritus_of_Abdera]

Skip... Thanks for the personal account regarding the annual meeting...

I want to go to a SRDX annual meeting sometime, but hesitate at the travel costs.

Like you, I find that “the various tenacles developing all over SRDX are fun and exciting”. I am confident that they will be effectively managed. My respect for the management team started high and has steadily grown over the years that I have been following the company.

In this regard, I have been reading Ken Melrose’s book “Making the Grass Greener on Your Side”. He espouses a very refreshing leadership style; I see many elements of his philosophy in the way Bruce has been running SRDX. The convergent themes are numerous, but one that relates to Bruce’s constant focus upon status regarding his seven strategic growth initiatives is Melrose’s argument that you develop trust with your constituents by clear statements of your plans followed by repeated and consistent updates and ultimate fulfilment.

I do not agree with David Borah’s concern about executive compensation. I have read the detailed guidelines and philosophies underlying the compensation packages as described in the 12/20/2007 DEF 14A Proxy statement, and find them fair to both the employees and the shareholders (see #msg-25464182). However, David’s concern counts since he represents a substantial investor (i.e. Century Capital Management holds about 3.5% of the total outstanding shares as of 9/30/07).

I strongly agree with Don Anderson’s statement that SRDX “did a woppingly good job on cash flow” in the face of a relentless drop of revenues from JNJ.

If I had been at the meeting I would like to have gotten a measure of the character strengths of the various board members.

[Democritus_of_Abdera]

Re Annual Mtg on Feb 7...

I’m planning on going to the Annual Mtg this year... It will be the first time, as I have never been able to justify the expense of travel and lodging before (approx $500). Personal contact helps me get judge character (albeit sometimes limited contact in stereotyped situations are of limited value). The recent changes in leadership throughout the company and board will have a significant impact on the future of the company (in my opinion). My evaluation of the character and commitment of the various players will impact my investment decisions.

I doubt that I will be able to make any meaningful conclusions from the brief exsposue to personnel at an annual meeting, but who knows....

I’m particularly interested in estimating whether or not Phil Ankeny and Arthur Tipton are still energetically engaged with the company.... Often, interim leaders, such as Ankeny, become exhausted when assuming new responsibilities of leadership without relinquishing the full time responsibilities they already have... and leadership inevitably generates enemies (or resentments) which linger after the interim stint has ended and which diminish the satisfaction one gets from their job.... With respect to Tipton, I imagine that he might feel that the decision to seek strategic alternatives for the Company’s Pharmaceuticals business has left him high and dry...

I’m also interested in getting a sense of the character of the Ramius Directors and if they will be constructive or destructive in their interactions with the old guard.

Skip, you have attended these meetings over the years... Are you planning on going to this one?