Surmodics Reorganization Results in Layoffs

Surmodics Inc. is cleaning house, figuratively speaking.

The Eden Prairie, Minn.-based company is cutting 13 percent of its workforce and restructuring its business in a move designed to save between $3 million and $3.5 million annually. The company, which specializes in drug delivery and surface modification coating technologies, is reorganizing its business into three separate units: medical devices, pharmaceuticals and in-vitro diagnostics.

Company executives claim the reorganization is designed to better align company resources with “more immediate business opportunities.” It also will help improve sales as well as support shared services cost synergies.

“We’ve made a difficult, but necessary decision as a result of factors affecting our business. These actions will bring operating expenses more in line with revenue and enable us to achieve our near- and long-term goals,” said Philip D. Ankeny, SurModics’ interim CEO, senior vice president and chief financial officer. “Rightsizing the business provides SurModics with the flexibility to make investments and pursue growth opportunities in our medical device and in vitro diagnostics businesses, while positioning the company for long-term success in our pharmaceuticals business. Moreover, the new structure aligns our organization with the unique customer bases, technologies, development timelines and markets served within each of our business units.”

Ankeny said the restructuring will enhance the company’s accountability, improve its efficiency and allow executives to more efficiently deploy resources.

According to Surmodics, the three new business units target different markets and will handle different product lines. The composition of each unit also will vary:

• Medical Device—Will be comprised of surface modification coating technologies to improve access, deliverability, and predictable deployment of medical devices, as well as drug delivery coating technologies to provide site-specific drug delivery from the surface of a medical device. End markets include coronary, peripheral, and neuro-vascular, and urology, among others.
• Pharmaceuticals—Will incorporate a broad range of drug delivery technologies for injectable therapeutics, including microparticles, nanoparticles, and implants. Customers include pharmaceutical and biotechnology companies addressing a range of clinical applications including ophthalmology, oncology, dermatology and neurology, among others. Based in Birmingham, Alabama, the Pharmaceuticals business includes the Company’s cGMP manufacturing facility.
• In Vitro Diagnostics—Will consist of component products and technologies for diagnostic test kits and biomedical research applications. Products include microarray slide technologies, protein stabilization reagents, substrates, and antigens.

“In the midst of conducting SurModics’ annual strategic planning review, it became apparent that the businesses in which we compete would be best served by a more focused business unit approach that is designed to drive improved profitability,” added Robert C. Buhrmaster, SurModics’ board chairman. “These changes better position SurModics for both financial and operational success.”

The workforce reduction is expected to result in the elimination of about 30 jobs. The cuts come about seven months after the company slashed 11 positions in another restructuring that reached the top echelon of management. In that realignment (which occurred in March), the company hired Eugene Rusch and Joseph Stich as vice presidents. Both have experience in the pharmaceuticals industry. Paul Lopez, president of the company’s ophthalmology division, and two other managers, left the firm. In addition to those moves, executives announced that the company would move manufacturing of a product line from Maryland to Eden Prairie and close a sales operation in Irvine, Calif.

Both reorganizations occurred amid a lackluster year at Surmodics. The company lost $916,000, or 5 cents per share, in the third quarter (ended June 30); during the same period last year, it posted a profit of $3.5 million, or 20 cents per share. The latest restructuring will result in a one-time charge for Surmodics ranging from $1.3 million to $1.7 million during the first quarter of fiscal 2011.