The NEXT company in my ongoing series of the top 25 stocks for the NEXT 25 years is SurModics, Inc. (NASDAQ: SRDX). This Eden Prairie, Minnesota-based company has a current market capitalization of $650 million with a revenue run rate of $75 million. The company is actively involved in many next-generation medical technologies.
SurModics' mission is to provide leading-edge surface modifications and advanced drug delivery technologies and products. The company is divided into three distinct divisions: drug delivery, hydrophillic and In-Vitro. The drug delivery segment offers various technologies to site-specific delivery of drugs. Within this segment is the burgeoning ophthalmology division, which helps deal with serious eye diseases such as age-related macular degeneration. The hydrophillic segment has proprietary technologies for medical devices. It's a lubricious coating that allows for better placement and maneuverability of the actual devices. The In-Vitro division includes products for genomic slide technologies and stabilization products for immunoassay diagnostic testing.
SurModics sells its products to a whole host of medical device and life sciences companies. The hydrophillic business segment will normally have a very long term commitment with its medical device customer, as SurModic will specifically formulate the lubricant to compliment the device company's requirements to satisfy the US Food and Drug Administration (FDA). The same with the two other divisions as SurModics is usually involved early on in the development and FDA approval process.
The ophthalmology division has the potential for exponential growth as serious eye disease is an increasingly common medical affliction in an aging population. As the incidence of diabetes increases in an aging baby boomer set, SurModics is involved in the research and development of treating diabetic macular edema. As the treatment enters Phase III clinical work, SurModics has arranged for a long-term royalty structure.
I estimate SurModics to generate revenues this year ending September 30, 2007 of $75 million with earnings per share of $1.40. For the fiscal year ending September 30, 2008, I believe SurModics will generate revenues of $85 million with earnings per share of $1.63. The hyper-growth stage could begin in mid to late 2008 as the opthalmological products gain a strong foothold in the medical market place. Normally, once a company has attained FDA approval, other nations tend to follow quite quickly. With macular-degeneration unfortunately being a "growth illness" unto itself, the opportunity for SurModics is enormous.
The other divisions of SurModics will also provide solid and consistent growth. With all of the development and cutting edge work that SurModics is involved with, this company has a strong opportunity to be a top 25 stock for the NEXT 25 years.
Georges Yared is the CIO of Yared Investment Research.
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