As Surmodics is forced to delay the launch of its SurVeil drug-coated balloon by several months at least, erasing some expected earnings from its 2023 forecasts, the company is looking to cut costs in other areas.
Among those cost-cutting moves is a workforce reduction of approximately 13%, Surmodics announced this week in its first-quarter earnings report. With 447 employees as of Sept. 30, per the devicemaker’s 2022 annual report (PDF), that could add up to layoffs of nearly 60 workers.
“These workforce reductions are intended to streamline and refocus the teams in several areas of our business, including manufacturing and operations, R&D and clinical, sales operations and our direct sales force, so that we can continue to execute our growth strategies more efficiently in fiscal ’23,” CEO Gary Maharaj said on a call with investors on Monday.
The layoffs will churn up one-time severance costs between $1 million and $1.2 million, the majority of which will register on the balance sheet for the company’s second fiscal quarter, which ends March 31, CFO Timothy Arens said on the call.
In addition to cutting its staff and pausing planned hiring efforts, Surmodics will also reduce its capital expenditures and refocus its investments and R&D work “to prioritize progress,” according to Maharaj, including by placing holds on the development of new devices that may have “a longer path to commercialization.”
“Implementing the spending reduction plan and the related adjustment in our staffing levels was a very difficult decision for us, and in no way is it a reflection of the incredible talents and hard work of our team members during their time at Surmodics,” the CEO said. “Ultimately, this is a decision that we believe is both appropriate and necessary for the longer-term success of our company and the benefit of all of its stakeholders.”
In total, Surmodics is expecting the cost-cutting actions to reduce its cash use by between $10 million and $11 million for the rest of the fiscal year, which ends Sept. 30. For reference, the company posted a net loss of more than $17 million in cash used on operating activities in 2022, contributing to a total net loss of nearly $27.3 million for the year.
In the first quarter of its fiscal 2023 alone, Surmodics reported spending $11.8 million in cash on operating activities and capital expenditures, against revenues of just under $25 million. In this week’s earnings report, the company slightly lowered its 2023 forecast, with revenues now expected to land between $102 million and $106 million—only $1 million below each end of its previous range and representing year-over-year growth of up to 6%.
The cost-cutting measures come as Surmodics passed the deadline for a $30 million milestone payment from licensing partner Abbott and stands to miss out on additional potential revenues from its SurVeil drug-coated balloon this year, since the FDA last month sent back the device’s premarket approval application with a request for more information.
During this week’s call, Maharaj reiterated that the FDA’s request doesn’t call for any additional human testing of the device; instead, Surmodics must tweak some of the language in its labeling and may also have to re-run some of its biocompatibility tests in small animals.
Surmodics is now in the process of crafting a response to the FDA’s letter and is hoping to receive feedback on its proposed approach by May, Maharaj said. If testing starts immediately after that and the FDA is quick to rule on the resubmission, the SurVeil device could potentially be approved by the end of this year—though the CEO refrained from speculating on timing during the call and noted that the FDA can take up to 180 days to respond to a submission.
“Clearly, we are working as fast as we can, and if there's a way to get this before the end of the calendar year or earlier, we would be using every angle,” he said.
If the approval does arrive before the end of 2023, Surmodics will be eligible for a $24 million milestone payout from Abbott—and in fact, even if it misses that deadline, too, “we remain entitled to this $24 million milestone payment following the receipt of the PMA approval, provided that Abbott chooses to commercialize the product and does not exercise their right to terminate the agreement,” Maharaj told investors.