SurModics Inc. is a leading provider of surface modification technologies in the areas of biocompatibility site specific drug delivery biological cell encapsulation and medical diagnostics. SurModics partners with the world\'s foremost medical device pharmaceutical and life science companies to bring innovation together for better patient outcomes. Recent collaborative efforts include the implementation of SurModics\' Bravo drug delivery polymer matrix as a key component of the first-to-market drug-eluting coronary stent. SurModics is also active in the ophthalmology market with a sustained drug delivery system that is currently in human trials for treatment of retinal disease. A significant portion of SurModics\' revenue is generated by royalties earned from the sale of our customers\' commercial products. SurModics Inc. has a market cap of $376.3 million; its shares were traded at around $21.54 with a P/E ratio of 19.2 and P/S ratio of 3.8. SurModics Inc. had an annual average earning growth of 41.3% over the past 10 years.
Highlight of Business Operations:Research and development expenses. Research and development expenses were $7.6 million for the third quarter, a decrease of 27% compared with $10.5 million for the third quarter of fiscal 2008. The decrease principally reflects lower compensation expense as a result of lower headcount, which has decreased by 19 and 18 employees compared with June 30 and September 30, 2008, respectively, lower outlays for project-related materials, and the benefits of a more centralized research and development function in connection with our November 2008 restructuring. Compensation expense has decreased approximately $1.1 million as a result of the lower headcount. Lower project activity has reduced material costs by approximately $1.2 million, including $0.5 million of out-of-pocket expenses associated with our Merck projects in the third quarter of fiscal 2008, which were not incurred in the third quarter of fiscal 2009 as a result of the termination of the Merck agreement in December 2008.
Other income. Other income was $0.8 million in the third quarter of fiscal 2009, compared with $0.6 million in the third quarter of fiscal 2008. Income from investments was $0.4 million, compared with $0.7 million in the prior-year period. The decrease primarily reflects lower investment balances. In fiscal 2009, other income included $0.4 million from realized gains in our investment portfolio.
We recorded total restructuring charges of approximately $1.8 million in connection with the reorganization. These pre-tax charges consisted of $0.5 million of severance pay and benefits expenses and $1.3 million of facility-related costs. Costs totaling $0.7 million have been paid and we anticipate paying the remaining $1.1 million within the next eighteen months.
Other income. Other income was $1.8 million in the first nine months of fiscal 2009, compared with $3.5 million in the first nine months of fiscal 2008. Income from investments was $1.5 million, compared with $2.7 million in the prior-year period. The decrease primarily reflects lower investment balances and lower yields on investments during the past several months. We also recognized gains of $0.8 million on our investment portfolio in fiscal 2009, partially offset by our pro rata net loss on our equity method investments. In fiscal 2008, other income included a $1.0 million gain on our investment in ForSight Newco II, which was acquired by QLT Inc. in October 2007. Partially offsetting this gain was our pro rata net loss on our equity method investments.
As of June 30, 2009, the Company had working capital of $29.7 million. Working capital decreased $4.3 million compared with September 30, 2008, driven principally by lower cash and cash equivalents balances, lower accounts receivable and lower prepaid balances, partially offset by lower deferred revenue following the termination of the Merck agreement. Our cash, cash equivalents and short-term and long-term investments totaled $51.5 million at June 30, 2009, a $20.5 million decrease from $72.0 million at September 30, 2008. The decrease is primarily a result of our investment in property, plant and equipment of $21.7 million in the nine months ended June 30, 2009. The Companys investments principally consist of U.S. government and government agency obligations and investment grade, interest-bearing corporate debt securities with varying maturity dates, the majority of which are five years or less. The Companys policy requires that no more than 5% of investments be held in any one credit issue, excluding U.S. government and government agency obligations. The primary investment objective of the portfolio is to provide for the safety of principal and appropriate liquidity while meeting or exceeding a benchmark (Merrill Lynch 1-3 Year Government-Corporate Index) total rate of return. Management continues to direct its investment advisors to manage the Companys investments primarily for the safety of principal for the foreseeable future as it assesses other investment opportunities and uses of its investments.
As of June 30, 2009, we had no debt outstanding. We believe that our existing cash, cash equivalents and investments, together with cash flow from operations and availability under the revolving credit facility, will provide liquidity sufficient to meet our needs for the foreseeable future. Our remaining anticipated liquidity needs for fiscal 2009 include, but are not limited to, the following: capital expenditures related to our Alabama facilities in the range of $5 million to $7 million; general capital expenditures in the range of $2 million to $4 million; any amounts associated with contingent consideration payments related to our acquisitions of SurModics Pharmaceuticals, BioFX or PR Pharmaceuticals; and any amounts associated with the repurchase of common stock under the authorization discussed above.
Read the The complete ReportSRDX is in the portfolios of PRIMECAP Management.