SurModics plunges as Merck ends deal

Sep 19, 2008 (Pioneer Press - McClatchy-Tribune News Service via COMTEX) -- MRK | Quote | Chart | News | PowerRating -- Sep. 19--Shares of Eden Prairie-based SurModics dropped more than 21 percent Thursday after pharmaceutical giant Merck & Co. discontinued a research collaboration on eye implants with the company.

The Merck agreement was key to diversification efforts at SurModics, which has generated much of its revenue over the years from making a polymer used on drug-coated stents for the heart artery -- a big but struggling market.

SurModics said after Wednesday's market close that a strategic review at Merck culminated in the decision to discontinue the collaboration agreement. First announced in June 2007, the deal included an upfront licensing fee of $20 million for SurModics and made the local company eligible for up to an additional $288 million in future payments.

The companies had planned to develop an implant that could deliver drugs directly to the eye for common ailments such as macular degeneration. But in August, signs of trouble emerged when Merck said it was suspending a clinical trial of the experimental device to evaluate the study's design.

Merck's decision was based not on concerns about the safety nor the effectiveness of the implant being developed, SurModics said.

"We understand and respect that our partners must undertake strategic reviews which on occasion result in a change of focus or even the discontinuation of projects," said SurModics CEO Bruce Barclay in a news release. He said the company continues to seek other partners for developing

eye implants.

Charlie Jones, an analyst with Barrington Research in Chicago, wrote in a note Thursday that he expected SurModics would make good on its pledge to forge other partnerships. But the collapse of the Merck agreement likely would delay any such announcement for at least 90 days, Jones wrote, when the Merck collaboration is legally terminated.

Merck's decision triggered an additional $9 million payment to SurModics. But that provided little solace to shareholders, as the stock closed Thursday down $8.39, at $30.72.

Christopher Snowbeck can be reached at 651-228-5479.

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