SurModics' CEO Hosts Annual Shareholder Meeting (Transcript)

| About: Surmodics, Inc. (SRDX)
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SurModics, Inc. (NASDAQ:SRDX) Annual Shareholder Meeting Call February 4, 2014 5:00 PM ET


Bob Buhrmaster - Chairman

Bryan Phillips - General Counsel and Corporate Secretary

Gary Maharaj - President and Chief Executive Officer

Andy LaFrence - Vice President, Finance and Chief Financial Officer

Bob Buhrmaster - Chairman

Good afternoon. Welcome. My name is Bob Buhrmaster, I’m the Chairman of the SurModics Board of Directors and on behalf of the entire board I welcome you to the 2014 Annual Meeting of Shareholders. We are again pleased to be able to host this year’s Annual Meeting at the company’s corporate headquarters and we very much appreciate your attendance today.

I would also like to extend a special welcome to those listening to the meeting via the webcast. As you can see from our agenda, following the introduction of the members of our Board of Directors, we will conduct the formal portion of our meeting. Our President and Chief Executive Officer, Gary Maharaj will then introduce the company’s Executive Officers and certain special guests that are present here today. Our VP, Finance and Chief Financial Officer, Andy LaFrence will spend a few moments highlighting our financial results and Gary will provide an update on our business and key strategic initiatives underway at the company.

I’d now like to introduce the independent members of our Board of Directors. As I call each board member to please stand, but please hold your applause until the last director has been introduced. Our independent directors are Jose Bedoya, John Benson, Mary Brainerd, David Dantzker and Gerry Fischer who are unable to be with us today, Su Knight and Scott Ward. Please join me in thanking these directors.

As you know, effective at the conclusion of this meeting and with my retirement from the Board of Directors, Scott Ward will assume the chairmanship. I am confident that this is the right time to pass the baton and that Scott is the right person to guide SurModics in the future. Company is very fortunate to have someone with such sterling credentials, extensive expertise and deep knowledge of the company’s business in the industries in which it operates. On a personal note, serving as a board member has been a very rewarding experience for me. I am proud of the company’s accomplishments and excited to watch its future progress.

With that, I will now call our 2014 Annual Shareholders Meeting to order. I would like to introduce Bryan Phillips, General Counsel and Corporate Secretary who will conduct the formal portion of today’s meeting. Bryan?

Bryan Phillips - General Counsel and Corporate Secretary

Thank you, Bob and good afternoon shareholders. We will now conduct the formal business as set forth in the Notice of Meeting and proxy statement, which was mailed to all persons who are shareholders as of our record date which was December 6, 2013. We previously received an affidavit of distribution that establishes that notice of this meeting was duly given. The count of shares present immediately prior to the commencement of the meeting indicated that more than 12.6 million shares or approximately 92% of our common stock is represented in person today or by proxy. Therefore, we have a quorum. Because the notice of this meeting was duly given and a quorum is present, this meeting is duly convened for purposes of transacting the business to properly come before it.

Let me note that most shares are voted by proxy. And if you desire to vote in person, you may approach one of the designated individuals located in the rear of the room to obtain a voting card. There are four proposals to be considered during this meeting all of which were described in detail in the proxy statement which was earnest to shareholders. The first item of business is the Election of Class III Directors. The Board has selected Jose Bedoya and Su Knight as its nominees for election as Class III Directors. Those shares which were voted by proxy consisting of a plurality of the shares that are present at this meeting have voted in favor of this proposal. Consequently, these two nominees have been reelected.

The second item of business is the determination of the number of directors to constitute the board. The proposal before the meeting is that the number of directors be set at eight. Those shares that were voted by proxy consisting of a majority of the shares represented at this meeting have voted in favor of this proposal. Consequently, the proposal has been approved.

The third item of business is the ratification of the appointment of Deloitte & Touche to serve as the company’s independent registered public accounting firm for the company’s 2014 fiscal year. Those shares being voted by proxy consisting of the majority of the shares represented at this meeting have voted in favor of this proposal. Consequently, the proposal has been approved.

And finally, the fourth item of business relates to the non-binding advisory vote of the company’s executive compensation programs. Those shares being voted by proxy consisting of a majority of shares represented at this meeting have voted in favor of this proposal. And consequently, this proposal has received the non-binding advisory approval of our shareholders. The final tabulation of these votes will appear in a Form 8-K which we will file with the SEC within four days of today’s meeting. And this concludes the formal portion of our 2014 Annual Shareholders Meeting.

Before I turn the meeting over to Gary, let me remind you that some of the statements made at this meeting maybe considered forward-looking. The company cautions investors that results of future operations may differ from those anticipated. We urge you to review the cautionary statements and other information contained in the company’s filings with the SEC including on our Annual Report on Form 10-K which was filed for our fiscal 2013, which identify certain factors that could cause actual results to differ materially from those projected in any forward-looking statements made during this meeting. Copies of the 10-K and other filings are available through the company or online at our website.

And with that, I will now turn the meeting over to Gary. Thank you.

Gary Maharaj - President and Chief Executive Officer

Thank you, Bryan. Welcome everyone and thank you for coming and also for listening in on the webcast. Before I introduce our officers and guests, I first want to say a few words about Bob Buhrmaster and his last annual meeting for SurModics. Bob played a significant role in positioning our company for future growth. And there is no doubt that he will be missed. On a personal note, I want to thank Bob, it’s my third year as the CEO and his support and guidance apart from being the Chairman has made all of the difference. So thank you. I also want to thank you for your outstanding leadership in all of your years here and wish you all the best in the future.

I also want to welcome Scott Ward to his new role of Board Chair, because the bio had to convince a little bit as that will hit the high points, but as I give my CEO remarks later, you will understand how Scott is directly relevant in this capacity on a go-forward basis. Scott is the Managing Director of SightLine Partners. He was most recently Senior Vice President and President of the Cardiovascular Business of Medtronic Inc. and previously he served as the Senior Vice President and President of Medtronic Neurological and Diabetes; Vice President and General Manager of the Medtronic Drug Delivery Business and Director of Medtronic NeuroVentures. Scott has been the Director of SurModics since 2010. He serves on the board of Impedimed and Cardiovascular Systems Incorporated. He also is Chairman of the Board of Creganna-Tactx Medical and Gillette Children's Specialty Healthcare. Scott, I very much look forward to working with you in your position. Your experience is directly relevant to our future strategic intent. I hope to clear that up for our shareholders before the end of this meeting. So welcome and thank you.

So the fine-looking bunch of executives, I am going to introduce next. Let’s introduce them. Please stand when your name is called and we will hold applause to the last person. Tim Arens, Vice President of Corporate Development and Strategy; Andy LaFrence, Vice President of Finance and Chief Financial Officer and he also heads up our Operations and Information Systems functions; Charlie Olson, Senior Vice President and General Manager of Medical Device business; Bryan Phillips, Senior Vice President, General Counsel and Secretary to the Board; Bryan also heads up our Human Resource functions; and Joe Stich, Vice President and General Manager of our In Vitro Diagnostics business. Each of our officers will be available following today’s meeting for you to meet. Thank you gentlemen.

I would also like to introduce some additional people important to our business. Again, please stand when your name is called. First, please welcome Douglas Long and Nicole Leimer. They are partners at a law firm, Faegre Baker Daniels, headquartered here in Minneapolis, our outside Legal Counsel. Please also welcome Jason Flynn, partner and John Manders, Audit Senior Manager with our independent auditors, Deloitte & Touche. We are happy to have all of you here with us today.

At this point, I’d like to turn the meeting over to Andy LaFrence for a recap of our fiscal year 2013 financial results and our first quarter fiscal 2014 results. Andy?

Andy LaFrence - Vice President, Finance and Chief Financial Officer

Thank you, Gary. Good afternoon, I thank all of you for joining us today. Before I present our financial results from continuing operations for our first quarter of fiscal 2014, let me first recap several of our key financial highlights from the past year. Our fiscal 2013 revenue was within and earnings per share performance exceeded our 2013 outlook that we provided in November of 2012. We are pleased to return $18.8 million for our shareholders in fiscal 2013 as we repurchased 796,000 shares at an average price of $23.61 per share. We have realized $2.3 million from the sale of two strategic investments OctoPlus and Vessix Vascular. We also invested $1.9 million in properly planned investment and equipment to support our future growth.

Our fiscal 2013 performance provided us main successes that we could highlight today. Here are several that are representative of the year. Continuing operations, earnings per share increased from $0.58 a share to $0.99 per share from fiscal 2012 to fiscal 2013. On a pro forma basis, earnings per share increased 29% to $0.85 per share in fiscal 2013. We have realized strong growth from both Medial Device and Vitro Diagnostics business units as aggregate revenues increased 8% aligned for an increase in operating margins to 34%. Our 2013 performance benefited from our focus on our core business as both of our businesses generated solid revenue growth and operating performance.

Moving on to fiscal 2014 let me briefly highlight our first quarter operating results which were described in our January 30 earnings release and earnings conference call as well as our 10-Q which was filed earlier today. Revenue for the first quarter totaled $13.9 million up slightly from the first quarter of last year in which we received a one-time hydrophilic coating catch-up payment of $0.6 million. We delivered operating income of $4.3 million, which included a 10% increase in R&D expenditures primarily for the drug coated balloon platform.

GAAP EPS was $0.26 per share in the first quarter compared with $0.29 in the year ago period. Our earnings per share performance in the first quarters of fiscal 2014 and fiscal 2013 benefited from a gain on one of our strategic investments Vessix Vascular. On a pro forma basis first quarter earnings per share increased 17% to $0.21 per share as compared to $0.18 per share in the prior year quarter. On our recent earnings call, we reaffirmed our full year revenue outlook in the range of $58 million to $62 million. We increased our outlook for earnings per share from continuing operations as a result of the gain in Vessix Vascular to $0.85 to $0.97 per share above our initial range of $0.80 to $0.92 per share.

I now want to provide a few financial highlights on our Medical Device business. This business consists of our device drug delivery offerings and our hydrophilic coatings, which represent the majority of our Medical Device revenue. In fiscal 2013 SurModics generated record hydrophilic coating revenue of over $40 million including a one-time catch-up payment of $0.6 million.

Operating income increased 15% in fiscal 2013. In our most recent quarter, our Medical Device revenue of $10.5 million was up slightly from fiscal 2013 first quarter that included the one-time $0.6 million catch-up hydrophilic coating royalty payment. Without this one-time payment Medical Device revenues increased 5% in the first quarter of fiscal 2014. We funded and completed the internal preclinical evaluation of the drug coated balloon device in fiscal 2013 and continued additional preclinical activities in the first quarter of fiscal 2014.

Our In Vitro Diagnostics business consist primarily chemical components for clinical components with clinical diagnostic test. In fiscal 2013, SurModics generated record in-vitro diagnostics product revenue of $15 million or 7% increase from fiscal 2012. We generated a 28% operating margin in fiscal 2013 while funding significant research and development pipeline expansion. In our most recent quarter our diagnostics revenues totaled $3.3 million up slightly from the prior year period. Additionally through the first quarter of fiscal 2014 the IVD business has generated 13 consecutive quarters of year-over-year growth.

SurModics balance sheet remains healthy with $53.1 million of cash and investments down over first quarter, which reflects strong operating cash flow contributions of $4.3 million and net of the repurchase of $8.9 million of common shares. Under our recent $20 million share repurchase authorization we completed utilization of the remaining $2.6 million under this authorization in January of 2014.

We commit to our shareholders continually evaluate the use of our cash to create shareholder value through corporate development activities, investments in research and development as well as share repurchases. Over the past 18 months we have repurchased $85 million of our shares. We have no debt and recently signed a $20 million line of credit.

With that I’d like to invite Gary back to the podium.

Gary Maharaj - President and Chief Executive Officer

(Technical Difficulty) Andy for a recap of positive financial results. Last year, I mentioned that fiscal 2013 will be about balance, balancing our strategy of 4% in the core with the balance of laying a foundation for future core expansion. From our results and those that Andy just mentioned you can see that we’re able to both drive above market growth in the core as well as make some significant progress on core expansion programs of which I’ll describe today.

Before this I want to have you understand three pivotal questions that I think should be important to you about SurModics’s core strategic vision. So I’m doing away with the business peak, the business peak is at a bottom of the slide, but really the first question is who are we at SurModics, where are we going? So who are we the first question, what’s our vision I mean where do we want to go, who do we want to be in the future and it’s a critical decision for the company as we seek to create future growth.

The final thing is strategic, how are we going to get this? Before we – what we want to be, how will we get there? These are three simple questions I’d like to address today. But first one, we spent a lot of time debating and I came back to the same conclusion, SurModics is here, our mission is we improve the performance of devices that detect and treat disease. Detect in the form of in-vitro diagnostics business and treat in the way of our technology in the medical device business.

What do we want to be? We have some high aspirations. We want to be the leading provider of chemistry (dates), products, technology that are critical to the performance of devices that detect and treat disease, note the emphasis on critical. We’re motivated to develop technology components that are the magic behind the performance of these devices not mainly a component of a constituent, so a distinction going forward. How will we get there? Well, I come to realize we have brilliant scientist in our (indiscernible) and our scientific expertise really focuses on chemistry, biomaterials and biomolecules. So we’ll use this capability that we have inbuilt to the company to create new technology platforms that maybe surface-based or reagent-based depending on the business that are important to end users in high growth markets.

So with them puts us in the true of end users. Our current customers are startups, mid-sized companies and large strategic, but we have to look beyond them to serve the needs of end user’s people who actually use IVD assays or cardiologist interventional to actually use products. So we want to be more specific to solving end user problems. And keen how we’ll get there we believe we will succeed because of our ability to solve some very complex engineering and clinical problems. And I will manage for the three things that we hold very dear in order of magnitude are safety, clinical relevance giving positive clinical performance and an economically viable ways for all consumers and tax payers of healthcare whether in U.S., outside of the U.S. And so these three things are very important for us. Patients provide us and payers will benefit from our solutions. However, we will get there continued.

We don’t pretend to have all of the answers and we will form partnerships as necessary to develop and commercialize solutions. We would certainly don’t have a Not-Invented-Here Syndrome. So there will be technology components that are out there that benefit where we want to head. We will certainly form those partnerships. And finally we will use our balance sheet, Andy filled towards the buybacks we have done. The balance sheet is going to be used as a dynamic tool for growth, more should on the static indicator of performance. That leads out how we will get there.

A lot of words, but I want to leave you with one sentence if you had to leave today’s meeting. So we are going to become unquestionably relevant in the diagnosis and treatment of disease. What does relevance means, so simply my definition of relevance is how important is SurModics going to be to our customers to help them achieve success in the future? We certainly are successful today, but we have to look further out and see what our customer is looking for from us to help them with their goals.

I will give you a further example. So to me we can talk about financials and shareholder value, revenue and growth and profitability. All of those things clearly rest on being relevant. If you are not relevant to your customers’ problems, you won’t be able to eventually have long-term growth and profitability. I want to convince you of an importance to us of relevance in our strategy. So let’s look at what I would call some relative relevance, for comparison relevance, suppliers (indiscernible) products to supply principles of components or components of devices in diagnostics today, very important. Given where healthcare is heading and the share broaden up the economics of the costs and the supply chain of healthcare. While we like supplier relevance, we see ourselves currently as the technology enabler. SurModics today does not provide component, we actually provide technology that amplifies the performance of devices that can detect and treat disease.

Now, I think we are satisfied as the technology enabler, but as we see the future of healthcare emerging, we believe a better position for the company and some of our customers have said that is to be a whole product solutions provider. I will give you an example of that a little later. But nonetheless, climbing the scale of relevance is important. The supplier is going to be seen mainly as the transactional business relationship as healthcare tried to squeeze costs out, technology enablers are better and we are one of those. But we want to improve our position in relevance in healthcare and become whole product solution provider, which helps our customers then to solve their problems.

I will give an example there. So what it means if you look at Medical Devices. We have to be able to piece together enabling technology you have know incredible enabling technologies. Enabling technology alone will not be – it will be necessary, but will not be sufficient to create a high growth company. So the question is can we piece together devices that currently exists or improvements on those devices, marry them with some enabling technology components that we know better than anyone else in the world to end up with safer, better clinical outcomes and products that are economic viable.

So what will it take for a company to migrate towards more relevance, what we have to follow, as I said, we have to look at end user needs. As I said earlier, we have brilliant scientists. We have to put them in direct contact with end user problems. Solving technology alone is not going to be the way for us in the future, but solving an end user problem. So that’s the first mug. We also have to expand our capabilities specifically in the area of device development. So remember technology components is one part to device development is a critical fact to be relevant.

Next, in order to demonstrate the value of what we have come up with we will have to go a little further and generate preclinical and potentially human data to demonstrate to our customers that what we have developed is of compelling value, stays clinically effective and economically viable. The next (split) there is economic viability and lot of companies say that, but as we go forward in healthcare we have to be able to demonstrate that our products meet cost targets that the adoption can be used because they are within the cost targets of end-users in hospitals and that their reimbursement to finance these acquisitions.

Finally the regulatory pathway. We practiced unique parts of regulations where we have drugs and devices, a lot of science in combination. Those combination products have unique regulatory pathways depending on the geography in this part of the world in the market you’re addressing. And then finally we’ll have to go through the monetization model. We actually know the licensing business model and the product sales model and diagnostics as well, but as we look to what creating things of much higher value for shareholders we have to understand how and then what form will we maximize the value for what we help create.

I’m not talking in a bit of generalities here but I would use an example to show versus – tell you about it. Now with that as a backdrop, certainly the company has more objectives on its fleet than these four here, but I think what’s relevant for you is what are the strategic initiatives for this year? Well, we’ve got to protect and grow our core business and last year this meeting we launched the SurModics Serene next-generation hydrophilic coating. So one year instead we’re having great success, a lot of customers are using that and adopting that so we have ways to go. So the SurModics Serene hydrophilic platform, the core product we have to keep getting that across the goal line.

Second, we have to maximize the value of the drug coated balloon. We certainly are spending and investing heavy amount in drug coated balloon project and I’ll give that a little more at times since I think you need to know what, where we’re heading and what we’re doing there.

And third, our pipeline we are an R&D company and our pipeline has to be targeted what projects that are more relevant and it’s going to be part of lingo internally so this make us more relevant, do our customers need this product concept from us to (indiscernible) technology. So finally, if we are going to use the balance sheet as a dynamic tool for growth, we are compelled, continued some corporate development agreement that help us increase our relevance heat into form of technology all markets. So I have told you a lot.

Let’s what I want to show here is strategy comes to life is I want to leave you the impression that as management we say what were going to do and then we do it. And so our drug coated balloon strategy is a fine example of how we’re moving towards relevance and it’s something we’re investing in and doing to-date. So what have we done, we’ve gone beyond developing a really cool drug delivery coating technology certainly the SurModics of yesteryear would potentially stop with that. What we’ve decided to do is to develop that whole product solution, in other words put it on the device that you can offer a customer a whole product solution, that’s exactly what we’re doing.

We have specified and sourced our own peripheral balloon platform which we’re putting that enabling technology on to that platform. So keep in mind device, technology equals relevance. So in this financial year Q1 to Q3 we’re working very hard to complete the development of that device platform, Q1 to Q3 and we have to demonstrate the value. We believe gone are the days that you can see a technology and it looks good and somebody who will jump and pay you for it. And so we have to demonstrate that value in preclinical data, safety data, demonstrate that the drug is actually having an effect and it potentially take this through human data generation that we command value of the investment we’ve still passed on.

Third, we’ll have to just clarify the regulatory pathway and the regulatory pathway for us in this project and for our potential strategic partner would be trying to get U.S. IDE approval in calendar year 2015. These are aggressive goals but they are not out of the realm of possibility and our team is committed to them. Our target would be the superficial temporal artery and popliteal artery and finally this will require increased investments as we have put de novo in our projections for this year approximately $3 million of additional R&D spend to get to the parts we want in the financial year. However, we believe in calendar 2014 and 2015 is the possibility for some good returns to our shareholders based on the project that we have just undertaken and these milestones if we intend to hit. This is now without risk, anything that’s an embryonic early stage has risk but we believe the incremental investment of $3 million outweighs the risk in terms of the outsized returns that could come to our shareholders.

I’ll spend a little bit because I’ve heard some questions, so what exactly the drug coated balloon in some of our shareholders. Simply put it’s an angioplasty balloon typically with an anti-restenotic drug. Drug-eluting stents have some of these drugs (indiscernible) all of us are well known. But in this case you’re putting in on an angioplasty balloon. It’s used to treat arterial stenosis and very importantly it can be used in locations where stenting is difficult and effective. Those of you in the webcast if you look to the right of the folly you can see some radiographs of a stent that’s fractured or restenosis in a peripheral stent there. And so those are some of these – the issues with current stenting.

It is a large unmet clinical need. I’m not going to go through all data unless just stated well over million patients annually around the world can benefit from this technology, that’s just in the peripheral space. It also has benefits in the coronary space and then AV fistula. There are challenges. Our challenges are pretty much to the right to the left side of this getting to market that would be technical, clinical, regulatory and cost of development challenges.

Our strategic partners who we would hope an alliance succeeding in a market is also a challenge, you’re going to have clinical adoption, reimbursement, competition from competing modality, pricing and profitability. So nonetheless we acknowledged the challenges but I want to share with you the patient impact of what we’re doing. And this is very important for us at SurModics. We look around the world of diabetes as it’s going to be called endemic disease of the century. About a 1 billion people already have diabetes and that number is growing especially in the flurry. By 2030, diabetes is expected to be seventh leading cause of death. 50% of people who have diabetes have cardiovascular complications, the menu from diet. So when we look at that, the effects of diabetes in peripheral artery disease that is profound. In fact, over 200 million people in the world today live with peripheral artery disease, that’s a diabetes complication. So it affects the blood flow. These are compelling impacts of a device that we can develop and we believe we have the technology and capabilities developed to have an impact on human health. This has been also – it’s a huge sustainable market opportunity. It’s been characterized as much as 1.4 billion worldwide for these indications by the year 2020. So we believe we have the technology. There is risk. It has a lot of patient impact. There is a viable end market. This compels us to keep going forward.

I know some of you had asked, well, can you just show just thematically how it works? And so this is – so those are few words in cardiology to give the Ross schematics here, but really if you look at the vessel and you have, let’s say, a pre-dilated vessel, so you have some (indiscernible) vessel wall there to actually for the balloon in there expanded to the drug in it. The idea is the drug then comes off on the vessel wall and permeates the tissue dampening down the smooth muscle cell over proliferation that causes the vessel to shrink back. You collapse the balloon to remove it and you treated the vessel. Easiest had been done, but that’s a schematic of how an actual drug-coated balloon works with (indiscernible). The magic is in the coating. And we believe that we have three things that drive us, the right amount of drug, right dose, at a right time. Very simple monitors that drive the project, however, easiest had been done.

We look – I didn’t want to put competitive up here, so I used some generic pie charts, but if you look at the current generation on the left hand side for those of you in the webcast and the big color piece of the pie there, actually the amount of drug is lost that has no treatment effect, it’s lost in the systematic circulation, go somewhere. The very smallest piece of the pie chart is what actually gets to the target tissue and the remainder is what’s left on the balloon. Now, we are not disparaging current generation technology. We like that, because somebody has got to start developing these products and move the technology forward. However, we believe that future generation of these technologies has to improve the percentage of the drug and these are toxic drugs as you well know to get to the target tissue. So our aim is to able to deliver much more efficiently to write them to this target tissue and moves left in circulation. We believe although it has not been demonstrated that it’s going to have a profound clinical impact.

Other thing that SurModics really going to make its mark on is in processing, one thing to develop the technology that you can make one at a time in the lab one everyday to really penetrate the market at $1.5 billion we talked about, you need to make these things reliable, repeatable, and at a reasonable cost of goods, so that you can actually make a business out of it. That is one of the areas that our technology will shine. There is also an impact of making these things very reliable and repeatable. These are sections here, that’s a healthy vessel and to make it simple where we see a blue-green color means you have had a positive impact on the tissue with the drug. So if you have a very uniform coding, you can be sure you are treating a very uniform section of the tissue. If you look at other types of technologies against which we may compete, you will find that in sporadic areas of the tissue that are treated. This is an uncoated. When you think of a disease vessel, it’s anything that is nice looking at this, your variability. So one of the big things in developing a drug-coated balloon is you have to have consistency of that drug application around the balloon and that is something that also drives us this project.

So we’d now exemplify this as really to show you what are the takeaways and what we are doing strategically. This is the first project of this type we are undertaking. We want to be successful with this one even given the risk, but it’s important to you to know that they have more to follow. The SurModics of the future will be sitting and looking and developing products of this genre in the future, where we are actually trying to develop a whole product solution for major medical issues. The device and technology content as we see can have a profound impact both on peoples’ lives and health, but also on the business. And again, we are not compelled that this whole has to be invented internally. We will form strategic partners to ally with people who have solutions, including our own, but there will be incremental investment required. Incremental investment in R&D, incremental investment in discovery and that will be required to demonstrate and harvest that outside value.

So, I want to leave you with, I apologize, I didn’t look at my notes here, so I had to find my way here. So what I want to leave you with is this year, fiscal 2014, we have to continue to grow and protect our core business, but as with the revenues, that’s oxygen of this company, the profitability that we are also using to fund our future. Well, we have also to create this future relevance marrying technology content with device design. We have to go further to demonstrate the value of what we are developing. Third, we are going to use that corporate development and the balance sheet to accelerate this migration so that we have access to new technologies, new device capabilities.

Fiscal 2014 is going to be challenging, because we are attempting this migration under very difficult market conditions in the healthcare industry in 2014, but we have compelled to face these challenges with courage so that we can accomplish it. So I will leave you with thematic of our fiscal 2014 where we are going. Remember, grow and protect the core, keep that balance and innovate and expand the core, so that we can have more relevant meaningful products come out of this company in the future. And then as we go through this year continuously a certain balance whether we are investing and focusing the right amount in each of these two planks. Our talented and passionate team is really eager to face this challenge of 2014. I hope to be in front of you the shareholder meeting for next year to share the astounding results we have accomplished along these lines. Thank you.

I think now I am going to invite Phillips. I’d like to thank for the webcast for attending our Annual Meeting of Shareholders and for listening on the webcast. As you have heard again, we have a lot to be excited this year and we will look forward to updating you throughout the year if necessary. This will now end the webcast.

Question-and-Answer Session

[No Q&A session for this event]

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