As Inigo Montoya famously said in the film The Princess Bride: “Let me explain…. No, there is no time. Let me summarize….”
In the last year alone, SurModics Inc. (NASDAQ:SRDX) opened a $41 million pharmaceutical plant, which is bleeding cash, fired its CEO, massively restructured its operations, and now is facing down a potentially nasty proxy fight with an aggressive outside investor.
Did I miss anything?In the latest twist to this tortured saga, Ramius LLC, the alternative investment arm of Cowen & Co., recently purchased a 12 percent stake in SurModics, making it the largest shareholder, according to documents filed with the Securities and Exchange Commission.
“It appears that both management and the board do not have a strong grasp on the serious business issues facing the company,” Ramius wrote in a letter to the SurModics board. “Further, we believe the 36.5 percent decline in stock price since reporting fourth quarter results demonstrates that shareholders have become increasingly uncomfortable with the direction of the company.”
The firm said it’s nominating three candidates to SurModics’ board of directors, apparently with the hopes of influencing the selection of the next CEO. The company has been without a permanent top executive since pushing out Bruce Barclay in June.
“Ramius has been very aggressive as SurModics’ stock tanked for the reasons the firm outlined,” said Ernest Andberg, an equity analyst with Feltl & Co., an investment bank in Minneapolis.
The next CEO faces a literal mess. For the year, SurModics lost $21.1 million on revenue of $69.9 million compared to a profit of $37.5 million on revenue of $121.5 million the previous 12 months. The company’s big bets on ophthalmology, pharmaceuticals and diagnostics have so far failed to pay off.
“We are disappointed with our fiscal 2010 performance,” interim CEO Phil Ankeny said in a statement. “While the environment remains challenging, and the company continues to navigate through several revenue transitions, we know we are capable of doing better — and we are committed to doing better.”
In October, SurModics laid off 13 percent of its workforce and restructured its operations into three units — medical devices, pharmaceuticals and diagnostics.
For SurModics’ newest majority owner, is there anything left to salvage? Andberg says the company has one good growth business: advanced surface coatings for medical devices like catheters, guide wires, cardiac rhythm leads. The cardiovascular unit squeezed out a 1 percent revenue gain to $40 million, the only business to register a year-over-year sales gain.
But Andberg finds it odd that SurModics would launch a major reorganization effort before hiring a new CEO. Most companies allow their new leaders to develop and lead restructuring efforts.
That’s probably why Ramius doesn’t seem to be pushing for a sale or a breakup of the company — at least not yet.
“SurModics is now at a critical juncture,” the company’s letter reads. “Management and the board need assistance in determining the right strategic direction for the company and the right path forward to improve shareholder value. Our nominees have the necessary experience and desire to work constructively with management and the board to address these issues and to assist in identifying and retaining a new chief executive officer to lead the company.”
Andberg says he’s not sure how shareholders will respond to Ramius’ campaign. They may want to give SurModics’ current leadership time to find a new CEO, implement the restructuring plan, and see if the company’s investments in ophthalmology and pharmaceuticals do anything.
Disclosure: No positions.