Abbott-Cardiovascular Systems Acquisition Could Further Add Uncertainty Over Surmodics' Product: Analyst Downgrades Stock

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• Needham has downgraded Surmodics Inc (NASDAQ: SRDX) to Hold from Buy.
• In January, Surmodics received a letter from the FDA regarding its premarket approval (PMA) application for the SurVeil drug-coated balloon (DCB). The letter stated that certain information within two general categories—biocompatibility and labeling—must be added by an amendment to the company's PMA application to place it in approvable form.
• The company is now preparing a request for feedback from the FDA, and management expects to receive the FDA's response in May. Assuming that Surmodics is required to conduct additional animal testing, which would take a couple of months, the company will likely submit its amendment to the FDA in the fall.
• The analyst writes that at the earlier, SurVeil is unlikely to receive FDA approval until late CY 20223.
• Pounce and Sublime sales are ramping up but are still too small to move the needle much on the overall growth rate.
• SRDX recently downsized its direct sales force from 28 territory managers to 21 territory managers, creating a near-term headwind to growth, says Needham.
• The analyst also says that Abbott Laboratories (NYSE: ABT) acquisition of Cardiovascular Systems Inc (NASDAQ: CSII) for $890 million further adds uncertainty about SurVeil.
• ABT is SRDX's distribution partner for SurVeil. If SurVeil isn't approved by the end of CY23, Abbott can terminate the deal without paying SRDX a $24 million milestone payment.
• The analyst also notes CSII's agreement with Chansu Vascular Technologies to develop peripheral and coronary DCBs utilizing everolimus rather than the widely used paclitaxel.
• Price Action: SRDX shares are down 8.39% at $26.53 on the last check Monday.

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