Andy LaFrence – Vice President of Finance and Chief Financial Officer Gary Maharaj – President and Chief Executive Officer.

Ross Taylor – CL King Associates Charlie Jones – Barrington Research Ben Haynor – Feltl and Company Erica Layon – The Benchmark Company Beth Lilly - GAMCO Investors.

Please standby we are about to begin. Good day and welcome to the SurModics' Third Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Andy LaFrence, Vice President of Finance and Chief Financial Officer. Please go ahead, sir..

Thank you, Jamie. Good afternoon and welcome to SurModics' fiscal 2014 third quarter earnings call. Before we begin, I would like to remind you that during the course of this call we will make forward-looking statements.

These forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding SurModics' future financial and operating results or other statements that are not historical facts.

Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements resulting from certain risks and uncertainties including those described in our SEC filings.

SurModics disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments or otherwise.

Finally, this conference call is being webcast and is accessible through the Investor Relations section of the SurModics website where the audio recording of the webcast will also be archived for future reference. A press release disclosing our quarterly results was issued earlier this afternoon and is available on our website at www.surmodics.com.

On today's call I will provide an overview of our financial results, highlights for the third quarter and update our outlook for fiscal year 2014. Gary will then cover our key achievements and discuss our growth drivers and strategies. Finally we will open the call to take your questions. I'll start with the financials.

On a GAAP basis our diluted earnings from continuing operations totaled $0.27 per share for the third quarter compared with $0.22 per share in the year-ago period. Revenue for the third quarter of fiscal 2014 totaled $14.6 million compared with $14.3 million in the third quarter of last year.

In the third quarter of 2014 we delivered operating income of $5.3 million, a 26% increase from the prior year. Operating margin was 36% compared with 30% in the prior year quarter.

Earnings per share and operating margin for the quarter reflect the positive leverage to our business from continued operating expense management and the timing of a drug-coated balloon expenditures. Turning now to our two business units. Medical device is the larger business unit and contributed approximately three-quarters of our total revenue.

Revenue from this business, which is derived from both hydrophilic coatings and device drug delivery coatings, rose to $10.8 million, increasing 2% from the year-ago period. Last year’s results included a $500,000, non-recurring license milestone payment, without this payment, Medical device revenue increased 7% in the current quarter.

Nice performance from the Medical device business this quarter. Third quarter hydrophilic coatings revenue was essentially flat at $7.2 million compared with last year. Increases in non-coronary royalties offset a 7% decline in coronary-related royalties.

Ability to offset the coronary royalty decline reflects the continued diversification of our hydrophilic royalty revenue base. The medical device business also benefited from an increase in research and development revenue primarily associated with contract coating services to support clinical trials and product launches.

Our Medical device unit generated $5.9 million of operating income in the third quarter, up 12% from a year ago. Higher revenue and the timing of our drug-coated balloon research and development expenditures contributed to the segment’s gains in the operating income.

For in vitro diagnostics unit, third quarter fiscal 2014 revenue totaled $3.8 million, a 3% increase compared with the prior year quarter. We said in our second quarter earnings call that we expected revenue improvement in this business in the second half of fiscal 2014 and that is what we are seeing.

Product gross margin for IVD was 62% in the third quarter, compared with 60% in the prior year quarter. IVD operating income increased 9% to $1 million compared with the third quarter of 2013.

Our diagnostics operating margin for the quarter grew to 26% versus 25% in the prior year quarter mainly resulting from higher revenue and cost management offset by higher professional services costs. Now I'd like to discuss our third quarter 2014 revenue summary by category.

First, royalty and license fees, which are generated primarily in our Medical Device business unit, were $7.4 million decreasing 6% from last year. Revenue in this category a year ago included a milestone payment from the European approval of a stent an incorporates one of SurModics’ biodegradable polymer platforms.

Next, third quarter 2014 product sales totaled $6.1 million, increased 9% from the year ago period reflecting increased reagent sales in our Medical Device business as well as increased substrate, antigen and micro rays light shipments in our in vitro diagnostics business unit.

And third, R&D revenue this year was $1.2 million, an increase of 32% from the prior year quarter. SG&A expenses in the third quarter of fiscal 2014 were 25% of revenue, compared with 28% a year earlier, on a dollar basis, SG&A in the third quarter of 2014 totaled $3.6 million and decreased 11% from last year.

The decline stems from the company-wide focus on expense management. As a percentage of total revenue, third quarter R&D expenses were 25% versus 28% in the year ago period. R&D expenses of $3.7 million for the quarter declined 9% from last year, resulting from the timing of our drug-coated balloon development initiatives.

We anticipate R&D expenses to grow by 2% to 5% in fiscal 2014 compared with fiscal 2013. This is lower than our previous estimate of a 7% to 9% increase and is a result of drug-coated balloon expenditures shifting into fiscal 2015. Income tax expense was 32% of pre-tax income in the third quarter compared with 26.2% in the prior year period.

The change in tax rates between periods is largely the result of decreased capital gains in fiscal 2014 and lower discrete tax items. For the full fiscal 2014 year we continue to anticipate a 31% to 33% tax rate as we stated in last quarter's conference call. Let's now turn to the nine months results.

Revenue for the first nine months of fiscal 2014 totaled $42.1 million, up 1% from last year. Revenue in fiscal 2013 included both a one-time $0.6 million catch-up royalty payment and a $0.5 million non-recurring license milestone payment.

Excluding these two payments, revenue in the first nine months of fiscal 2014 increased 3% from the very strong prior year period. Medical device revenue increased by 3% in the first nine months of fiscal 2014 on a GAAP basis and by 7% excluding these two payments.

We delivered operating income of $13.1 million in the first nine months of fiscal 2014 versus the prior year’s total of $13.2 million. Operating margin in fiscal 2014 nine months was 31%, compared with 32% in the same prior year period.

Earnings in the first nine months of fiscal 2014 and 2013 were impacted by a gain on one of SurModics' strategic investments. The Company realized a benefit of $0.7 million or $0.05 per share in the first nine months of fiscal 2014. This resulted from milestone payments associated with the fiscal 2013 sale of Vessix Vascular to Boston Scientific.

In the first nine months of last year the Company recognized a gain of $1.2 million, or $0.08 per share from the Vessix sale. Pro forma earnings per share rose to $0.69 per share in the first nine months of fiscal 2014 from $0.60 per share in the prior year period. Schedules of pro forma adjustments are included in our third quarter earnings release.

Looking at our balance sheet, it continues to be strong. Our cash and investments totaled $57.1 million and we had no debt outstanding at June 30, 2014. We continue to generate solid operating cash flow. Cash flow from operations was $12.5 million during the first nine months of fiscal 2014.

We also received a $0.7 million of milestone payments related to Vessix and we invested $1.2 million in property, plant and equipment in the first nine months of fiscal 2014.

To supplement our capital resources, we earlier today filed a $175 million universal shelf registration payment on Form-S3 with the SEC, while we had no immediate plans to do so, this will allow efficient access to capital markets to support our strategic plan. I now want to comment on our expectations for the full year.

Given our strong expense management and the timing of drug coated-balloon spending, we are updating our previously stated earnings-per share outlook for fiscal 2014. We are raising the low-end of our estimate for diluted GAAP earnings by $0.05 per share, with updated guidance to be in the range of $0.90 to $0.97 per share.

This guidance also assumes R&D investments will increase in the range of 2% to 5% in fiscal 2014. We are reaffirming our full year revenues guidance to be in the range of $56 million to $58.5 million, and we estimate that revenue likely won’t be near the middle of this range.

We are raising our guidance for cash flow from operating activities to be at least $19 million. And capital expenditures are expected to be in the range of $2.2 million to $2.5 million. The SurModics team has performed very well and we are pleased with the results for this third quarter of fiscal 2014.

Thank you to the SurModics’ employees for all their efforts. At this point I would like to turn the call over to Gary for his perspectives on our operations.

Gary?.

Thank you, Andy. I am pleased with our operating results in this third quarter for three main reasons. First, we have continued to grow despite some difficult market conditions for our customer in both the Medical Device and IVD business units. The return to revenue growth this quarter in IVD is especially notable.

Second, we generated excellent operating margins and earnings, both on an absolute and relative basis with respect to prior quarters. And third, we are able to do all of this while investing and making progress on one of the biggest market needs in vascular intervention, namely our drug-coated balloon program.

I also want to recognize our entire SurModics’ team for their tireless dedication that delivered this trisector of results in our third quarter. Let me spend a little more time on the relevant reasons for our performance.

In Medical Devices, we are able to mitigate the large impact of a decrease in coronary-related revenues by our portfolios effectivity in other vascular anatomies. Specifically, newer vascular products increased 6% this quarter compared with the prior year quarter.

This clearly demonstrates the importance of our ongoing diversification initiatives to reduce SurModics’ dependence on cash flows stemming from percutaneous coronary intervention. Coronary revenues will always be important to us but I am pleased that we have developed other strong sources of cash flow as well.

In Diagnostics, as Andy noted, we were confident that we would see to return to growth we recorded in the fiscal third quarter results. On the expense side, we continue to be disciplined and focused in our SG&A spending. Let me emphasize that we are and will continue to fund major initiatives.

But we have carefully prioritized a critical one such as investment in analytics, lean operations and process engineering. Two factors contributed to lower R&D expenses than predicted and compared with fiscal 2013.

First, we call that our restructuring in the fourth quarter of fiscal 2013 resulted in an annualized R&D expense reduction of approximately $800,000.

Second, since we are not gearing up for first-in-human clinical trial for the drug-coated balloon program until calendar year 2015, some of the larger anticipated expenditures will be pushed into fiscal 2015. That leads me to the update on our DCB program.

We continue to make very solid progress in both the process control parameters and drug delivery confirmation on our whole product solution. While there is still much to be done, we are on track for activities that I outlined in the second quarter call.

These are first, the freeze design, the formulation and the process specifications in our fiscal fourth quarter. Secondly, to start a GLP safety study by the end of calendar year 2014, and third to initiate a first-in-human clinical trial in the first half of calendar year 2015.

We recently confirmed in a critical pre-clinical study that the biological effects of our drug transfer from our device appears to be significantly favorable as compared to our benchmarks. This is both important and good for several reasons.

First it reconfirms our technology capability especially after multiple changes to a manufacturing process which improve the production on scalability. I speak for our entire team when I say we remain personally excited, yet patient and disciplined with our progress in developing this next-generation of drug-coated balloons.

We see it’s a very large a market opportunity here. And although DCB drug-coated balloons is a difficult and complex technology endeavor, it remains one where we believe we can create most value with the most clinically relevant and cost-effective products and technology combination.

We believe it has the potential to be the market-leader with the right strategic partner. Turning now to corporate development. Let me reiterate that our ongoing cadence of activities continues to mature.

We are actively seeking out and engaging the best acquisition opportunities that fit both our strategy for core business growth and the core expansion. While there is nothing more to report at this point, it remains one of SurModics’ top priorities. I have said previously that 2014 is both a challenging and an exciting year for the Company.

Challenging has been described. We continue to experience industry headwinds in our respective core businesses, but exciting as we continue to work through both the opportunities and the risks to put SurModics back front and center in providing a solution to a huge clinical need with our drug-coated balloon program.

Operator, this concludes our prepared remarks. We would like to open the call for questions..

Thank you. (Operator Instructions) And we will now take our first question from Ross Taylor with CL King. Please go ahead..

Hi, just had a couple questions. First one, I think you may have reviewed this number, but I apologize if it’s repetitive. But, your R&D expense, it sounds like being pushed out into 2015 to some extent. What exactly the delaying are causing that DCB project to be pushed back just a little bit.

I don’t know if you can go over some of those factors again?.

Sure, we’d put an aggressive plan into place that I call a green light plan. If you had to hit all the green lights to be able to move and we felt confident in that. What happened is, as we – so we have a core technology platform and then we had to put it on our own balloon capsule.

And that required a lot of validations, a lot of process improvement and manufacturing changes to actually see this thing is buildable at scale and so they involved quite a lot of manufacturing changes, but each manufacturing change you make, you have to make sure you don’t lose the drug signal.

So you may change something that improves the process from a time, speed, cost and variability, but each one of those and you do a drug uptake study and see what it’s done to your drug signal. So you don’t want to improve the process of lose a signal. And so many of those we made and they all had very different impacts on the drug signal.

Some were very low, some are moderate and so we worked our way back to what I call the optimum way, we had a scalable manufacturable device with the drug signal that we believe will be a third-generation technology.

I believe if we were going off to what I would say the current benchmarks that we were been using, some of those in IDE studies that are just completed, we could have reconfirmed that moved on quicker, but our target was to be demonstrably better in the amount of tissue uptake of the drug and biological effect.

And so, that probably impacted us in the last two quarters I would say which is why I reference as this recent confirmatory study which showed us that we can actually thread the needle and get both process improvements with the drug signal that we have become accustomed to.

Our current scalability and just what we make is, it’s certainly in the tens of thousands. So it’s not a small-scale process that we have designed so far..

Okay. That helps.

And, with regards to the hydrophilic revenues and 7% growth in the non-coronary sector, is there anything unusual that helped that out in the quarter and is that something that’s kind of a normalized or sustainable growth for the non-coronary hydrophilic?.

Ross, this is Andy. Just talking about maybe coronary a little bit, I mean, coronary did see some ASP erosion from our customers and that was really the driver to that 7% decrement.

In terms of highlights in terms of trends in neuro or the structured heart space, you know, structured heart continues to be growing at double-digits and the neuro we’ve had just one quarter that it’s been rather significant. So, I don’t think we have trend there yet, but something that we’ll continue to monitor..

Okay. That helps. And, final question, just relates to the shell, I guess, I see that, $175 million and it seems like a pretty large amount.

I mean, it was applying something of all of that size, acquisitions, something that’s feasible in the next couple of years or how much realistically could you eventually draw down and how could you use that I guess, is a better way to ask the question?.

Well, it’s prudent for a company of our size and our position as we look our strategy, and Gary, has elaborated on that in his presentation to have a shelf registration is good financial governance. And the size of the shelf is really consistent with what we see with the other companies we did quite a bit of benchmarking.

So we are comfortable with the size of it and at this point we are not going to make any further comments. It’s out there so that we can use it when and makes sense to use it..

Okay. All right, thanks very much..

Our next question is from Charlie Jones with Barrington Research. Please go ahead..

Hey guys, good afternoon..

How are you, Charlie?.

Thanks. I guess just sticking with that thought though maybe first I can because in the last couple of conference calls, we’ve been talking pretty openly about you guys turning over a lot of different names that on the BD side.

So I’m just curious whether or not there are some things that have been percolating to the top or falling out and maybe you just kind of characterize what you guys are seeing out there.

And if you started to kind of think about whether or not you want something with EBITDA or whether or not you want more of a technology for you DED or your thoughts on IVD.

You talked a little bit in the past and I am sure you are not going to be able to share a lot with us, but updated thoughts would be helpful?.

Well, that was a pretty broad asking, Charlie. Let me just, maybe start with where are at corporate development. As Gary referred to in his materials, that process continues to mature and it’s one where we continue to look at a number of different companies and the hopper is one that continues to be the new opportunity.

So, we are getting more refined and more focused in that area. But really, quite frankly at this point in time, there is nothing more to report in terms of the development.

Other than that, we are looking for companies that will have be accretive in the near-term and we are looking for companies with revenues at this point in time and once that will – as we talked about that will expand our reach not only geographically in the body, expand our reach in terms of our core and also expand our reach geographically from a world footprint.

So, we continue to have that sort of focus in there and also looking at capabilities enhancements such as product development and manufacturing enhancements as well as we try to get closer, our strategy as we get closer to the device itself to leverage our royalty model.

And in terms of any other corporate development activities such as IVD, there is nothing that’s on the table right now..

I mean, I would say, our focus has been, we’ve looked at both industries, but I think our, we spend most of the time on the medical device side, because that we believe is more important for us to look for the scale and strategic set at this point..

Yes..

I’d be curious, and maybe one more thought on this topic.

Whether or not you guys have looking your ability to source your products if you wanted to go lower end on where you could take hydrophilic or whether or not you do feel like manufacturing capabilities could be a strategic priority?.

I think we, I mean the strategy that we are looking for is, get closer to the device with both - drug-coated balloon is a great example, the technology content on a device that gives you a much more differentiated product and I think eventually, we are certainly not a six-sigma world-class manufacturing shop.

But eventually, our customers will need products made in very low cost manufacturing environment. And so, what our tack right now is to design the products, so the architecture of the product is intrinsically low cost. I think over the medium and longer-term, we will be looking at manufacturing.

I think our big – or what’s in front of us right now technology in combination with devices. That’s more in our immediate presence..

Maybe just one more for me as coming to prior, are the same players that were at the table for DED still there from last quarter.

I think you gave an update last quarter is pretty much the same and did you give us an update on Gen-5 and how you are doing on the in-house coating side?.

Yes, we remain in conversations with multiple interested parties and we are actually in ongoing dialogues continuously with many of these parties.

I – my feeling is, while those are good conversations to keep going, I like to see SurModics get on and do the first-in-human and actually drive the product that demonstrates some of the clinical effectiveness. If strategic so interested in making deal right now, we’d certainly entertain that. But we’ve been pretty clear in our what our strategy is..

Hey, you don’t want to be rude and why you are telling them to wait basically..

Oh, no, no, no, no. Yes, and then Gen-5, again, I don’t think we have disclosed what percentage, but I would just say the vast majority of the feasibilities in our pipeline are Gen-5 and those that are not just ones that have aged that were probably in the pipeline even before a Gen-5.

So we continue to do a lot of work with customers on their next generation devices with Gen-5 and pretty successfully, we have quite a lot of activity..

Andy, that was too much. .

Sorry, what.

Do you have something Andy?.

No..

Okay, all right, thanks a lot guys. I appreciate it..

Thanks..

Our next is from Ben Haynor with Feltl and Company. Please go ahead..

Good afternoon gentlemen..

Hello, Ben..

Hi, Ben..

So, Andy, I know, you kind of addressed this a little bit in the prepared remarks, but I just wanted to be sure that that you’ve kind of seen the reorder patterns return to the normal in IVD?.

Yes, we anticipated last quarter that we would continue – we would see growth in the second half of the year and we have continued to see that growth..

And then one for Gary, I think you mentioned last quarter that Serene was selected by a customer who had a thought on in-house coating.

Have you seen any additional interest from that customer or I guess, for that matter, any other customers that might fit kind of the same profile?.

Yes, it was almost like a Sam on the fit swimming upstream and that was a very good one to have and we were proud that they gave our technology a fair chance to demonstrate that it was indeed better.

And I think customers like Destin has to digest it, get it into the practice, get some of these product launch and remain close to them on some of their high volume products.

In many respects these high volume products that are locked-in at some of these customers, really depends on their product lifecycle when is the next-generation of that product going to be launched, And so that remains our opportunity, but nothing of that scale, I would say on that arising yet..

Okay, that’s helpful.

And then, lastly, any sense you can quantify how much better the drug-coated balloon is relative to the benchmark you mentioned are earlier?.

Andy is nodding his head at me here. It is very hard, so, you know, in the healthy vessel, even having a multiple – like – multiple x let’s say of more tissue concentration, it feels good, it really comes down to whether that drug is now having a biological effect.

You could have two to three times a drug there, but this is – is the drug taking a biological action in that tissue and our most recent studies demonstrated both. I think what we are happy with is that, to be able to see more drugs in the tissue at a two microgram per millimeter square loading.

And as we look at certainly the forerunners to – at the Braun product and the Medtronic product, Medtronic has three micrograms, Braun has two micrograms, and you could start to trying to triangulate your pre-clinical data very loosely.

So, into what we are seeing on the 12 months data set up of the follow-up on these patients and so it gives us a great indication that it’s a two microgram, we can be delivering more drugs safely than a product that has three micrograms.

And then we see really good because it’s, I’ll never say never, but then we would feel very confident on the strategic it feels very confident in taking on a clinical with some direction of where that patient data would land. So that’s how I would characterize it..

Okay, that’s actually very helpful. That’s all I have. Thank you guys very much..

Thanks..

Our next question is from Erica Layon with Benchmark. Please go ahead..

Thanks for taking my call. Jan Wald is sorry that he can’t make it to this call, it’s a pretty busy afternoon. .

Sure, we understand..

Okay, we definitely like to say that we like the fact that you are taking a step-by-step even though it might take a little bit longer to make these change and validate it, you don’t guys get yourself in a lot of a trouble, if you didn’t end so, we understand that it can take a little longer that way.

We are curious if we can get some sort of an idea to how long you’ll expect it will take from, when you do reach that lock, what we can predict? Because anything in between here could you give you some wild cards, once you get to the lock how long it will take to the GLP safety study and then once you have that study how long it will take to get to the first in human?.

Oh, yes – so once we freeze and I don’t want to be too much technical jargon here, but we go from what I call a divergent project where we are still collecting information, once we lock down, we go into convergent mode which is still a lot of work, but it’s more deterministic.

And then we have things like a real-time aging shelf life sterilization, the whole, gamut of device and drug technology related to do that we have. We believe if we can freeze in the fourth quarter, our fiscal fourth quarter, we will be able to at least get the GLP animal study initiated in the calendar fourth quarter.

Now, the clinical initiation really depends on the geography of where we decide to do our first-in-human clinical and so we are still considering the pros and cons of conducting a clinical in different parts of the world. But right now the timing is that, that could take place first patient could be in by the first half of calendar 2015.

As you can – (Multiple Speakers) yes, go ahead..

Oh, sorry, now you go ahead..

Again it’s in the GLP animal study, typically, these are anywhere from 90 to 180 days and in some cases up to 200 days to get the drug to completely disappear and demonstrate the safety. So, getting the GLP animal studies is a very critical one for us..

Absolutely and then the timing on the first-in-human is going to depend a lot on this geography, what makes sense and hopefully you make a choice that, it’s long term, not just to make people happy in the short-term?.

Yes, yes, yes. I mean, I keep – again I would say, we are trying to develop a third-generation platform here. And then we are happy that the current second-generation products they move through and get approval with we’d like to improve on the capabilities that they have demonstrated..

And then it got to be very powerful and at this point it seems that we should expect that why you are still talking about partners most likely you are going to any sort of agreement if you do once you reach the first in human, because you are probably looking at certain economic factors at this point that they’ll probably want to wait until after they have data would that be correct?.

Yes, it’s hard to predict, because of the competition that our customers are in. Each of these partners have different risk profiles of when – as such, it’s really hard for me to predict when that could happen, but what we have said is that we are sticking to it.

We want to demonstrate the clinical efficacy of the product and that’s what we are funding and that’s where we are going. If someone wants to preempt or look at having some form of a partnership before that, we would certainly happy to entertain that..

But, from a modeling standpoint, we are – our resource allocation model is to go always to firm..

Okay, thank you. That’s very helpful. Thanks so much for answering my questions..

(Operator Instructions) We’ll take our next question from Beth Lilly with GAMCO Investors. Please go ahead..

Good afternoon..

Hi, Beth..

Hi, Beth..

I wanted to just take on to that to the last question which is can you talk about the different expenses in terms of all these different decision points with the DCB so, you’ve got freeze and then the clinicals and then the first in human, can you break it down the cost for each piece?.

I’ll give you a light version of that when we talk about our fiscal 2015 plan, you’ll hear a little more about that, but, in broad-brush terms, a GLP animal study is $1.5 million, in broad-brush terms.

So it’s not specific, just our product because depending on the amount of time the drug takes to disappear, you could be running it a little longer, For a first-in-human trial of the type and power of the device that we are looking and giving some range because it could be conducted in different parts of the world, it’s $3 million to $5 million all in.

And so, that will give you an idea of how these things get staged. Now, they don’t all impact a single calendar year. Some of them, the patient follow-up for example goes on for several years. So it will be, some of it will be spread out over multiple fiscal years..

Okay, so we are talking about a total spend, if you go all the way through the first-in-human to from $4.5 million to $6.5 million?.

As a range, I mean, there is other expenses there like if – you have to test thousands of catheters that perform verification, validation of the device and the sterility and so there is other costs included in that. But you are not far off the ballpark there..

Okay, and just so we can be clear, it’s taken it all the way through clinical trials is a very costly process.

Are you thinking today that you are going to – you would like to partner or you actually are thinking maybe you want to go all the way through the clinical trial process?.

Some of it depends on the sort of structure of the deal and the value curve at different times – at different types of programs like this. So, and pre-clinical is a value curve, that’s a sign to a pre-clinical product. When you have early human data, it’s a different valuation that you get.

And then certainly if you go all the way to the pivotal which is $100 plus million and we’ve been told and that certainly is not, I just want to be cautious, that’s not SurModics’ gig.

And so what we – what we are looking at it, what is optimum point in that value curve to monetize the program like DCB, and all of your point demonstrating the safety and effectiveness data in this small first-in-human trial appears to be the best.

Now that’s SurModics’ point to be for strategic or customer wants to say, look, we will pay up because we want to get this program early if you want to get into US IVE pivotal studies early. Then we will look at the value curve that they propose and see if it needs of a return criteria for a program like this.

We would certainly, and I don’t want to submit or suggest that we are being arrogant anyway, but it’s hard for our team internally if we don’t have a clear reaction of that we are going to do this trial.

But we are open and we – as I said, we continue to talk to strategic, but that valuation at any point in time, is the negotiation with that strategic partner..

Does their interest – have you found that the interest has increased as you go further down this path?.

The interest has increased, yes, I believe and this is opinion more than fact. I believe the interest has increased because of the recent clinical data as demonstrated by the Medtronic balloon.

Certainly, the FDA panel review – advisory panel review of the Braun balloon and I think some strategics are seeing that in the battle for the SFA, the drug-coated balloons have a real place in treating several popliteal disease. And so that has certainly increased the interest.

The second thing is, as we continue to refine this product on a balloon platform, we certainly have plethora of data that we can show at a high level to the strategic. I think we got a band of rock that ask you – where are you compared to the current product, that’s a pretty compelling chart to show..

Okay, right, very helpful. Thank you very much..

And it appears there are no further questions at this time. I’d like to turn the conference back to management for any additional or closing remarks..

Well, first of all, thank you all for your questions. As we close, I want to emphasize that the fiscal 2014 continues to represent an exciting opportunity for SurModics. To continue our profitable growth, even during challenging market conditions and yet while we increase our investment and opportunity for core expansion.

We look forward to updating you on our full fiscal year 2014 performance and highlights in several months. Thank you everyone..

And that concludes today’s conference. Thank you for your participation..