CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 1 Anne Brader, Beth Witt, Kristi Moline Quanzhen (Jin) Lu, Ray Littlefield SurModics BUSN625 - Managerial Finance Professor: Shawn Sauve

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 2 Executive Summary - Ray The purpose of this presentation is to evaluate the business, strategy, financial strengths, and future potential of a medical device company called SurModics. We will weigh their business model today including how they fit in their market, their competition, business drivers, and recent financial results. Then we will look into their future strategy including growth plans and associated risks. How they intend to overcome those risks, and what the return on investment should be expected. This assessment will lead to the development of a Pro Forma for potential results over the next three years. Finally, we will offer a handful of conclusions, recommendations, and thoughts for them to consider as they continue to move forward in the pursuit of their mission.

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 3 Business Today – History Overview - Beth 1979 Bio Metric Systems 1987 PhotoLink Surface modification 1990 Marketing Biomolecule Stabilization Products 1997 SurModics 1998 SurModics went public 2007 Entered In- Vitro market SurModics strives to improve patient lives and support customers objectives through technology innovation: 1.Servicing Medical Device customers. 2.In-Vitro Diagnostic Customers

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 4 Business Today – Financial Summary - Anne Selected Financial Data (In thousands) Quarterly ResultsAnnual Results 6/30/20143/31/201412/31/20139/30/20139/30/20129/30/20119/30/2010 Income Statement Revenue: Royalties and license fees $ 7,385 $ 7,329 $ 7,465 $ 29,774 $ 27,445 $ 30,385 $ 34,277 Product sales 6,067 5,165 5,400 22,506 20,742 20,150 20,184 Research and development 1,164 1,110 1,018 3,852 3,741 2,221 15,437 Total revenue 14,616 13,604 13,883 56,132 51,928 52,756 69,898 Operating costs and expenses: Research and development 3,655 4,134 3,699 15,079 14,143 14,005 36,063 Operating income from continuing operations 5,333 3,480 4,329 18,820 16,342 15,523 (14,053) Gross operating margin36.5%25.6%31.2%33.5%31.5%29.4%-20.1% Balance Sheet Cash and cash equivalents 39,729 8,444 10,516 15,495 15,540 23,217 11,391 Available-for-sale securities 17,379 42,819 42,630 42,609 42,550 41,950 41,271 Held-to-maturity securities ,030 4,124 Cash and securities 57,108 51,263 53,146 58,104 58,090 68,197 56,786 Total Liabilities 6,046 5,049 6,108 8,106 9,331 17,318 15,920 Total Stockholders Equity 94,671 90,633 88,948 93,817 94, , ,359 Cash Flow Net cash provided by operating activities from continuing operations 12,466 5,936 4,250 17,781 17,626 22,900 22,008

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 5 Business Today – Competition / Macro-Influence - Kristi Competition Currently service half of the top ten Global In Vitro Diagnostic Companies Competitors include Myriad Genetics Inc, and Celldex Therepeutics Inc. Threat of new entrants is low given strict regulations, high R&D costs and high start-up costs Macro-Influence Government regulations - drive cost / limit number of competitors Healthcare reform - more insured possibly impact number of consumers receiving diagnostic services Inflation – may impact cost of supplies

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 6 Business Today – Key Business Drivers - Jin Marketing –A strong supporter of professional, scientific, and local community organizations. –Long-Term Growth / outperforming market Human resources –Employees able to use skills with equal opportunity –Culture of collaboration Operations –Two core businesses include: Medical Device and In Vitro Diagnostics (IVD) –Differentiated products through focused research

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 7 Financial Plan – Business Strategy - Ray Mission: Exceed customer expectations and enhance the well being of patients by providing the world’s foremost, innovative surface modification technologies and in vitro diagnostic chemical components. Strategy: To partner with the worlds leading and emerging medical device, diagnostic and life science companies to develop and commercialize innovative products designed to improve lives by enabling the detection and treatment of disease. –Differentiated product offering with acquisition of device companies –Expand reach geographically in the body (surgical balloon technology) –Expand reach geographically from a world footprint

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 8 Financial Plan – Key Assumptions - Ray Medical device industry will continue to grow. The need for better lubrication on devices will continue to increase. The necessity for better balloon technology to replace coronary stints will increase. That funding for medical procedures will be available. They were negatively impacted by the 2008 recession. That companies working in similar technologies will be available for acquisition to grow SurModics diversity of product offerings. Financial assumptions – Reviewed with Pro Forma

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 9 Financial Plan – Growth Plans - Beth Growth Opportunities for Medical Devices: 1.Neurovascular 2.Transcatheter heart valve repair and replacement 3.Peripheral Vascular SurModics Expansion Will Focus On: 1.Acquisition and expanding market with complimentary medical devices 2.Maintain Status as Market Leader in Hydrophilic Partnering 3.Increase Investment in Device Coatings 4.Increase Investment in Uncoated Devices

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 10 Financial Plan – Funding Required - Anne Funding required –Research and development –Acquisitions Sources & applications –$175M in additional common stock –$20M line of credit

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 11 Financial Plan - Risks - Kristi Financial Operational Resource-related Reputational

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 12  ROI on Marketing is not a significant part of business  ROI on Operations will be in expanded capacity to develop new products and develop into new geographic markets  ROI on HR will be focused around adding staff with intellectual capital to develop new products Financial Plan – Expected ROI - Jin

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 13 Financial Plan – Pro Forma Summary - Anne

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 14 Financial Plan – Balance Sheet - Anne

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 15 Financial Plan – Liabilities & Equity - Anne

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 16 Conclusion / Recommendations - Kristi Conclusion –Good investment opportunity with the new balloon technology preparing for clinical trials –No debt / Tons of cash Potential takeover target –Looking at companies to acquire –Aging population is contributing to current growth. Recommendations –Continue to find solutions for this specific medical niche –Seek suitable niche for the next generation of patients & procedures –Maintain fiduciary responsibility and financial health

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 17 Project Learning's - Jin Pro Forma – how complex building a Pro Forma is: Built on assumptions Financial Statements tell a good story about how a company grows Planning as a team results in good balance of effort and quick results WebEx is very effective for group projects Team helping to provide information and collaboration of ideas for specific slides

CONFIDENTIAL – NOT FOR REDISTRIBUTIONfilename 18 Appendices - Anne SurModics Financial Data Income Statement Balance Sheet Cash Flow Select Financial Data For best viewing – right click and select “Worksheet Object / Open”