Surmodics Annual Report 2019

Plain-text annual report

jUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 Form 10-K (Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2019or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number 0-23837 SURMODICS, INC.(Exact Name of Registrant as Specified in Its Charter) Minnesota41-1356149(State or other jurisdiction ofincorporation or organization)(IRS EmployerIdentification No.) 9924 West 74th StreetEden Prairie, Minnesota55344(Address of Principal Executive Offices)(Zip Code) (Registrant’s Telephone Number, Including Area Code)(952) 500-7000Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassTrading Symbol(s)Name of Each Exchange on WhichRegisteredCommon Stock, $0.05 par valueSRDXNasdaq Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒☒Indicate by check mark whether the registrant: (1) has ﬁled all reports required to be ﬁled by Sec(cid:43)on 13 or 15(d) of the Securi(cid:43)es Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☒ No ☐Indicate by check mark whether the registrant has submi(cid:48)ed electronically every Interac(cid:43)ve Data File required to be submi(cid:48)ed pursuant to Rule 405 of Regula(cid:43)on S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☒ No ☐Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, a smaller repor(cid:43)ng company, or an emerging growth company.See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:Large accelerated filer☐ Accelerated filerNon-accelerated filer☐ Smaller reporting company☐ Emerging growth company☐If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transi(cid:43)on period for complying with any new or revised ﬁnancialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒☒The aggregate market value of the Common Stock held by shareholders other than oﬃcers, directors or holders of more than 5% of the outstanding stock of the registrant as ofMarch 31, 2019 was approximately $389 million (based upon the closing sale price of the registrant’s Common Stock on such date).The number of shares of the registrant’s Common Stock outstanding as of November 30, 2019 was 13,549,070.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s Proxy Statement for the Registrant’s 2020 Annual Meeting of Shareholders are incorporated by reference into Part III. Table of Contents Page Forward-Looking Statements3 Part I Item 1.Business4 Information About Our Executive Officers16Item 1A.Risk Factors18Item 1B.Unresolved Staff Comments27Item 2.Properties27Item 3.Legal Proceedings27Item 4.Mine Safety Disclosures27 Part II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities28Item 6.Selected Financial Data30Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations30Item 7A.Quantitative and Qualitative Disclosures About Market Risk41Item 8.Financial Statements and Supplementary Data42Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure42Item 9A.Controls and Procedures42Item 9B.Other Information43 Part III Item 10.Directors, Executive Officers and Corporate Governance44Item 11.Executive Compensation44Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters44Item 13.Certain Relationships and Related Transactions, and Director Independence44Item 14.Principal Accountant Fees and Services44 Part IV Item 15.Exhibits and Financial Statement Schedule45Signatures 50Forward-Looking StatementsCertain statements contained in this Form 10-K, or in other reports of the Company and other wri(cid:48)en and oral statements made from (cid:43)me to (cid:43)me bythe Company, do not relate strictly to historical or current facts. As such, they are considered “forward-looking statements” that provide current expecta(cid:43)ons orforecasts of future events. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securi(cid:43)es Li(cid:43)ga(cid:43)on Reform Act of1995. Such statements can be iden(cid:43)ﬁed by the use of terminology such as “an(cid:43)cipate,” “believe,” “could,” “es(cid:43)mate,” “expect,” “forecast,” “intend,” “may,”“plan,” “possible,” “project,” “will” and similar words or expressions. Any statement that is not a historical fact, including es(cid:43)mates, projec(cid:43)ons, future trendsand the outcome of events that have not yet occurred, is a forward-looking statement. The Company’s forward-looking statements generally relate to its growthand transforma(cid:43)on strategy, including its whole-product solu(cid:43)ons strategy and its ability to develop, commercialize and obtain regulatory approval of medicaldevice products, ﬁnancial prospects, product development programs including development and commercializa(cid:43)on of the SurVeil™ drug-coated balloon(“SurVeil DCB”), including related license fee revenue and the es(cid:43)mated cost associated with the TRANSCEND clinical trial and other clinical trials, sales eﬀorts,the impact of signiﬁcant customer agreements, including its agreements with Medtronic plc (“Medtronic”) and Abbo(cid:48) Vascular, Inc. (“Abbo(cid:48)”), the impact ofacquisitions and its expecta(cid:43)ons related to expenses and regulatory approvals. You should carefully consider forward-looking statements and understand thatsuch statements involve a variety of risks and uncertain(cid:43)es, known and unknown, and may be aﬀected by inaccurate assump(cid:43)ons. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. The Company undertakes no obliga(cid:43)on to update any forward-looking statement.Investors are advised not to place undue reliance upon the Company’s forward-looking statements and to consult any further disclosures by the Company onsuch topics in this and other ﬁlings with the Securi(cid:43)es and Exchange Commission (“SEC”). Factors that could cause the Company’s actual results to diﬀer fromthose discussed in the forward-looking statements include, but are not limited to, those described in Item 1A “Risk Factors” below. 3PART IITEM 1. BUSINESS.OVERVIEWSurmodics, Inc. and subsidiaries (referred to as “Surmodics,” the “Company,” “we,” “us,” “our” and other like terms) is a leading provider of medicaldevice and in vitro diagnos(cid:43)c technologies to the healthcare industry. Our mission is to improve the treatment and detec(cid:43)on of disease by using our technologyto provide solu(cid:43)ons to diﬃcult medical device and diagnos(cid:43)c challenges. We aim to develop highly diﬀeren(cid:43)ated products designed to improve pa(cid:43)entoutcomes through enhanced treatment of vascular disease. Both our Medical Device and In Vitro Diagnos(cid:43)cs businesses have partnered with many of theworld’s leading and emerging medical device, diagnos(cid:43)c and life sciences companies to commercialize our proprietary medical device, surface modiﬁca(cid:43)on anddiagnostics technologies.The Company was organized as a Minnesota corpora(cid:43)on in June 1979. We make available, free of charge, copies of our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports ﬁled or furnished pursuant to Sec(cid:43)on 13(a) or 15(d) of theSecuri(cid:43)es Exchange Act of 1934 (the “Exchange Act”) on our website, www.surmodics.com, as soon as reasonably prac(cid:43)cable a(cid:80)er ﬁling such materialelectronically or otherwise furnishing it to the SEC. We are not including the informa(cid:43)on on our website as a part of, or incorpora(cid:43)ng it by reference into, ourForm 10-K.The SEC maintains a website that contains reports, proxy and informa(cid:43)on statements, and other informa(cid:43)on regarding issuers, including the Company,that ﬁle electronically with the SEC. The public may obtain any documents that we ﬁle with the SEC at http://www.sec.gov. We ﬁle annual reports, quarterlyreports, proxy statements, and other documents with the SEC under the Exchange Act.The informa(cid:43)on below provides an overview of the principal products, services and markets for each of our two business units. The discussion of otheraspects of our business including research and development (“R&D”), intellectual property, marke(cid:43)ng and sales, future acquisi(cid:43)on strategy, signiﬁcantcustomers, compe(cid:43)(cid:43)on, manufacturing, government regula(cid:43)on and our employees applies to our business in general and we describe material segmentinformation within these sections where relevant.MEDICAL DEVICE SEGMENTAdvances in medical device technology have helped drive improved device eﬃcacy and pa(cid:43)ent outcomes. The convergence of the pharmaceu(cid:43)cal,biotechnology and medical device industries, o(cid:80)en made possible by surface coa(cid:43)ngs and device drug-delivery technologies (together, “surface modiﬁca(cid:43)oncoa(cid:43)ng technologies”), presents an opportunity for major advancements in the healthcare industry. We believe the beneﬁts of combining drugs and biologicswith implantable and minimally invasive devices are becoming increasingly valuable in applica(cid:43)ons in cardiology, peripheral vascular disease, neurology,ophthalmology, orthopedic and other large interventional markets.In an eﬀort to improve their exis(cid:43)ng products or develop en(cid:43)rely new devices, a growing number of medical device manufacturers are exploring or usingsurface modiﬁca(cid:43)on coa(cid:43)ng technologies as product diﬀeren(cid:43)ators or device enablers. The con(cid:43)nuing trend toward minimally invasive surgical procedures,which o(cid:80)en employ catheter-based delivery technologies, has increased the demand for hydrophilic (i.e., lubricious or slippery) coa(cid:43)ngs and other coa(cid:43)ngtechnologies, including drug-delivery coa(cid:43)ngs. For example, stents, par(cid:43)cularly drug-elu(cid:43)ng stents, have signiﬁcantly reduced the need for repeat intravascularprocedures or more invasive cardiac bypass surgery. Drug-coated balloons (“DCBs”) have further transformed intravascular therapies by enhancing pa(cid:43)entoutcomes while not leaving stents in the vascular system. Transcatheter heart valve repair or replacement via a minimally invasive catheter-based system hasenabled the treatment of pa(cid:43)ents suﬀering from heart valve disease who are too ill to undergo open-heart surgery. Posi(cid:43)ve clinical outcomes and acceptanceby pa(cid:43)ents, physicians and insurance companies of such innova(cid:43)ons has helped certain segments of the United States (“U.S.”) medical device industry grow at afaster pace than the economy as a whole. The attractiveness of the industry has drawn intense competition among the companies participating in this area.For many years, we have provided surface modiﬁca(cid:43)on coa(cid:43)ng technologies that impart lubricity, prohealing or biocompa(cid:43)bility characteris(cid:43)cs, as wellas drug delivery capabili(cid:43)es to enhance our customers’ medical devices and delivery systems. Since ﬁscal 2013, with our investment in our DCB pla(cid:83)orm, wehave been focused on a strategy to develop and manufacture proprietary medical device products that combine our surface modiﬁca(cid:43)on coa(cid:43)ngs with medicaldevices or delivery systems (“whole-product solutions”). We believe this strategy has and will continue to increase our relevance in the medical device4industry. The strategy is key to our future growth and proﬁtability, given the prospect of capturing more revenue and opera(cid:43)ng margin with whole-productsolutions as compared with device-enabling technologies. We also continue to develop and commercialize our surface modification coating technologies throughlicense agreements with third party medical device manufacturers.We have established our medical device design, development and manufacturing capabili(cid:43)es through internal projects and acquisi(cid:43)ons over the pastseveral years, with the goal of developing and commercializing at least 12 medical device products by the end of ﬁscal 2023. To that end, we have invested instate-of-the-art R&D and manufacturing facili(cid:43)es in Ireland and the U.S. and are leveraging our balloon catheter, ultra-thin-walled catheter, thrombectomy andsurface modiﬁca(cid:43)on coa(cid:43)ng technologies to develop new product pla(cid:83)orms and medical device products with a primary focus on treatment of peripheral arterydisease (“PAD”). Our aim is to develop highly diﬀeren(cid:43)ated medical devices that address unmet clinical needs, improve pa(cid:43)ent outcomes and reduce procedurecosts.We are also commi(cid:48)ed to developing or acquiring diﬀeren(cid:43)ated technology to support our medical device product development pipeline. In July 2019,the Company acquired an early-stage device technology with mul(cid:43)ple poten(cid:43)al peripheral vascular applica(cid:43)ons. In May 2018, we acquired an innova(cid:43)vethrombectomy pla(cid:83)orm technology with broad poten(cid:43)al applica(cid:43)ons in peripheral vascular and other areas. These acquisi(cid:43)ons resulted in acquired in-processR&D charges of $0.8 million and $7.9 million in ﬁscal 2019 and 2018, respec(cid:43)vely. We plan to leverage our design, development and manufacturing capabili(cid:43)esto advance these acquired technology platforms for a variety of peripheral vascular applications as part of our whole-product solutions strategy.Overview of Interventional Peripheral Market and Whole-Product Solutions StrategyPAD is a condi(cid:43)on that causes a narrowing of the blood vessels supplying the extremi(cid:43)es, most o(cid:80)en due to plaque buildup in the arterial walls. Le(cid:80)untreated, PAD may lead to symptoms such as large non-healing ulcers, infec(cid:43)ons, or gangrene, and may require limb amputa(cid:43)on or, in extreme cases, result indeath.The American Heart Associa(cid:43)on has reported that an es(cid:43)mated 8.5 million Americans and 200 million people worldwide are living with PAD. The numberof people aﬀected by PAD is expected to increase as a result of an aging popula(cid:43)on, coupled with increasing prevalence of condi(cid:43)ons linked to PAD, such asdiabetes and obesity. The interven(cid:43)onal PAD market u(cid:43)lizes a variety of access and therapy catheters to treat PAD. These technologies are delivered through anumber of access points into the vascular system including femoral (leg), radial (wrist or arm) and pedal (foot).Our business model for our whole-product solu(cid:43)ons strategy is to design, develop and manufacture highly diﬀeren(cid:43)ated products that incorporate ourproprietary catheter, balloon, thrombectomy and surface modiﬁca(cid:43)on coa(cid:43)ng technologies to improve pa(cid:43)ent outcomes and reduce procedure costs, whilemaintaining pa(cid:43)ent safety. We are focused on developing devices that consider the needs of various care se(cid:85)ngs ranging from hospitals to alternate carefacili(cid:43)es, in order to provide improved care. The strategy has been built on our investment in proprietary device technologies, as well as state-of-the-art medicaldevice design, development and manufacturing capabili(cid:43)es. Combined with our leadership in surface modiﬁca(cid:43)on coa(cid:43)ng technologies, we are developingwhole-product solu(cid:43)ons to address unmet needs in the treatment of PAD and other vascular diseases. Over the past several years we have made investments toenhance our clinical and regulatory capabili(cid:43)es and in ﬁscal 2020, we intend to make addi(cid:43)onal investments to obtain clinical data and drive clinicianengagement with our products a(cid:80)er approval. These investments are intended to reduce the (cid:43)me from product development to commercializa(cid:43)on and ensureour products have clinician support and adop(cid:43)on. Our development eﬀorts to date have yielded several device technology pla(cid:83)orms that we an(cid:43)cipate willcompete in the interventional vascular market, with a primary focus on treatment of PAD.5Drug-coated balloonsDCBs are currently used in a variety of vascular interven(cid:43)ons and may be helpful in preven(cid:43)ng restenosis, or the narrowing of vessels a(cid:80)er treatment.Surmodics is focused on the development of DCB’s to treat PAD and the development of our SurVeil™ DCB to treat the superﬁcial femoral artery over the pastseveral years has been a major component of our whole-product solu(cid:43)ons strategy. During ﬁscal 2016, we ini(cid:43)ated PREVEIL, an early feasibility clinical trial ofthe SurVeil DCB, which is intended to treat PAD in the leg above the knee. Enrollment in PREVEIL was completed in the second quarter of ﬁscal 2017 and thestudy met its primary endpoint by demonstra(cid:43)ng peak paclitaxel plasma concentra(cid:43)ons post-index procedure. Consistent with pre-clinical data, systemic levelswere low and cleared rapidly. Data from the PREVEIL study con(cid:43)nues to demonstrate posi(cid:43)ve results and showed no clinically driven target lesionrevascularization after 12 months.We began enrollment in the TRANSCEND pivotal clinical trial for our SurVeil™ DCB in the ﬁrst quarter of ﬁscal 2018, with the objec(cid:43)ve of obtaining datanecessary to support regulatory approvals and reimbursement for this device in the U.S. as well as CE Mark approval. Un(cid:43)l regulatory approvals have beenobtained, our SurVeil DCB is not approved for commercial sale. In August 2019 we completed enrollment in TRANSCEND.On March 15, 2019, the United States Food and Drug Administration (“FDA”) issued a communica(cid:43)on (the “FDA communica(cid:43)on”) to healthcare providersabout the poten(cid:43)al for increased long-term mortality a(cid:80)er use of paclitaxel-coated balloons and paclitaxel-elu(cid:43)ng stents (collec(cid:43)vely “paclitaxel-coatedproducts”) to treat peripheral arterial disease (“PAD”) in the femoropopliteal artery. The FDA communica(cid:43)on updated a previous no(cid:43)ﬁca(cid:43)on from the FDA onthe same topic, which was in response to meta-analysis of randomized trials published in the Journal of the American Heart Associa(cid:43)on in December 2018. As aresult of the FDA communica(cid:43)on and the poten(cid:43)al long-term mortality signal related to the use of paclitaxel-coated devices, the regulatory body with which weapplied for a Conformité Européenne Mark (“CE Mark”) to allow for commercializa(cid:43)on of SurVeil in the European Union (“EU”) has no(cid:43)ﬁed us that they havetemporarily paused review of submissions of paclitaxel-coated devices. This pause and the current regulatory debate over paclitaxel-coated devices have causeduncertainty regarding our goal of receiving a CE Mark by the end of calendar 2019 and subsequent commercializa(cid:43)on of the product in ﬁscal 2020. As a result,we no longer expect revenue related to commercialization of this product in the EU or any associated milestones in fiscal 2020.In ﬁscal 2018, we entered into an agreement with Abbo(cid:48) that provided Abbo(cid:48) with exclusive worldwide commercializa(cid:43)on rights for the SurVeil DCB(the “Abbo(cid:48) Agreement”). Pursuant to the terms of the Abbo(cid:48) Agreement, Surmodics received a $25 million upfront payment and a $10 million payment as aresult of the comple(cid:43)on of enrollment in the TRANSCEND trial. Separately, Abbo(cid:48) also received op(cid:43)ons to nego(cid:43)ate agreements for Surmodics' below-the-knee and arteriovenous (“AV”) ﬁstula DCB products, which are currently in pre-clinical development and a ﬁrst-in-human clinical trial, respec(cid:43)vely. We arecollabora(cid:43)ng with Abbo(cid:48) on product development, clinical trials and regulatory ac(cid:43)vi(cid:43)es to obtain marke(cid:43)ng clearances in the U.S. and the EU for the SurVeilDCB. Expenses related to these ac(cid:43)vi(cid:43)es are primarily paid by Surmodics. In addi(cid:43)on to the upfront and clinical trial milestone payments received to date, wemay earn up to an addi(cid:43)onal $57 million upon achievement of certain other milestones related to regulatory approval and clinical trial ac(cid:43)vi(cid:43)es. Upon theregulatory approval of the SurVeil DCB, Surmodics will be responsible for manufacturing clinical and commercial quan(cid:43)(cid:43)es of the product and will realizerevenue from product sales to Abbott, as well as a share of profits resulting from sales to third parties.Our DCB product pla(cid:83)orm also includes our paclitaxel-coated Avess™ DCB for the treatment of AV ﬁstulae and our sirolimus-coated Sundance™ DCB forthe treatment of below-the-knee PAD, otherwise known as cri(cid:43)cal limb ischemia (“CLI”). We commenced and completed enrollment in a ﬁrst in-human clinicalstudy of our Avess DCB in ﬁscal 2019. In ﬁscal 2019, we froze the design of our Sundance DCB and submi(cid:48)ed an applica(cid:43)on for a ﬁrst in-human study of thisdevice. We expect to commence this study in ﬁscal 2020. More than 3.5 million pa(cid:43)ents are es(cid:43)mated to be diagnosed with CLI in the U.S. by 2020. Rates ofamputa(cid:43)on and death are signiﬁcant for CLI pa(cid:43)ents and there are currently no drug-delivery devices approved to treat the condi(cid:43)on in the U.S. In October2019, the FDA designated the Sundance DCB as a “Breakthrough Device” under the FDA’s Breakthrough Devices Program. The program, launched in December2018, is designed to streamline the market clearance/approval process for products that have the poten(cid:43)al to provide for more eﬀec(cid:43)ve treatment or diagnosisof life-threatening or irreversibly debilitating diseases or conditions.Radial access devices and other specialty cathetersO(cid:80)en, interven(cid:43)onal vascular procedures require one or more devices to provide appropriate access and necessary support for the physician. Ourintegra(cid:43)on of proprietary low-proﬁle balloon catheter, ultra-thin-walled catheter, and surface modiﬁca(cid:43)on coa(cid:43)ng technologies is genera(cid:43)ng a pipeline ofhighly diﬀeren(cid:43)ated medical devices that improve on currently available minimally-invasive PAD treatments, or in some cases oﬀer an op(cid:43)on for complex cases.Our specialty catheters are designed for high performance in challenging vascular anatomy, providing clinicians enhanced ability to access, cross and treatincreasingly complex vascular lesions.6We are developing a series of devices designed to provide radial (wrist) access to the peripheral vasculature. Radial artery access, which has already beenwidely adopted for coronary applica(cid:43)ons, oﬀers many beneﬁts rela(cid:43)ve to tradi(cid:43)onal femoral artery access. These beneﬁts include reduced bleedingcomplications, earlier ambulation and reduced length of stay and costs. We believe the integra(cid:43)on of our catheter and coa(cid:43)ngs technologies will result in highlydifferentiated radial access devices intended to capture market share from standard femoral access devices.During ﬁscal 2019, we received FDA clearance for the Sublime™ guide sheath, designed to enable the delivery of lower extremity interven(cid:43)ons from theradial artery. We expect to con(cid:43)nue to develop and pursue clearance for other radial access devices in our ﬁscal 2020, including our Sublime radial-access .014”PTA balloon catheter.Our specialty catheter por(cid:83)olio has advanced with the execu(cid:43)on of agreements with two leading, mul(cid:43)-na(cid:43)onal medical device companies to distributeour Telemark™ coronary/peripheral support microcatheter in the U.S. and Europe and our .014” and .018” low-proﬁle percutaneous transluminal angioplasty(“PTA”) balloon dila(cid:43)on catheters on a worldwide basis. We expect to commence commercial sales of each of these products through our distribu(cid:43)on partnersin fiscal 2020.ThrombectomyAcute vascular occlusion, or the blocking of arteries by clots or plaque is another peripheral vascular condi(cid:43)on commonly associated with PAD. O(cid:80)en,these clots require surgical interven(cid:43)on and have proven diﬃcult to remove with currently available medical device technologies. A similar condi(cid:43)on in thevenous system, known as Venous Thromboembolism (“VTE”), includes both pulmonary embolism and deep vein thrombosis. VTE has a high prevalence in the USand high overall and in-hospital mortality rates which causes strain on the U.S. healthcare system.We are leveraging our proprietary Pounce™ thrombectomy pla(cid:83)orm technology to develop products to treat these condi(cid:43)ons in a more eﬀec(cid:43)ve, cost-eﬃcient manner. The Pounce technology is designed to remove diﬃcult, organized (hard) blood clots that are o(cid:80)en diﬃcult for exis(cid:43)ng devices, and haspoten(cid:43)al applica(cid:43)ons in the peripheral vascular, neurology and coronary markets. The technology oﬀers an innova(cid:43)ve design that may reduce the need for theuse of thromboly(cid:43)cs, lowering the likelihood of ICU (cid:43)me and bleeding complica(cid:43)ons that aﬀect pa(cid:43)ent recovery and outcomes and increase the cost oftreatment. Our goal with this technology is to reduce procedure (cid:43)me and eliminate the need for addi(cid:43)onal external capital equipment, thereby providing aneasy-to-use, on-the-table solu(cid:43)on for clinicians. We have submi(cid:48)ed for FDA 510(k) clearance on our ﬁrst Pounce thrombectomy device to treat vascularthrombosis and expect to receive clearance in ﬁscal 2020. Our goal is to expand our thrombectomy pla(cid:83)orm to include devices designed to treat deep veinthrombosis, as well as stroke and pulmonary embolism.Overview of Surmodics’ Surface Modification Coating TechnologiesWe believe Surmodics is posi(cid:43)oned to take advantage of the con(cid:43)nuing trend of incorpora(cid:43)ng surface modiﬁca(cid:43)on coa(cid:43)ng technologies, par(cid:43)cularly inthe area of device drug-delivery, into the design of more eﬃcient and eﬀec(cid:43)ve combina(cid:43)on products, as well as new product applica(cid:43)ons. We have a growingproprietary technology por(cid:83)olio that incorporates our market exper(cid:43)se and insight, as well as unique collabora(cid:43)ve research, development and manufacturingcapabilities—key ingredients to bring innovation together to benefit patients and the healthcare industry.Coatings for Surface Modification and Device Drug DeliveryKey diﬀeren(cid:43)a(cid:43)ng characteris(cid:43)cs of our coa(cid:43)ng pla(cid:83)orms are their ﬂexibility, durability and ease of use. In terms of ﬂexibility, coa(cid:43)ngs can be applied tomany diﬀerent kinds of surfaces and can immobilize a variety of chemical, pharmaceu(cid:43)cal and biological agents. Addi(cid:43)onally, the surface modiﬁca(cid:43)on processcan be tailored to provide customers with the ability to improve their devices’ performance by choosing the speciﬁc coa(cid:43)ng proper(cid:43)es desired for par(cid:43)cularapplications. Our surface modification coating technologies also can be combined to deliver multiple surface-enhancing characteristics on the same device.Our proprietary PhotoLink® coa(cid:43)ng technology (“PhotoLink Technology”) is a versa(cid:43)le, easily applied, coa(cid:43)ng technology that modiﬁes medical devicesurfaces by crea(cid:43)ng covalent bonds between device surfaces and a variety of chemical agents. PhotoLink Technology can impart many performance enhancingcharacteris(cid:43)cs, such as advanced lubricity (slippery) and hemocompa(cid:43)bility (preven(cid:43)ng blood clot forma(cid:43)on), when bound onto surfaces of medical devices orother biological materials without materially changing the dimensions or other physical properties of devices.PhotoLink Technology reagents can be applied to a variety of substrates. The coa(cid:43)ng formula(cid:43)ons are easily applied to the material surface by a varietyof methods including, but not limited to, dipping, spraying, roll-coa(cid:43)ng or ink-je(cid:85)ng. We con(cid:43)nue to expand our proprietary reagent por(cid:83)olio for use by ourcustomers. These reagents enable our customers to develop novel surface7features for their devices, sa(cid:43)sfying the expanding healthcare industry requirements. We are also con(cid:43)nually working to expand the list of materials that arecompa(cid:43)ble with our surface modiﬁca(cid:43)on and device drug-delivery reagents. Addi(cid:43)onally, we develop coa(cid:43)ng processes and coa(cid:43)ng equipment to meet thedevice quality, manufacturing throughput and cost requirements of our customers.The PhotoLink Technology coa(cid:43)ng process is rela(cid:43)vely simple to use and is easily integrated into the customer’s manufacturing opera(cid:43)ons. In addi(cid:43)on,the process does not subject the coated products to harsh chemical or temperature conditions, produces no hazardous byproducts, and does not require lengthyprocessing or curing (cid:43)me. Further, coa(cid:43)ngs incorpora(cid:43)ng the PhotoLink Technology are generally compa(cid:43)ble with accepted steriliza(cid:43)on processes, so thesurface attributes are not lost when the medical device is sterilized.Our Serene® hydrophilic coa(cid:43)ng pla(cid:83)orm op(cid:43)mizes lubricity and durability while signiﬁcantly reducing par(cid:43)culates genera(cid:43)on. This next-genera(cid:43)on,PhotoLink Technology-enabled coa(cid:43)ng has demonstrated excellent lubricity on a wide range of substrates, and has been used on FDA-cleared coronary,peripheral and structural heart devices.Our device drug-delivery coa(cid:43)ng technologies allow therapeu(cid:43)c drugs to be incorporated within our proprietary polymer matrices to provide controlled,site-speciﬁc release of the drug into the surrounding environment. The drug release can be tuned to elute quickly (within minutes to a few days) or slowly (fromseveral months to over a year), illustra(cid:43)ng the wide range of release proﬁles that can be achieved with our coa(cid:43)ng systems. On a wide range of devices, drug-elu(cid:43)ng coa(cid:43)ngs can help improve device performance, increase pa(cid:43)ent safety and enable innova(cid:43)ve new treatments. Examples of short-term use drug-deliverydevices would include DCB’s and examples of longer-term drug-delivery devices would include drug elu(cid:43)ng stents. We work with companies in the medicaldevice and biotechnology industries to develop specialized coa(cid:43)ngs that allow for the controlled release of drugs from device surfaces. We see at least threeprimary areas with strong future poten(cid:43)al: (1) improving the func(cid:43)on of a device which itself is necessary to treat the medical condi(cid:43)on; (2) enabling site-speciﬁc drug delivery while limi(cid:43)ng systemic exposure; and (3) enhancing the biocompa(cid:43)bility of a medical device to ensure that it con(cid:43)nues to func(cid:43)on over along period of time.Licensing ArrangementsWe commercialize our surface modiﬁca(cid:43)on coa(cid:43)ng technologies primarily through licensing arrangements with medical device manufacturers. Webelieve this approach allows us to focus our resources on further developing new technologies and expanding our licensing ac(cid:43)vi(cid:43)es. Many of our technologieshave been designed to allow manufacturers to implement them easily into their own manufacturing processes so customers can control produc(cid:43)on and qualityinternally without the need to send their products to a contract manufacturer. We generate the largest por(cid:43)on of our revenue through licensing arrangements.Royal(cid:43)es and license fees represented 48.4%, 43.6% and 43.5% of our total revenue in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely. Revenue from these licensingarrangements typically includes license fees and milestone payments, minimum royal(cid:43)es, and royal(cid:43)es based on a percentage of licensees’ product sales. Wealso generate revenue from reagent chemical or medical device product sales to licensees for use in their coa(cid:43)ng processes. Addi(cid:43)onally, under the Abbo(cid:48)Agreement, we have provided worldwide commercializa(cid:43)on rights, including a license under certain of our intellectual property, for our SurVeil DCB. Duringﬁscal 2019 and 2018, we recognized license fee revenue of $13.5 million and $4.4 million related to the Abbo(cid:48) Agreement, which represents a por(cid:43)on of theup-front license fee and strategic milestone received under that agreement.The licensing process for our coa(cid:43)ng technology licenses begins with the customer specifying a desired product feature to be created such as lubricity ordrug delivery. Because each device and coa(cid:43)ng applica(cid:43)on is unique, we rou(cid:43)nely conduct a feasibility study to qualify each new poten(cid:43)al product applica(cid:43)on,o(cid:80)en genera(cid:43)ng commercial development revenue. Feasibility studies can range in dura(cid:43)on from several months to a year. A(cid:80)er we complete a feasibilitystudy, our customers cannot market their product un(cid:43)l they receive regulatory approval. As further described under the cap(cid:43)on “Government Regula(cid:43)on,” theregulatory approval process varies in each country and ranges from several months to four or more years. At any time prior to a customer’s commercial launch, alicense agreement may be executed gran(cid:43)ng the licensee rights to use our technology. We o(cid:80)en support our customers by providing coa(cid:43)ng assistance for partsrequired in animal tests and human clinical trials. Typically, we complete a technology transfer to most customers which enables those customers to apply thecoating at their own facilities.License agreement terms are generally for a speciﬁed number of years or our patent’s life, whichever is longer, although a license generally may beterminated by the licensee for any reason with advance wri(cid:48)en no(cid:43)ce. In cases where the royalty obliga(cid:43)on extends beyond the life of the applicable patent, itis because the license also includes rights to our know-how or other proprietary rights. Under these circumstances, the royalty obliga(cid:43)on typically con(cid:43)nues at areduced royalty rate for a specified number of years generally tied to the date on which the customer’s product was first sold.8Our license agreements may include certain license fees and/or milestone payments. Substan(cid:43)ally all our licensed coa(cid:43)ngs technology applica(cid:43)ons arenonexclusive, allowing us to license each technology to mul(cid:43)ple customers. Moreover, even exclusive coa(cid:43)ngs technology licenses generally are limited to aspeciﬁc “ﬁeld of use,” allowing us the opportunity to further license technology to other customers. The royalty rate on a substan(cid:43)al number of the coa(cid:43)ngsagreements has tradi(cid:43)onally been in the 2% to 3% range, but there are certain contracts with lower or higher rates. In certain agreements, our royalty is basedon an agreed-upon amount per unit. License fees, milestone payments, and the royalty rates are based on various factors, including the licensed product’s ortechnology’s stage of development, the perceived value of our technology to the customer’s product, the size of the poten(cid:43)al market, and whether thearrangement is exclusive or nonexclusive. Our agreements o(cid:80)en incorporate a minimum royalty to be paid by the licensee. Royalty payments generallycommence one quarter a(cid:80)er the customer’s actual product sales occur because of the delay in repor(cid:43)ng sales by our licensees. As such, we historicallyrecognized royalty revenue in the quarter that customer royalty payments were due to us. Commencing in ﬁscal 2019 we adopted the new revenue recogni(cid:43)onaccoun(cid:43)ng standard under which we es(cid:43)mate and recognize sales-based royalty revenue from our coa(cid:43)ng technology licensees in the same quarter that theunderlying customer product sale occurs.We have over 150 licensed product classes (customer products u(cid:43)lizing Surmodics technology) already in the market genera(cid:43)ng royal(cid:43)es and greaterthan 100 customer product classes incorpora(cid:43)ng our technology in various stages of pre-commercializa(cid:43)on. We signed 18, 13 and 17 new licenses in ﬁscal 2019,2018 and 2017, respectively.Under our coa(cid:43)ngs technology license agreements, the responsibility for securing regulatory approval for and ul(cid:43)mately commercializing these productsrests with our customers. Our reliance on our customers in this regard and the potential risks to our operations as a result are discussed in Item 1A “Risk Factors”of this Form 10-K. Moreover, we are o(cid:80)en contractually obligated to keep the details concerning our customers’ R&D eﬀorts (including the (cid:43)ming of expectedregulatory ﬁlings, approvals and market introduc(cid:43)ons) conﬁden(cid:43)al. Our SurVeil DCB license requires us to complete certain ac(cid:43)vi(cid:43)es in order to obtainregulatory approval for the device. Given the signiﬁcant uncertainty inherent in product development and regulatory approval processes, the expected (cid:43)mingfor regulatory approval and commercialization for the products pending regulatory approval can vary greatly.Our licensing agreements generally require us to keep our customers’ iden(cid:43)(cid:43)es conﬁden(cid:43)al, unless they approve of such disclosure. Licensed customersthat allow the use of their name include: Abbo(cid:48) Laboratories and Abbo(cid:48) Vascular, Inc. (together, “Abbo(cid:48)”), Boston Scien(cid:43)ﬁc Corpora(cid:43)on (“Boston Scien(cid:43)ﬁc”),Cook Medical, Cordis Corpora(cid:43)on (a subsidiary of Cardinal Health, Inc.), Covidien PLC (a subsidiary of Medtronic), Edwards Lifesciences Corpora(cid:43)on, Evalve, Inc.(a subsidiary of Abbo(cid:48)), ev3 Inc. (a subsidiary of Medtronic), Medtronic, OrbusNeich Medical, Inc., and Spectrane(cid:43)cs Corpora(cid:43)on (a subsidiary of KoninklijkePhilips N.V.).IN VITRO DIAGNOSTICS SEGMENTThe Surmodics In Vitro Diagnos(cid:43)cs (“IVD”) business unit manufactures and sells components for in vitro diagnos(cid:43)c immunoassay and molecular tests andwe sell these components to the diagnos(cid:43)c, biomedical research, and life science markets. These components include protein stabilizers, substrates, an(cid:43)gens,antibodies and surface coatings.Immunoassay Diagnos(cid:45)cs. An immunoassay is a biochemical test that measures the presence or concentra(cid:43)on of a target molecule, or “analyte”, in abiological ﬂuid or sample. Analyte levels are correlated to the pa(cid:43)ent’s disease state or medical condi(cid:43)on to diagnose the presence, absence or severity ofdisease. Analytes can range from large molecules such as proteins to small molecules such as hormones. Immunoassays are developed and produced usingmul(cid:43)ple components. The component’s selec(cid:43)on and op(cid:43)miza(cid:43)on confer the assay quality and performance of the assay in terms of sensi(cid:43)vity andspeciﬁcity. IVD companies select these cri(cid:43)cal biochemical and reagent components to meet the assay’s diagnos(cid:43)c speciﬁca(cid:43)ons. We develop, manufacture andsell high-performing, consistent-quality and stable immunoassay component products to enable our customers’ diagnos(cid:43)c tests to detect the absence orpresence of disease.9Molecular Diagnos(cid:45)cs - DNA and Protein Immobiliza(cid:45)on. Both DNA and protein microarrays are useful tools for the pharmaceu(cid:43)cal, diagnos(cid:43)c andresearch industries. During a DNA gene analysis, typically thousands of diﬀerent probes need to be placed in a pa(cid:48)ern on a surface, called a DNA microarray.These microarrays are used by the pharmaceu(cid:43)cal industry to screen for new drugs, by genome mappers to sequence human, animal or plant genomes, or bydiagnos(cid:43)c companies to search a pa(cid:43)ent sample for disease causing bacteria or viruses. However, DNA does not readily adhere to most surfaces. We havedeveloped various surface chemistries for both DNA and protein immobiliza(cid:43)on. Protein microarrays are used as diagnos(cid:43)c and research tools to determine thepresence and/or quan(cid:43)ty of proteins in a biological sample. The most common type of protein microarray is the an(cid:43)body microarray, where an(cid:43)bodies arespotted onto a surface and used as capture molecules for protein detection.The sales cycle for our IVD products generally begins when an IVD company ini(cid:43)ates the process to develop a new, or improve a current, diagnos(cid:43)c test.During product development, these companies will look to source the test’s cri(cid:43)cal components with reagents it produces internally or with reagents from asupplier, such as Surmodics.As IVD tests are developed and various reagents are tested, companies will generally seek to op(cid:43)mize the sensi(cid:43)vity (false nega(cid:43)ve reduc(cid:43)ons),speciﬁcity (false posi(cid:43)ve reduc(cid:43)ons), speed ((cid:43)me from sample to results), convenience (ideally as few steps as possible) and cost eﬀec(cid:43)veness. Upon regulatoryapproval or clearance, the customer’s diagnos(cid:43)c test can be sold in the marketplace. It may take several years a(cid:80)er approval or clearance for the test to achievepeak market share and optimize Surmodics’ revenue.Overview of In Vitro Diagnostics ProductsProtein Stabilizers. We oﬀer a full line of stabiliza(cid:43)on products for the IVD market. These products increase sensi(cid:43)vity, reduce false posi(cid:43)ve and falsenega(cid:43)ve results, while extending the diagnos(cid:43)c test’s shelf life, thereby producing more consistent assay results. Our stabiliza(cid:43)on products are ready-to-use,eliminating the in-house manufacturing preparation time and cost of producing stabilization and blocking reagents.Substrates. We also provide colorimetric and chemiluminescent substrates to the IVD market under our BioFX® trademark. A substrate is the diagnos(cid:43)ctest kit component that detects and signals that a reac(cid:43)on has taken place so that a result can be recorded. Colorimetric substrates signal a posi(cid:43)ve diagnos(cid:43)cresult through a color change. Chemiluminescent substrates signal a posi(cid:43)ve diagnos(cid:43)c result by emi(cid:85)ng light. We believe that our substrates oﬀer a high levelof stability, sensitivity and consistency.An(cid:45)gens and An(cid:45)bodies. An(cid:43)gens and An(cid:43)bodies. We are the exclusive distributor in the U.S., Canada and Puerto Rico (and non-exclusive distributor inJapan) of DIARECT AG’s line of antigens and antibodies. DIARECT produces the majority of these antigens and antibodies using recombinant technology.Surface Coa(cid:45)ngs for Molecular Diagnos(cid:45)c Applica(cid:45)ons. We oﬀer custom coa(cid:43)ngs for molecular diagnos(cid:43)c applica(cid:43)ons, including DNA, RNA and proteinmicroarrays. Our TRIDIA™ surface coa(cid:43)ngs bind molecules to a variety of surfaces and geometries and may be customized for selec(cid:43)vity using passiva(cid:43)ngpolymers and reac(cid:43)ve groups. This proprietary technology immobilizes DNA and protein to adhere to tes(cid:43)ng surfaces. We oﬀer other surface coa(cid:43)ngs thatimprove flow characteristics through membranes and microfluidic channels on diagnostic devices including point-of-care components.10OTHER FACTORS IMPACTING OUR OPERATIONSResearch and DevelopmentOur R&D personnel work to enhance and expand our technology and product oﬀerings in the area of whole-product solu(cid:43)ons, drug delivery, surfacemodiﬁca(cid:43)on, and IVD through internal scien(cid:43)ﬁc inves(cid:43)ga(cid:43)on and proprietary product development. These scien(cid:43)sts and engineers also evaluate externaltechnologies in support of our corporate development ac(cid:43)vi(cid:43)es. Our R&D eﬀorts are all guided by the needs of the markets in which we do business.Addi(cid:43)onally, the R&D staﬀ support the business development staﬀ and business units in performing feasibility studies, and providing technical assistance toexis(cid:43)ng and poten(cid:43)al customers. These services, which generate our research, development and other revenue, include op(cid:43)mizing the relevant technologies forspeciﬁc customer applica(cid:43)ons, suppor(cid:43)ng clinical trials, training customers, and integra(cid:43)ng our technologies and know-how into customer manufacturingopera(cid:43)ons and developing whole-product solu(cid:43)ons that meet customers’ needs by integra(cid:43)ng our coa(cid:43)ng, medical device and medical device deliverytechnologies.In ﬁscal 2019, 2018 and 2017, our R&D expenses were $52.9 million, $41.0 million and $31.8 million, respec(cid:43)vely. R&D expenses are primarily comprisedof research, development, clinical and regulatory ac(cid:43)vi(cid:43)es necessary to design, develop and commercialize our products, as well as costs associated with ourresearch, development and other revenue. We intend to con(cid:43)nue inves(cid:43)ng signiﬁcantly in R&D to advance our medical device pla(cid:83)orm technologies, surfacemodiﬁca(cid:43)on coa(cid:43)ngs, device drug delivery and in vitro diagnos(cid:43)c technologies and to expand uses for our technology pla(cid:83)orms. We an(cid:43)cipate R&D expenseswill con(cid:43)nue to be signiﬁcant in ﬁscal 2020, primarily related to medical device product development, including our DCB development and related clinical studyac(cid:43)vi(cid:43)es. In addi(cid:43)on, we con(cid:43)nue to pursue access to products and technologies developed outside the Company to complement our DCB, radial access and/orthrombectomy platforms.Medical Device SegmentAs treatment technologies become more sophis(cid:43)cated and increasingly leverage minimally invasive techniques, we believe the need for improvedmedical devices that beneﬁt from surface modiﬁca(cid:43)on and device drug delivery will con(cid:43)nue to grow. We intend to con(cid:43)nue our development eﬀorts to expandour proprietary medical device oﬀerings, including advancing our surface modiﬁca(cid:43)on and device drug-delivery technologies to be(cid:48)er meet these needs acrossmul(cid:43)ple medical markets and to capture more of the ﬁnal product value. Our medical device product development and clinical ac(cid:43)vi(cid:43)es are primarily focusedon the peripheral vascular market, where we believe the integra(cid:43)on of our surface modiﬁca(cid:43)on, balloon catheter, thrombectomy and ultra-thin-walled cathetertechnologies will result in unique devices capable of producing be(cid:48)er pa(cid:43)ent outcomes in complex, diﬃcult-to-treat arterial disease cases. Our product pipelinecon(cid:43)nues to be bolstered through developing and acquiring medical device technologies and funding development ac(cid:43)vi(cid:43)es, which has included pre-clinical andclinical studies.In ﬁscal 2019, we acquired an early-stage technology to complement our pipeline of medical devices for treatment of PAD. This acquisi(cid:43)on, along withour ﬁscal 2018 acquisi(cid:43)on of a thrombectomy device technology as well as our signiﬁcant investments in our R&D infrastructure, facili(cid:43)es and personnel overthe past several years, reﬂect our ongoing commitment to strengthen our proprietary product pipeline and broaden our capacity for medical device R&Dac(cid:43)vi(cid:43)es. In ﬁscal 2018, we completed the build-out of an R&D-focused facility which we lease in Eden Prairie, Minnesota. This accomplishment broughttogether the development teams focused on our DCB, catheter, and thrombectomy pla(cid:83)orm technologies, as well as our internal regulatory team, in a state-of-the-art R&D facility in order to provide synergies and development eﬃciencies. Our facility in Ballinasloe, Ireland is focused on the design and manufacture ofballoon-based peripheral vascular devices. This facility’s capabili(cid:43)es include balloon forming, extrusion, coa(cid:43)ng, braiding and assembly of ﬁnished products, withsuﬃcient space for future growth. In ﬁscal 2017, we completed an expansion of R&D and manufacturing clean rooms as well as an analy(cid:43)cal lab to support ourwhole-product solu(cid:43)ons strategy. We have con(cid:43)nued to develop surface modiﬁca(cid:43)on coa(cid:43)ng and DCB chemistry technologies in our Eden Prairie, Minnesotafacili(cid:43)es. Our proprietary, whole-product solu(cid:43)ons integrate our surface modiﬁca(cid:43)on coa(cid:43)ngs, catheter, thrombectomy and balloon technologies and are beingdeveloped with a combined team from our U.S. and Irish facili(cid:43)es. In addi(cid:43)on to our DCB-pla(cid:83)orm products, we are execu(cid:43)ng on our plan to develop andcommercialize at least 12 medical device products by the end of ﬁscal 2023. Addi(cid:43)onal planned ac(cid:43)vi(cid:43)es include incorpora(cid:43)on of our catheter andthrombectomy technology pla(cid:83)orms into various other devices intended for the emerging peripheral vascular treatment market as well as ini(cid:43)a(cid:43)on of surfacemodiﬁca(cid:43)on experiments that improve medical device performance. In addi(cid:43)on to proprietary medical device product development, we work with ourcustomers to integrate the best possible surface modiﬁca(cid:43)on and device drug-delivery technologies with their products, not only to meet their performancerequirements, but also to perform services quickly so that the product may reach the market ahead of the compe(cid:43)(cid:43)on. To quickly solve problems that mightarise during the development and op(cid:43)miza(cid:43)on process, we oﬀer extensive capabili(cid:43)es in analy(cid:43)cal chemistry and surface characteriza(cid:43)on within our R&Dorganiza(cid:43)on. Our state-of-the-art instrumenta(cid:43)on and extensive experience allow us to test the purity of coa(cid:43)ng reagents, to monitor the elu(cid:43)on rate of drugfrom coa(cid:43)ngs, to measure coa(cid:43)ng thickness and smoothness, and to map the distribu(cid:43)on of chemicals throughout coa(cid:43)ngs. We believe our capabili(cid:43)es in thisarea exceed those of our competitors.11In Vitro Diagnostics SegmentOur R&D eﬀorts to grow our IVD business unit include iden(cid:43)fying and addressing unmet needs that exist in the global IVD marketplace. Our pipeline ofIVD products includes components for immunoassay and molecular diagnos(cid:43)c applica(cid:43)ons, such as, new protein stabilizers, detec(cid:43)on technologies, accessoryreagents and surface coatings that have the potential to add greater sensitivity, specificity, speed, convenience and lower cost for IVD test manufacturers.Clinical TrialsFor our DCB products, which combine a pharmaceu(cid:43)cal drug with a medical device, clinical studies are required in order for us to obtain regulatoryapproval or clearance. Each clinical trial includes a primary endpoint or endpoints, which measure eﬀec(cid:43)veness and/or safety of a device based on the product’sability to achieve a pre-speciﬁed outcome or outcomes and is selected based on the proposed intended use of the medical device. A pivotal trial is a deﬁni(cid:43)vestudy designed to gather evidence to evaluate the safety and eﬀec(cid:43)veness of a product prior to its marke(cid:43)ng. The following is a summary of our signiﬁcantclinical trial activities over the past three years.In the second quarter of ﬁscal 2017 we completed enrollment in our PREVEIL ﬁrst-in-human early feasibility study using the SurVeil DCB. Twelve-monthresults from PREVEIL indicated that acute success measures of safety were achieved in all pa(cid:43)ents, as well as 100 percent freedom from clinically-driven targetlesion revasculariza(cid:43)on. In July 2017, we received an inves(cid:43)ga(cid:43)onal device exemp(cid:43)on (“IDE”) from the FDA to ini(cid:43)ate a pivotal clinical trial of the SurVeil DCB.Enrollment in our randomized clinical trial, TRANSCEND, began in ﬁscal 2018 and was completed in August 2019. The TRANSCEND trial will provide the datanecessary to evaluate the safety and eﬀec(cid:43)veness of our SurVeil DCB compared with the Medtronic IN.PACT® Admiral® DCB in trea(cid:43)ng PAD in the upper leg.The trial enrolled 446 subjects at 65 global sites. The trial’s primary eﬃcacy endpoint is primary patency, deﬁned as a composite of freedom from restenosis andclinically-driven target lesion revasculariza(cid:43)on through 12 months post-index procedure. All randomized subjects will be followed through 60 months post-indexprocedure. If successful, the TRANSCEND clinical trial data will be used to support regulatory approvals and reimbursement in the U.S. and Europe. There is noassurance that the TRANSCEND clinical trial will support regulatory approval, or that any an(cid:43)cipated (cid:43)me frame will be met. We es(cid:43)mate that the total cost ofthe TRANSCEND clinical trial will range between $35 million to $40 million from inception to completion.In December 2018, we commenced a ﬁrst-in-human clinical study of our Avess DCB for treatment of AV ﬁstulae, commonly associated with hemodialysis.We completed enrollment in this 12-pa(cid:43)ent study in ﬁscal 2019 and expect to receive safety and eﬃcacy data to support applica(cid:43)on for a pivotal trial in ﬁscal2020.In September 2019, we submi(cid:48)ed an applica(cid:43)on for a ﬁrst-in-human study of our Sundance DCB for treatment of PAD below-the-knee. We expect thisstudy will commence in fiscal 2020.Patents and Proprietary RightsPatents and other forms of proprietary rights are an essen(cid:43)al part of Surmodics’ business. The Company aggressively pursues patent protec(cid:43)on coveringthe proprietary technologies that we consider strategically important to our business. In addi(cid:43)on to seeking patent protec(cid:43)on in the U.S., we also generally ﬁlepatent applica(cid:43)ons in European countries and, on a selec(cid:43)ve basis, other foreign countries. We strategically manage our patent por(cid:83)olio so as to ensure that wehave valid and enforceable patent rights protecting our technological innovations.We protect our extensive por(cid:83)olio of technologies through ﬁling and maintaining patent rights covering a variety of coa(cid:43)ngs, drug delivery methods,reagents, and formula(cid:43)ons, as well as par(cid:43)cular clinical device applica(cid:43)ons. As of September 30, 2019, Surmodics owned or had exclusive rights to 55 pendingU.S. patent applica(cid:43)ons and 148 foreign patent applica(cid:43)ons. Likewise, as of the same date, Surmodics owned or had exclusive rights to 141 issued U.S. patentsand 196 international patents.We have licensed our PhotoLink Technology on a non-exclusive basis to a number of our customers for use in a variety of medical device surfaceapplica(cid:43)ons, including those described above. In par(cid:43)cular, we have 28 issued U.S. patents, 9 pending U.S. patent applica(cid:43)ons, 51 issued interna(cid:43)onal patents,and 23 pending interna(cid:43)onal patent applica(cid:43)ons protec(cid:43)ng various aspects of these technologies, including composi(cid:43)ons, methods of manufacture andmethods of coa(cid:43)ng devices. The expira(cid:43)on dates for these patents and an(cid:43)cipated expira(cid:43)on dates of the patent applica(cid:43)ons range from ﬁscal 2020 to 2035.Moreover, these patents and patent applica(cid:43)ons represent dis(cid:43)nct families, with each family generally covering a successive genera(cid:43)on of the technology,including improvements that enhance coa(cid:43)ng performance, manufacturability, or other important features desired by our customers. Among these, our fourth-generation of our PhotoLink technology is protected by a family of patents that will expire in12early ﬁscal 2020. As noted above in “Licensing Arrangements,” the royalty obliga(cid:43)on in our typical license agreement is generally for a speciﬁed number of yearsor the patent life, whichever is longer. In cases where the royalty obliga(cid:43)on extends beyond the life of the applicable patent, it is because the license alsoincludes rights to our know-how or other proprietary rights. Under these circumstances, the royalty obliga(cid:43)on will con(cid:43)nue at a reduced royalty rate for aspecified number of years, as determined based on the speciﬁc terms and condi(cid:43)ons of the applicable customer agreement, generally (cid:43)ed to the date on whichthe customer’s product was ﬁrst sold. In recent years, we have successfully converted a number of our customers’ products u(cid:43)lizing this and otherearly-generation coating technologies to our advanced generation technologies, or extended the royalty-bearing term of their existing technology licenses.Royalty revenue associated with our fourth-genera(cid:43)on PhotoLink Technologies was approximately 21% of our consolidated revenue for each of the yearsended September 30, 2019, 2018 and 2017. In most of the license agreements covering our hydrophilic coa(cid:43)ng technologies, the customer’s royalty obliga(cid:43)onsextend, at a reduced rate, beyond expiration of the applicable patent(s) as a result of know-how and other proprietary rights licensed under the agreements.We also rely upon trade secrets, trademarks and other un-patented proprietary technologies. We seek to maintain the conﬁden(cid:43)ality of such informa(cid:43)onby requiring employees, consultants and other par(cid:43)es to sign conﬁden(cid:43)ality agreements and by limi(cid:43)ng access by par(cid:43)es outside the Company to suchinformation. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of this information, or that others will notbe able to independently develop such informa(cid:43)on. Addi(cid:43)onally, there can be no assurance that any agreements regarding conﬁden(cid:43)ality and non-disclosurewill not be breached, or, in the event of any breach, that adequate remedies would be available to us.Marketing and SalesThrough our whole-product solu(cid:43)ons strategy, we u(cid:43)lize our design, development, manufacturing and regulatory capabili(cid:43)es to provide our customersaccess to highly diﬀeren(cid:43)ated products that address important unmet clinical needs. While medical device product development and manufacturing capabilityand capacity scale-up have been a signiﬁcant focus over the past several years, we con(cid:43)nue to provide world-class surface modiﬁca(cid:43)on coa(cid:43)ng technologies toour medical device customers and sales of our hydrophilic coa(cid:43)ng reagents and related sales-based royal(cid:43)es con(cid:43)nue to account for the majority of the revenuefrom our Medical Device segment. For our whole-product solu(cid:43)ons, we have focused on nego(cid:43)a(cid:43)ng license and distribu(cid:43)on agreements with our customersthat call for revenue from product sales at a speciﬁed transfer price and, in certain cases, license fees and sales-based royal(cid:43)es. As we con(cid:43)nue to develop andseek regulatory approval for our proprietary medical device products, we expect the majority of revenue growth in the Medical Device business to come fromthese products.Sales and marke(cid:43)ng professionals working within our Medical Device business work in concert with our R&D personnel to coordinate commercializa(cid:43)onac(cid:43)vi(cid:43)es for both our surface modiﬁca(cid:43)on coa(cid:43)ngs and medical device products. Our sales professionals’ specializa(cid:43)on fosters an in-depth knowledge of theissues faced by our customers, such as industry trends, technology changes, biomaterial changes and the regulatory environment. We have signed agreementswith third-party distributors to bring our ﬁrst cleared proprietary medical device products to the market, which we expect to occur in ﬁscal 2020. Followingreceipt of 510(k) clearance or CE Mark, we conduct clinical evalua(cid:43)ons of our proprietary medical device products in order to generate clinical data and receiveimportant feedback regarding the a(cid:48)ributes and performance of our devices from physicians. These evalua(cid:43)ons allow us to build the value proposi(cid:43)on for eachof our products to support successful commercialization.With respect to our diagnos(cid:43)cs products, our sales professionals sell directly to IVD kit manufacturers and we enter into supply agreements with thirdparties to distribute those products around the world. We also offer diagnostics products for sale through our website.To support our marke(cid:43)ng and sales ac(cid:43)vi(cid:43)es, we publish technical literature on our various surface modiﬁca(cid:43)on, drug delivery, and IVD technologies andproducts. In addi(cid:43)on, we exhibit at major trade shows and technical mee(cid:43)ngs, adver(cid:43)se in selected trade journals and through our website, and conduct directmailings to appropriate target markets.We also oﬀer ongoing customer service and technical support to our customers. This service and support may begin with a feasibility study, and also mayinclude addi(cid:43)onal services such as assistance in the transfer of the technology to the customer, further op(cid:43)miza(cid:43)on, process control and troubleshoo(cid:43)ng,prepara(cid:43)on of product for clinical studies, and assistance with regulatory submissions for product approval. Some of these services are billable to customers,mainly feasibility and optimization activities. 13Significant CustomersRevenue from Abbo(cid:48) and Medtronic represented approximately 19% and 14%, respec(cid:43)vely, of our consolidated revenue for the year ended September30, 2019. Revenue from these customers was generated from mul(cid:43)ple products and ﬁelds of use, including revenue from the Abbo(cid:48) Agreement, substan(cid:43)allyall of which were recognized in our Medical Device segment. No other customer provided more than 6% of our consolidated revenue in ﬁscal 2019. Twocustomers in our IVD business accounted for 19% and 13%, respectively, of our IVD operating segment revenue.CompetitionMedical Device SegmentWe believe that the intense compe(cid:43)(cid:43)on within the medical device market creates opportuni(cid:43)es for our technologies as medical device manufacturersseek to diﬀeren(cid:43)ate their products through new enhancements or to remain compe(cid:43)(cid:43)ve with enhancements oﬀered by other manufacturers. Our PTA ballooncatheter and microcatheter products compete with larger original equipment manufacturer (“OEM”) suppliers, as well as some of our largest medical devicecustomers. We provide diﬀeren(cid:43)ated whole-product solu(cid:43)ons that integrate our surface modiﬁca(cid:43)on, catheter, balloon and other proprietary technologies. Webelieve our whole-product solu(cid:43)ons will be compe(cid:43)(cid:43)ve on the basis of their safety and eﬃcacy as a result of the innova(cid:43)ve design and diﬀeren(cid:43)ated coa(cid:43)ngand device design technology, which will lead to demonstrated improvements in pa(cid:43)ent outcomes through reduced invasiveness compared to other devicesused for comparable procedures.Because a signiﬁcant por(cid:43)on of our revenue depends on royal(cid:43)es derived from our customers’ medical device product sales incorpora(cid:43)ng our surfacemodiﬁca(cid:43)on coa(cid:43)ng technologies, we are also aﬀected by compe(cid:43)(cid:43)on within the markets for such devices. As we typically license our surface modiﬁca(cid:43)oncoa(cid:43)ng technologies on a non-exclusive basis, we beneﬁt by oﬀering our technologies to mul(cid:43)ple compe(cid:43)ng manufacturers of a device. However, compe(cid:43)(cid:43)onin the medical device market could also have an adverse eﬀect on us. While we seek to license our coa(cid:43)ngs products to established manufacturers, in certaincases, our surface modiﬁca(cid:43)on licensees may compete directly with larger, dominant manufacturers with extensive product lines and greater sales, marke(cid:43)ngand distribu(cid:43)on capabili(cid:43)es. We also are unable to control other factors that may impact commercializa(cid:43)on of our whole-product solu(cid:43)ons and licensees withmedical devices that u(cid:43)lize our surface modiﬁca(cid:43)on coa(cid:43)ngs, such as regulatory approval, marke(cid:43)ng and sales eﬀorts of our customers and licensees orcompe(cid:43)(cid:43)ve pricing pressures within the par(cid:43)cular market. Many of our exis(cid:43)ng and poten(cid:43)al compe(cid:43)tors have greater ﬁnancial, technical and marke(cid:43)ngresources than we have.The ability for surface modiﬁca(cid:43)on coa(cid:43)ng technologies to improve the performance of medical devices and drugs and to enable new product categorieshas resulted in increased compe(cid:43)(cid:43)on in these markets. Some of our compe(cid:43)tors oﬀer device drug-delivery technologies, while others specialize in lubricious orhemocompa(cid:43)ble coa(cid:43)ng technology. Some of these companies target cardiovascular, peripheral or other medical device applica(cid:43)ons. In addi(cid:43)on, because ofthe many product possibili(cid:43)es aﬀorded by surface modiﬁca(cid:43)on coa(cid:43)ng technologies, many of the large medical device manufacturers have developed, or areengaged in efforts to develop, internal competency in the area of surface modification, including drug-delivery technologies.We a(cid:48)empt to diﬀeren(cid:43)ate ourselves from our compe(cid:43)tors by providing what we believe is a high value-added approach to device, drug-delivery andsurface modiﬁca(cid:43)on coa(cid:43)ng technologies. We believe that the primary factors customers consider in choosing a par(cid:43)cular technology include performance (e.g.,ﬂexibility, ability to ﬁne tune drug elu(cid:43)on proﬁles, biocompa(cid:43)bility), ease of manufacturing, (cid:43)me-to-market, intellectual property protec(cid:43)on, ability to producemul(cid:43)ple products from a single process, compliance with manufacturing regula(cid:43)ons, ability to manufacture clinical and commercial products, customer serviceand total cost of goods (including manufacturing process labor). We believe our technologies deliver excep(cid:43)onal performance in these areas, allowing us tocompete favorably with respect to these factors. With respect to our licensed surface modiﬁca(cid:43)on coa(cid:43)ng technologies, we believe that the cost and (cid:43)merequired to obtain the necessary regulatory approvals signiﬁcantly reduces the likelihood of a customer changing the manufacturing process it uses once adevice or drug has been approved for sale.In Vitro Diagnostics SegmentCompe(cid:43)(cid:43)on in the diagnos(cid:43)cs market is highly fragmented. In the product lines in which we compete (protein stabiliza(cid:43)on reagents, substrates,an(cid:43)gens and surface chemistry technologies), we face an array of compe(cid:43)tors ranging from large manufacturers with mul(cid:43)ple business lines to smallmanufacturers that oﬀer a limited selec(cid:43)on of products. Some of our compe(cid:43)tors have substan(cid:43)ally more capital resources, marke(cid:43)ng experience, R&Dresources and produc(cid:43)on facili(cid:43)es than we do. We believe that our products compete on performance, stability (shelf life), sensi(cid:43)vity (lower levels detected,faster results), consistency and price. We believe that our continued competitive success will depend on our ability to gain market share, to develop14or acquire new proprietary products, obtain patent or other protection for our products and successfully market our products directly or through partners.ManufacturingWe manufacture our surface modiﬁca(cid:43)on and drug-delivery reagents and our IVD products in one of our Eden Prairie, Minnesota facili(cid:43)es. In certainlimited circumstances, we also provide contract manufacturing services for our customers, including, for example, coating their medical devices that are intendedfor pre-clinical and clinical development (including human clinical trials), and products that are sold for commercial use by our customers. We manufacture PTAballoon catheters and microcatheters in our Ballinasloe, Ireland facility, which oﬀers a suite of capabili(cid:43)es, including balloon forming, extrusion, coa(cid:43)ng,braiding and assembly of ﬁnished products. We plan to manufacture substan(cid:43)ally all of our whole-product solu(cid:43)ons devices in our Ireland facility as theproducts are launched. Our SurVeil DCB is currently manufactured in one of our Eden Prairie, Minnesota facili(cid:43)es as we scale up our Irish facility for DCBmanufacturing. We will maintain secondary, redundant manufacturing capacity in our U.S. facilities once full scale-up has been achieved in our Ireland facility.We a(cid:48)empt to maintain mul(cid:43)ple sources of supply for the key raw materials used to manufacture our products. We do, however, purchase some rawmaterials from single sources, but we believe that addi(cid:43)onal sources of supply are readily available. Further, to the extent addi(cid:43)onal sources of supply are notreadily available, we believe that we could manufacture such raw materials.We follow quality management procedures in accordance with applicable regula(cid:43)ons and guidance for the development and manufacture of materialsand device, biotechnology or combina(cid:43)on products that support clinical trials and commercializa(cid:43)on. In order to meet our customers’ needs in this area, ourmanufacturing facility in Eden Prairie, Minnesota is cer(cid:43)ﬁed to ISO 13485 and ISO 9001. Our manufacturing facility in Ballinasloe, Ireland is cer(cid:43)ﬁed to ISO13485. Each of these facilities is registered with the U.S. FDA as a “Contract Manufacturer.”Government RegulationOur medical device products and the IVD, third-party device and biotechnology products incorpora(cid:43)ng our technologies are o(cid:80)en required to undergolong, expensive and uncertain regulatory review processes that are governed by the U.S. FDA and other interna(cid:43)onal regulatory authori(cid:43)es. Our strategy for ourproprietary medical device products is to obtain regulatory clearance in the U.S and European Union. New medical devices can only be marketed in the U.S. a(cid:80)era pre-market no(cid:43)ﬁca(cid:43)on for 510(k) clearance or a pre-market approval (“PMA”) by the FDA. These processes can take anywhere from several months (e.g., formedical device products seeking regulatory approval under the 510(k) clearance process) to several years (e.g., for medical device products seeking regulatoryapproval under the PMA applica(cid:43)on process). In the European Union, regulatory approval is signiﬁed by the CE Mark, which is generally granted by one of thecompetent authori(cid:43)es and is based on the submission of a design dossier, a manufacturer valida(cid:43)on assessment, a third-party assessment, and review of thedesign dossier by a “No(cid:43)ﬁed Body.” In 2017, the European Union authorized new medical device regula(cid:43)on. The new regula(cid:43)on, which will impose signiﬁcantaddi(cid:43)onal pre-market and post-market requirements, becomes eﬀec(cid:43)ve for devices submi(cid:48)ed for CE Mark a(cid:80)er May 2020. Medical devices granted CE Markprior to May 2020 will require recertification based on the new requirements within five years after the effective date.With respect to our customers’ products that incorporate our surface modiﬁca(cid:43)on coa(cid:43)ng and IVD technologies, the burden of securing regulatoryapproval typically rests with our customers as the medical device manufacturers. With respect to our whole-product solu(cid:43)ons, including the SurVeil DCB, ourother DCB-pla(cid:83)orm devices and any addi(cid:43)onal medical device products that we develop, the burden of securing regulatory approval will rest on us unless wepartner with other organizations to pursue such approval.In support of our customers’ and our own regulatory ﬁlings, we maintain various conﬁden(cid:43)al Device Master Files with the FDA and provide technicalinforma(cid:43)on to other regulatory agencies outside the U.S. regarding the nature, chemical structure and biocompa(cid:43)bility of our reagents. Our licensees generallydo not have direct access to these ﬁles. However, they may, with our permission, reference these ﬁles in their various regulatory submissions to these agencies.This approach allows regulatory agencies to understand the details of our technologies without our having to share this highly conﬁden(cid:43)al informa(cid:43)on with ourcustomers.U.S. legisla(cid:43)on allows companies, prior to obtaining FDA clearance or approval to market a medical product in the U.S., to manufacture medical productsin the U.S. and export them for sale in interna(cid:43)onal markets. This generally allows us to realize earned royal(cid:43)es sooner, and may result in opportuni(cid:43)es tomarket our whole-product solutions in other countries. However, sales15of medical products outside the U.S. are subject to interna(cid:43)onal requirements that vary from country to country. The (cid:43)me required to obtain approval for saleinternationally may be longer or shorter than that required by the FDA.EmployeesAs of November 30, 2019, we had 369 employees. Of these employees we employ 151 outside the U.S., primarily in R&D and manufacturing opera(cid:43)onsfunctions. We are not a party to any collective bargaining agreements.EXECUTIVE OFFICERS OF THE REGISTRANTAs of November 30, 2019, the names, ages and positions of the Company’s executive officers are as follows: Name Age PositionGary R. Maharaj 56 President and Chief Executive OfficerTimothy J. Arens 52 Vice President of Finance and Chief Financial OfficerThomas A. Greaney 53 Chief Operating Officer, Medical DevicesCharles W. Olson 55 Senior Vice President of Commercial and Business Development,Medical DevicesBryan K. Phillips 48 Senior Vice President, Legal, Human Resources and InformationSystems, General Counsel and SecretaryTeryl L.W. Sides 50 Senior Vice President and Chief Marketing OfficerJoseph J. Stich 54 Vice President and General Manager, In Vitro DiagnosticsGregg S. Sutton 60 Vice President, Research and Development, Medical Devices Gary R. Maharaj joined the Company in December 2010 as President and Chief Execu(cid:43)ve Oﬃcer and was also appointed to the Surmodics Board ofDirectors at such (cid:43)me. Prior to joining Surmodics, Mr. Maharaj served as President and Chief Execu(cid:43)ve Oﬃcer of Arizant Inc., a provider of pa(cid:43)ent temperaturemanagement systems in hospital opera(cid:43)ng rooms, from 2006 to 2010. Previously, Mr. Maharaj served in several senior-level management posi(cid:43)ons forAugus(cid:43)ne Medical, Inc. (predecessor to Arizant Inc.) from 1996 to 2006, including Vice President of Marke(cid:43)ng, and Vice President of Research and Development.During his 36 years in the medical device industry, Mr. Maharaj has also served in various management and research posi(cid:43)ons for the orthopedic implant andrehabilitation divisions of Smith & Nephew, PLC.Timothy J. Arens joined the Company in February 2007 as Director, Business Development and became Senior Director of Financial Planning and Analysisand General Manager, In Vitro Diagnos(cid:43)cs in October 2010. He was promoted to Vice President of Finance and Interim Chief Financial Oﬃcer in August 2011and in February 2013 became Vice President Corporate Development and Strategy. In May 2018, Mr. Arens was named interim Vice President of Finance andChief Financial Oﬃcer for a second (cid:43)me and in February 2019 he was named Vice President of Finance and Chief Financial Oﬃcer. Prior to joining Surmodics,Mr. Arens was employed at St. Jude Medical, Inc., a medical technology company, from 2003 to 2007, in posi(cid:43)ons of increasing responsibility related to businessdevelopment and strategic planning functions.Thomas A. Greaney joined the Company in November 2015 as Vice President of Opera(cid:43)ons and General Manager of Creagh Medical, a(cid:80)er we acquired it.In August 2017, Mr. Greaney was promoted to Chief Opera(cid:43)ng Oﬃcer, Medical Devices. Prior to joining Surmodics, he served as Chief Execu(cid:43)ve Oﬃcer forCreagh Medical, from September 2005 to November 2015. Prior to his tenure in Creagh Medical, Mr. Greaney served in a variety of roles with Boston Scien(cid:43)ﬁcfor 10 years including the world-wide opera(cid:43)ons responsibility for the Taxus Stent commercializa(cid:43)on. From 1989 to 1995, he worked for a number of Electronicscompanies in a variety of engineering and management roles.Charles W. Olson joined the Company in July 2001 as Market Development Manager, was promoted in December 2002 to Director, BusinessDevelopment, named General Manager of the Hydrophilic Technologies business unit in April 2004, and promoted to Vice President and General Manager,Hydrophilic Technologies in October 2004. In April 2005, the posi(cid:43)on of Vice President, Sales was added to his responsibili(cid:43)es. In November 2008, Mr. Olson wasnamed Vice President of our Cardiovascular business unit, in October 2010, he was named Senior Vice President and General Manager, Medical Device, and inAugust 2016 he was named Senior Vice President of Commercial and Business Development, Medical Devices. Prior to joining Surmodics, Mr. Olson wasemployed as General Manager at Minnesota Extrusion from 1998 to 2001 and at Lake Region Manufacturing in project management and technical sales from1993 to 1998.16Bryan K. Phillips joined the Company in July 2005 as Patent Counsel and Assistant General Counsel. In January 2006, Mr. Phillips was appointed CorporateSecretary, and he was promoted to Deputy General Counsel in October 2007. He was promoted to Vice President, General Counsel and Corporate Secretary inSeptember 2008 and was promoted to Senior Vice President in October 2010. In August 2011, he became Senior Vice President, Legal and Human Resources,General Counsel and Secretary. Prior to joining Surmodics, Mr. Phillips served as patent counsel at Guidant Corpora(cid:43)on’s Cardiac Rhythm Management Groupwhere he was responsible for developing and implemen(cid:43)ng intellectual property strategies and also for suppor(cid:43)ng the company’s business developmentfunc(cid:43)on. He also prac(cid:43)ced law at the Minneapolis-based law ﬁrm of Merchant & Gould P.C. On November 8, 2019, Mr. Phillips no(cid:43)ﬁed the Company of hisinten(cid:43)on to resign from his posi(cid:43)ons with the Company. In order to assure an orderly transi(cid:43)on of his responsibili(cid:43)es, Mr. Phillips will provide transi(cid:43)onalservices to the Company through December 20, 2019.Teryl L.W. Sides joined the Company in November 2018 as Senior Vice President and Chief Marke(cid:43)ng Oﬃcer. Before joining Surmodics, Ms. Sides servedas Founder and Chief Execu(cid:43)ve Oﬃcer of Projectory, a consul(cid:43)ng ﬁrm that provides strategic marke(cid:43)ng services to med tech clients, ranging from start-ups toglobal businesses, from 2011 to 2018. Prior to joining Projectory, Ms. Sides was the Vice President of Marke(cid:43)ng and Product Development for Arizant, Inc. from1998 to 2011.Joseph J. Stich joined the Company in March 2010 as Vice President of Marke(cid:43)ng, Corporate Development and Strategy. In August 2011, he became VicePresident, Business Opera(cid:43)ons and General Manager, In Vitro Diagnos(cid:43)cs and in September 2013 his role was adjusted to Vice President and General Manager,In Vitro Diagnos(cid:43)cs. Before joining Surmodics, Mr. S(cid:43)ch was Vice President of Corporate Development for Abraxis BioScience, LLC, a biotechnology companyfocused on oncology therapeu(cid:43)cs, from 2009 to 2010. Prior to joining Abraxis, he was a Vice President for MGI Pharma, Inc., a biopharmaceu(cid:43)cal company,from 2005 to 2009. Mr. S(cid:43)ch’s prior experience also includes serving as President/COO of Pharmaceu(cid:43)cal Corp. of America (a subsidiary of Publicis HealthcareSpecialty Group), and positions of increasing responsibility in sales and marketing at Sanofi-Aventis Pharmaceuticals.Gregg S. Su(cid:51)on joined the Company in January 2016 as Vice President of Research and Development, Medical Devices. Prior to joining Surmodics, heserved as President and CEO of NorMedix, Inc., which we acquired in ﬁscal 2016, since June 2009. Mr. Su(cid:48)on is a veteran medical device designer and developerwith over 25 years of engineering experience in the medical device industry. He co-founded and held execu(cid:43)ve posi(cid:43)ons at several highly successful, early-stagedevelopment device companies, including Atritech, Angioguard, Vascular Solu(cid:43)ons, and Navarre Biomedical, leading teams in development and launch of high-profile, first-of-their-kind devices.The execu(cid:43)ve oﬃcers of the Company are elected by and serve at the discre(cid:43)on of the Board of Directors. None of our execu(cid:43)ve oﬃcers are related toany other executive officer or any of our directors.17ITEM 1A. RISK FACTORS.RISKS RELATING TO OUR BUSINESS, STRATEGY AND INDUSTRYThe loss of, or signiﬁcant reduc(cid:30)on in business from, one or more of our major customers could signiﬁcantly reduce our revenue, earnings or otheroperating results.A signiﬁcant por(cid:43)on of our revenue is derived from a rela(cid:43)vely small number of customers. Two of our customers provided more than 10% of ourrevenue in ﬁscal 2019. Revenue from Abbo(cid:48) and Medtronic represented approximately 19% and 14%, respec(cid:43)vely of our total revenue for the ﬁscal year endedSeptember 30, 2019 and was generated from mul(cid:43)ple products and ﬁelds of use. The loss of Medtronic, Abbo(cid:48) or any of our largest customers, or reduc(cid:43)ons inbusiness from them, could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on, results of opera(cid:43)ons, and cash ﬂow. There can be no assurancethat revenue from any customer will con(cid:43)nue at their historical levels. If we cannot broaden our customer base, we will con(cid:43)nue to depend on a small numberof customers for a significant portion of our revenue.The long-term success of our business may suffer if we are unable to expand our licensing base.We intend to con(cid:43)nue pursuing a strategy of licensing our coa(cid:43)ngs technologies to a diverse array of medical device companies, thereby expanding thecommercializa(cid:43)on opportuni(cid:43)es for our technologies. A signiﬁcant, albeit declining por(cid:43)on of our revenue is derived from customer devices used in connec(cid:43)onwith procedures in cardiovascular, peripheral vascular, neurovascular and other applica(cid:43)ons. As a result, our business is suscep(cid:43)ble to adverse trends inprocedures. Further, we may also be subject to adverse trends in speciﬁc markets such as the cardiovascular industry, including declines in procedures using ourcustomers’ products as well as declines in average selling prices from which we earn royal(cid:43)es. Our success will depend, in part, on our ability to a(cid:48)ract newlicensees, to enter into agreements for addi(cid:43)onal applica(cid:43)ons with exis(cid:43)ng licensees and to develop technologies for use in new applica(cid:43)ons. There can be noassurance that we will be able to iden(cid:43)fy, develop and adapt our technologies for new applica(cid:43)ons in a (cid:43)mely and cost-eﬀec(cid:43)ve manner; that new licenseagreements will be executed on terms favorable to us; that new applica(cid:43)ons will be accepted by customers in our target markets; or that products incorpora(cid:43)ngnewly licensed technology, including new applica(cid:43)ons, will gain regulatory approval, be commercialized or gain market acceptance. Delays or failures in theseefforts could have an adverse effect on our business, financial condition and operating results.Surface modiﬁca(cid:30)on, device drug-delivery and medical device products are compe(cid:30)(cid:30)ve markets and carry the risk of technological obsolescence andwe face increased competition in our In Vitro Diagnostics segment.We operate in a compe(cid:43)(cid:43)ve and evolving ﬁeld, and new developments are expected to con(cid:43)nue at a rapid pace. Our success depends, in part, upon ourability to maintain a compe(cid:43)(cid:43)ve posi(cid:43)on in the development of technologies and products in the ﬁeld of surface modiﬁca(cid:43)on and device drug delivery. Oursurface modiﬁca(cid:43)on coa(cid:43)ng technologies compete with technologies developed by a number of other companies. In addi(cid:43)on, many medical devicemanufacturers have developed, or are engaged in eﬀorts to develop surface modiﬁca(cid:43)on coa(cid:43)ng technologies for use on their own products, par(cid:43)cularly in thearea of drug delivery. With respect to commercializa(cid:43)on of our whole-product solu(cid:43)ons, we have faced, and expect to con(cid:43)nue to face, compe(cid:43)(cid:43)ve pricingpressures from larger OEM suppliers, as well as some of our largest medical device partners that have in-house resources that produce similar products. Someof our exis(cid:43)ng and poten(cid:43)al compe(cid:43)tors (especially medical device manufacturers pursuing coa(cid:43)ng solu(cid:43)ons through their own R&D eﬀorts) have greaterﬁnancial and technical resources as well as produc(cid:43)on and marke(cid:43)ng capabili(cid:43)es than us. Further, even if we are successful with respect to our plan to developat least 12 medical device products over the next four years, the commercializa(cid:43)on of these products is currently dependent upon a commercial partner toeﬀec(cid:43)vely market and sell our products to end users. Compe(cid:43)tors may succeed in developing compe(cid:43)ng technologies or obtaining governmental approval forproducts before us. Products incorpora(cid:43)ng our compe(cid:43)tors’ technologies may gain market acceptance more rapidly than products using our technologies.Furthermore, there can be no assurance that new products or technologies developed by others, or the emergence of new industry standards, will not renderour products or technologies or licensees’ products incorpora(cid:43)ng our technologies uncompe(cid:43)(cid:43)ve or obsolete. Any new technologies that make our surfacemodiﬁca(cid:43)on coa(cid:43)ng, medical device pla(cid:83)orms or In Vitro Diagnos(cid:43)cs technologies less compe(cid:43)(cid:43)ve or obsolete would have a material adverse eﬀect on ourbusiness, financial condition and results of operations.We may not be successful in implementing our whole-product solutions strategy and related important strategic initiativesSince ﬁscal 2013, with our investment in our DCB pla(cid:83)orm, we have been focused on a key growth strategy for our Medical Device business by expandingto oﬀer whole-product solu(cid:43)ons to our medical device customers. Our aim is to provide customers with highly diﬀeren(cid:43)ated products that address unmetclinical needs, and partner with them on successful commercializa(cid:43)on. If we are unable to iden(cid:43)fy and enter into arrangements with our medical devicecustomers for the commercializa(cid:43)on of our products on acceptable terms, we may seek to market and sell these products through third-party distributors or viadirect sales.18Successfully implemen(cid:43)ng our whole-product solu(cid:43)ons strategy and related strategic ini(cid:43)a(cid:43)ves will place substan(cid:43)al demands on our resources andrequire, among other things: •con(cid:43)nued enhancement of our medical device R&D capabili(cid:43)es, including those needed to support the clinical evalua(cid:43)on and regulatory approvalfor our whole-product solutions; •effective coordination and integration of our research facilities and teams, particularly those located in different facilities; •successful hiring and training of personnel; •effective management of a business geographically located both in the U.S. and Ireland; •commercializa(cid:43)on of our products, including through strategic partnerships with our medical device customers, third-party distributors, or via directsales; •commitment from our medical device customers to market our products effectively or to devote resources necessary to provide effective sales; •sufficient liquidity to support substantial investments in R&D required to make our strategy successful; and •increased marketing and sales-support activities.There is no assurance that we will be able to successfully implement our whole-product strategy and related strategic ini(cid:43)a(cid:43)ves in accordance with ourexpecta(cid:43)ons, which could impact our ability to realize an acceptable return on the investments we are making in connec(cid:43)on with this strategy, and may result inan adverse impact on our business and financial results.Failure to identify acquisition opportunities or to integrate acquired businesses or technologies into our operations successfully may limit our growth.An important part of our growth in the future may involve the acquisi(cid:43)on of complementary businesses or technologies. Our iden(cid:43)ﬁca(cid:43)on of suitableacquisi(cid:43)on candidates involves risks inherent in assessing the technology, value, strengths, weaknesses, overall risks and proﬁtability, if any, of acquisi(cid:43)oncandidates. We may not be able to iden(cid:43)fy suitable acquisi(cid:43)on candidates, or we may be unable to execute acquisi(cid:43)ons due to compe(cid:43)(cid:43)on from buyers withmore resources. If we do not make suitable investments and acquisitions, we may find it more difficult to realize our growth objectives.The process of integrating acquired businesses into our operations poses numerous risks, including: •an inability to integrate acquired operations, personnel, technology, information systems, and internal control systems and products; •diversion of management’s attention, including the need to manage several remote locations with a limited management team; •difficulties and uncertainties in transitioning the customers or other business relationships from the acquired entity to us; and •the loss of key employees of acquired companies.In addi(cid:43)on, future acquisi(cid:43)ons may be dilu(cid:43)ve to our shareholders’ ownership and/or cause large one-(cid:43)me expenses or create goodwill or otherintangible assets that could result in future signiﬁcant asset impairment charges. In addi(cid:43)on, if we acquire en(cid:43)(cid:43)es that have not yet commercialized productsbut rather are developing technologies for future commercializa(cid:43)on, our earnings per share may ﬂuctuate as we expend signiﬁcant funds for con(cid:43)nued R&Deﬀorts necessary to commercialize such acquired technology. We cannot guarantee that we will be able to successfully complete any acquisi(cid:43)ons or that we willrealize any anticipated benefits from acquisitions that we complete.Our failure to expand our management systems and controls to support an(cid:30)cipated growth or integrate acquisi(cid:30)ons could seriously harm ouroperating results and business.Our opera(cid:43)ons are expanding, and we expect this trend to con(cid:43)nue as we execute our business strategy. Execu(cid:43)ng our business strategy has placedsigniﬁcant demands on management and our administra(cid:43)ve, development, opera(cid:43)onal, informa(cid:43)on technology, manufacturing, ﬁnancial and personnelresources. Accordingly, our future opera(cid:43)ng results will depend on the ability of our oﬃcers and other key employees to con(cid:43)nue to implement and improveour opera(cid:43)onal, development, customer support and ﬁnancial control systems, and eﬀec(cid:43)vely expand, train and manage our employee base. Otherwise, wemay not be able to manage our growth successfully.19Goodwill or other assets on our balance sheet may become impaired, which could have a material adverse effect on our operating results.We have a signiﬁcant amount of goodwill and intangible assets on our balance sheet in connec(cid:43)on with our acquisi(cid:43)ons. As of September 30, 2019, wehad $26.1 million of goodwill and indeﬁnite-lived intangible assets on our consolidated balance sheet related to our Medical Device and IVD segments, of which$18.1 million related to our Medical Device repor(cid:43)ng unit. As required by the accoun(cid:43)ng guidance for non-amor(cid:43)zing intangible assets, we evaluate at leastannually the poten(cid:43)al impairment of the goodwill and trademark. Tes(cid:43)ng for impairment of non-amor(cid:43)zing intangible assets involves the determina(cid:43)on of thefair value of our repor(cid:43)ng units. The es(cid:43)ma(cid:43)on of fair values involves a high degree of judgment and subjec(cid:43)vity in the assump(cid:43)ons used. We also evaluateother assets on our balance sheet, including strategic investments and intangible assets, whenever events or changes in circumstances indicate that theircarrying value may not be recoverable. Our es(cid:43)mate of the fair value of the assets may be based on fair value appraisals or discounted cash ﬂow models usingvarious inputs. During ﬁscal 2019 and 2017, we recorded impairment charges on our indeﬁnite-lived intangible assets of $0.3 million and $0.4 million,respec(cid:43)vely, related to non-amor(cid:43)zing intangible assets arising from our acquisi(cid:43)on of Creagh Medical. Future impairment of the goodwill or other assets on ourbalance sheet could materially adversely affect our results of operations.Research and development costs may adversely aﬀect our opera(cid:30)ng results and our agreement with Abbo(cid:47) provides that we are responsible forcertain of these costs related to the SurVeil DCB.The success of our business depends on a number of factors, including our con(cid:43)nued research and development of new technologies for futurecommercializa(cid:43)on. In recent years, we have expended considerable resources researching and developing our DCB pla(cid:83)orm. In ﬁscal 2019, research anddevelopment costs increased 29% over ﬁscal 2018 and were 53% of our total revenue, which had a signiﬁcant impact on our overall opera(cid:43)ng results. In ﬁscal2020, we expect to con(cid:43)nue the clinical evalua(cid:43)on of the SurVeil DCB and will conduct addi(cid:43)onal development and clinical ac(cid:43)vi(cid:43)es for the below-the-knee, AVﬁstula and other whole-product solu(cid:43)ons products, which will result in signiﬁcant R&D and SG&A expenses that will impact our opera(cid:43)ng results, including ourproﬁtability, in ﬁscal 2020. The agreement that we entered into with Abbo(cid:48) provides that we are responsible for conduc(cid:43)ng all necessary clinical trials andother ac(cid:43)vi(cid:43)es required to achieve U.S. and EU regulatory clearances for the SurVeil DCB, including comple(cid:43)on of the ongoing TRANSCEND clinical trial, whichwill involve signiﬁcant costs. In addi(cid:43)on to the costs of these research and development ac(cid:43)vi(cid:43)es, these ac(cid:43)vi(cid:43)es are subject to risks of failure that are inherentin the development of new medical technologies or products. There can be no assurance that we will be successful in developing new technologies or products,or that any such technology will be commercialized.We recognize revenue in accordance with various complex accoun(cid:30)ng standards, and changes in circumstances or interpreta(cid:30)ons may lead toaccoun(cid:30)ng adjustments and failure to implement these standards might impact the eﬀec(cid:30)veness of our internal control over ﬁnancial repor(cid:30)ng orimpact the reliability of our financial reporting.Our revenue recogni(cid:43)on policies involve applica(cid:43)on of various complex accoun(cid:43)ng standards, including accoun(cid:43)ng guidance associated with revenuearrangements with mul(cid:43)ple deliverables. Our compliance with such accoun(cid:43)ng standards o(cid:80)en involves management’s judgment regarding whether the criteriaset forth in the standards have been met such that we can recognize as revenue the amounts that we receive as payment for our products or services. We baseour judgments on assump(cid:43)ons that we believe to be reasonable under the circumstances. However, these judgments, or the assump(cid:43)ons underlying them, maychange over (cid:43)me. In addi(cid:43)on, the SEC or the Financial Accoun(cid:43)ng Standards Board (“FASB”) may issue new posi(cid:43)ons or revised guidance on the treatment ofcomplex accoun(cid:43)ng ma(cid:48)ers. Changes in circumstances or third-party guidance could cause our judgments to change with respect to our interpreta(cid:43)ons of thesecomplex standards, and transactions recorded, including revenue recognized, for one or more prior reporting periods, could be adversely affected.Our business includes foreign operations which exposes us to certain risks related to fluctuations in U.S. dollar and foreign currency exchange rates.The Company reports its consolidated ﬁnancial statements in U. S. dollars. In a period where the U.S. dollar is strengthening or weakening as comparedwith the Euro, our revenue and expenses denominated in the Euro are translated into U.S. dollars at a lower or higher value than they would be in an otherwiseconstant currency exchange rate environment. As our foreign operations expand, the effects may become material to our consolidated financial statements.20Changes in product mix and increased manufacturing costs could cause our product gross margin percentage to fluctuate or decline in the future.Changes in our product mix and increases in manufacturing costs could cause our gross proﬁt percentage to ﬂuctuate or decline in the future. Thesefactors, together with the scale-up of our manufacturing opera(cid:43)ons, par(cid:43)cularly in Ireland, adversely aﬀected our gross margin percentage for the last ﬁscalyear and these factors will likely con(cid:43)nue to aﬀect our gross proﬁt percentage in 2020 and beyond. However, whether this adverse mix impact will result in adecline of our gross proﬁt percentage in any given year will depend on the extent to which they are, or are not, oﬀset by posi(cid:43)ve impacts to product grossmargin during such year.RISKS RELATING TO OUR OPERATIONS AND RELIANCE ON THIRD PARTIESWe rely on third par(cid:30)es to market, distribute and sell most products incorpora(cid:30)ng our coa(cid:30)ng and device technologies, as well as our whole-productsolutions.A principal element of our business strategy is to enter into licensing arrangements with medical device and other companies that manufacture productsincorpora(cid:43)ng our technologies. For the years ended September 30, 2019, 2018 and 2017, we have derived 48%, 44%, and 44%, respec(cid:43)vely, of our revenue fromroyal(cid:43)es and license fees derived from such licensing arrangements. The revenue that we derive from such arrangements is dependent on our ability, or ourlicensees’ ability to successfully develop, obtain successful regulatory approval for, manufacture (if applicable), market and sell products incorpora(cid:43)ng ourtechnologies. In addi(cid:43)on, in ﬁscal 2018, we entered into an agreement with Abbo(cid:48) whereby Abbo(cid:48) will have exclusive worldwide commercializa(cid:43)on rights forthe SurVeil DCB. Abbo(cid:48) has the right to purchase commercial units from us and we will realize revenue from product sales to Abbo(cid:48) at an agreed-upon transferprice, as well as a share of net proﬁts resul(cid:43)ng from third-party product sales by Abbo(cid:48). Upon receipt of regulatory approval, we will rely on Abbo(cid:48) toeffectively market and sell the SurVeil DCB.Addi(cid:43)onally, a licensee could modify their product in such a way that it no longer incorporates our technology. Many of these factors are outside of ourcontrol and the failure on the part of our licensees to successfully meet these requirements could have a material adverse eﬀect on our business, ﬁnancialcondition and results of operations.Moreover, under our standard license agreements, licensees can terminate the license for any reason upon 90 days’ prior wri(cid:48)en no(cid:43)ce. Exis(cid:43)ng andpoten(cid:43)al licensees have no obliga(cid:43)on to deal exclusively with us and may pursue parallel development or licensing of compe(cid:43)ng technologies on their own orwith third par(cid:43)es. A decision by a licensee to terminate its rela(cid:43)onship with us could materially adversely aﬀect our business, ﬁnancial condi(cid:43)on and results ofoperations.Failure on the part of our licensees to successfully meet these requirements could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on andresults of operations.21A por(cid:30)on of our IVD business relies on distribu(cid:30)on agreements and rela(cid:30)onships with various third par(cid:30)es and any adverse change in thoserelationships could result in a loss of revenue and harm that business.We sell many of our IVD products outside of the U.S. through distributors. Some of our distributors also sell our compe(cid:43)tors’ products, and if they favorour compe(cid:43)tors’ products for any reason, they may fail to market our products as eﬀec(cid:43)vely or to devote resources necessary to provide eﬀec(cid:43)ve sales, whichwould cause our results to suﬀer. Addi(cid:43)onally, we serve as the exclusive distributor in the U.S., Canada and Puerto Rico for DIARECT AG for its recombinant andna(cid:43)ve an(cid:43)gens. The success of these arrangements with these third par(cid:43)es depends, in part, on the con(cid:43)nued adherence to the terms of our agreements withthem. Any disruption in these arrangements will adversely affect our financial condition and results of operations.We rely on our customers to accurately report and make payments under our agreements with them.We rely on our customers to determine whether the products that they sell are royalty-bearing and, if so, report and pay the amount of royal(cid:43)es owed tous under our agreements with them. The majority of our license agreements with our customers give us the right to audit their records to verify the accuracy oftheir reports to us. However, these audits can be expensive, time-consuming and possibly detrimental to our ongoing business relationships with our customers.Inaccuracies in these reports have resulted in, and could result in, addi(cid:43)onal overpayments or underpayments of royal(cid:43)es, which could have a materialadverse effect on our business, financial condition and results of operations.We currently have limited or no redundancy in our manufacturing facili(cid:30)es, and we may lose revenue and be unable to maintain our customerrelationships if we lose our production capacity.We manufacture all of our medical device coa(cid:43)ng reagents (and provide coa(cid:43)ng manufacturing services for certain customers) and our IVD products atone of our Eden Prairie, Minnesota facili(cid:43)es. We also manufacture balloon catheter products at our facility in Ballinasloe, Ireland and catheter-based medicaldevices in limited quan(cid:43)(cid:43)es in one of our facili(cid:43)es in Eden Prairie, Minnesota. We plan to manufacture substan(cid:43)ally all of our whole-product solu(cid:43)ons devices inour Ireland facility. Our SurVeil DCB is currently manufactured in one of our Eden Prairie, Minnesota facili(cid:43)es as we scale up our Irish facility for DCBmanufacturing. While we plan to maintain secondary, redundant manufacturing capacity once full scale-up has been achieved in our Ireland facility, our Irelandfacility is not yet fully scaled-up. If our exis(cid:43)ng produc(cid:43)on facili(cid:43)es become incapable of manufacturing products for any reason, we may be unable to meetproduc(cid:43)on requirements, we may lose revenue and we may not be able to maintain our rela(cid:43)onships with our customers, including certain of our licensees. Inaddi(cid:43)on, because most of our customers use our coa(cid:43)ng reagents to manufacture their own products that generate royalty revenue for us, failure by us tosupply these reagents could result in decreased royalty revenue, as well as decreased revenue from our surface modiﬁca(cid:43)on coa(cid:43)ng technologies product sales.Without our exis(cid:43)ng produc(cid:43)on facili(cid:43)es, we would have no other means of manufacturing products un(cid:43)l we were able to restore the manufacturing capabilityat these facilities or develop one or more alternative manufacturing facilities. Although we carry business interruption insurance to cover lost revenue and profitsin an amount we consider adequate, this insurance does not cover all possible situa(cid:43)ons. In addi(cid:43)on, our business interrup(cid:43)on insurance would not compensateus for the loss of opportunity and potential adverse impact on relations with our existing customers resulting from our inability to produce products for them.We may face product liability claims related to participation in clinical trials or the use or misuse of our products.The development and sale of medical devices and component products involves an inherent risk of product liability claims. For medical device productsthat incorporate our coa(cid:43)ng technology, most of the licenses provide us with indemniﬁca(cid:43)on against such claims. However, there can be no guarantee thatproduct liability claims will not be ﬁled against us for such products, or for medical device products that we manufacture as part of our whole-product solu(cid:43)onsstrategy, that par(cid:43)es indemnifying us will have the ﬁnancial ability to honor their indemniﬁca(cid:43)on obliga(cid:43)ons or that such manufacturers will not seekindemniﬁca(cid:43)on or other relief from us for any such claims. Any product liability claims, with or without merit, could result in costly li(cid:43)ga(cid:43)on, reduced sales,signiﬁcant liabili(cid:43)es and diversion of our management’s (cid:43)me, a(cid:48)en(cid:43)on and resources. We have obtained a level of liability insurance coverage that we believe isappropriate to our ac(cid:43)vi(cid:43)es, however, we cannot be sure that our product liability insurance coverage is adequate or that it will con(cid:43)nue to be available to us onacceptable terms, if at all. Furthermore, we do not expect to be able to obtain insurance covering our costs and losses as a result of any recall of products ordevices incorpora(cid:43)ng our technologies because of alleged defects, whether such recall is ins(cid:43)tuted by us, by a customer, or is required by a regulatory agency. Aproduct liability claim, recall or other claim with respect to uninsured liabili(cid:43)es or for amounts in excess of insured liabili(cid:43)es could have a material adverse eﬀecton our business, financial condition and results of operations.22Our revenue will be harmed if we cannot purchase sufficient components that we use in our manufacture of reagents.We currently purchase some of the components we use to manufacture reagents from sole suppliers. If any of our sole suppliers becomes unwilling tosupply components to us, experiences an interruption in its production or is otherwise unable to provide us with sufficient material to manufacture our reagents,we will experience produc(cid:43)on interrup(cid:43)ons. If we lose our sole supplier of any par(cid:43)cular reagent component or are otherwise unable to procure all componentsrequired for our reagent manufacturing for an extended period of (cid:43)me, we may lose the ability to manufacture the reagents our customers require tocommercialize products incorpora(cid:43)ng our technology. This could result in lost royal(cid:43)es and product sales, which would harm our ﬁnancial results. Addingsuppliers to our approved vendor list may require signiﬁcant (cid:43)me and resources. We rou(cid:43)nely a(cid:48)empt to maintain mul(cid:43)ple suppliers of each of our signiﬁcantmaterials, so we have alterna(cid:43)ve suppliers, if necessary. However, if the number of suppliers of a material is reduced, or if we are otherwise unable to obtainour material requirements on a timely basis and on favorable terms, our operations may be harmed.We are dependent upon key personnel and may not be able to attract qualified personnel in the future.Our success is dependent upon our ability to retain and a(cid:48)ract highly qualiﬁed management and technical personnel. We face intense compe(cid:43)(cid:43)on forsuch qualiﬁed personnel. We do not maintain key person insurance, and we generally do not enter into employment agreements, except with certain execu(cid:43)veoﬃcers. Although we have non-compete agreements with most employees, there can be no assurance that such agreements will be enforceable. The loss of theservices of one or more key employees or the failure to a(cid:48)ract and retain addi(cid:43)onal qualiﬁed personnel could have a material adverse eﬀect on our business,financial condition and results of operations.Security breaches and other disrup(cid:30)ons could compromise our informa(cid:30)on and expose us to liability, which would cause our business and reputa(cid:30)onto suffer.We collect and store sensi(cid:43)ve data, including intellectual property, our proprietary business informa(cid:43)on and that of our customers, suppliers andbusiness partners, and personally iden(cid:43)ﬁable informa(cid:43)on of our customers and employees, on our networks. The secure maintenance of this informa(cid:43)on iscri(cid:43)cal to our opera(cid:43)ons and business strategy and our customers expect that we will securely maintain their informa(cid:43)on. Despite our security measures, ourinforma(cid:43)on technology and infrastructure may be vulnerable to a(cid:48)acks by hackers resul(cid:43)ng from employee error, malfeasance or other disrup(cid:43)ons. Any suchbreach could compromise our networks and the informa(cid:43)on stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure orother loss of informa(cid:43)on could result in legal claims or proceedings, liability under personal privacy laws and regulatory penal(cid:43)es, disrupt our opera(cid:43)ons and theservices that we provide to our customers, damage our reputa(cid:43)on and cause a loss of conﬁdence in our products and services, any of which could adverselyaffect our business and competitive position.RISKS RELATING TO OUR INTELLECTUAL PROPERTYWe may not be able to obtain, maintain or protect proprietary rights necessary for the commercialization of our technologies.Our success depends, in large part, on our ability to obtain and maintain patents and trade secrets. We have been granted U.S. and foreign patents andhave U.S. and foreign patent applica(cid:43)ons pending related to our proprietary technologies. There can be no assurance that any pending patent applica(cid:43)on will beapproved, that we will develop addi(cid:43)onal proprietary technologies that are patentable, that any patents issued will provide us with compe(cid:43)(cid:43)ve advantages orwill not be challenged or invalidated by third par(cid:43)es, that the patents of others will not prevent the commercializa(cid:43)on of products incorpora(cid:43)ng ourtechnologies, or that others will not independently develop similar technologies or design around our patents. Furthermore, because we generate a signiﬁcantamount of our revenue through licensing arrangements, the loss or expira(cid:43)on of patent protec(cid:43)on for our licensed technologies will result in a reduc(cid:43)on of therevenue derived from these arrangements which may have a material adverse eﬀect on our business, cash ﬂow, results of opera(cid:43)ons, ﬁnancial posi(cid:43)on andprospects.We may become involved in expensive and unpredictable patent li(cid:30)ga(cid:30)on or other intellectual property proceedings which could result in liability fordamages, or impair our development and commercialization efforts.Our commercial success also will depend, in part, on our ability to avoid infringing patent or other intellectual property rights of third par(cid:43)es. There hasbeen substan(cid:43)al li(cid:43)ga(cid:43)on regarding patent and other intellectual property rights in the medical device and pharmaceu(cid:43)cal industries, and intellectual propertyli(cid:43)ga(cid:43)on may be used against us as a means of gaining a compe(cid:43)(cid:43)ve advantage. Intellectual property li(cid:43)ga(cid:43)on is complex, (cid:43)me consuming and expensive, andthe outcome of such li(cid:43)ga(cid:43)on is diﬃcult to predict. If we were found to be infringing any third-party patent or other intellectual property right, we could berequired to pay23signiﬁcant damages, alter our products or processes, obtain licenses from others, which we may not be able to do on commercially reasonable terms, if at all, orcease commercializa(cid:43)on of our products and processes. Any of these outcomes could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on andresults of operations.Patent li(cid:43)ga(cid:43)on or certain other administra(cid:43)ve proceedings may also be necessary to enforce our patents or to determine the scope and validity of third-party proprietary rights. These ac(cid:43)vi(cid:43)es could result in substan(cid:43)al cost to us, even if the eventual outcome is favorable to us. An adverse outcome of any suchli(cid:43)ga(cid:43)on or interference proceeding could subject us to signiﬁcant liabili(cid:43)es to third par(cid:43)es, require disputed rights to be licensed from third par(cid:43)es or requireus to cease using our technology. Any ac(cid:43)on to defend or prosecute intellectual property would be costly and result in signiﬁcant diversion of the eﬀorts of ourmanagement and technical personnel, regardless of outcome, and could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on and results ofoperations.If we are unable to keep our trade secrets confidential, our technology and proprietary information may be used by others to compete against us.We rely signiﬁcantly upon proprietary technology, informa(cid:43)on, processes and know-how that are not subject to patent protec(cid:43)on. We seek to protectthis informa(cid:43)on through trade secret or conﬁden(cid:43)ality agreements with our employees, consultants, poten(cid:43)al licensees, or other par(cid:43)es as well as throughother security measures. There can be no assurance that these agreements or any security measure will provide meaningful protec(cid:43)on for our un-patentedproprietary informa(cid:43)on. In addi(cid:43)on, our trade secrets may otherwise become known or be independently developed by compe(cid:43)tors. If we determine that ourproprietary rights have been misappropriated, we may seek to enforce our rights which would draw upon our ﬁnancial resources and divert the (cid:43)me and eﬀortsof our management, and could have a material adverse effect on our business, financial condition and results of operations.If we are unable to convert our customers to our advanced generation of hydrophilic coating technology, our royalty revenue may decrease.In our Medical Device business unit, we have licensed our PhotoLink hydrophilic technology to a number of our customers for use in a variety of medicaldevice surface applica(cid:43)ons. We have several U.S. and interna(cid:43)onal issued patents and pending interna(cid:43)onal patent applica(cid:43)ons protec(cid:43)ng various aspects ofthese technologies, including composi(cid:43)ons, methods of manufacture and methods of coa(cid:43)ng devices. The expira(cid:43)on dates for these patents and the an(cid:43)cipatedexpira(cid:43)on dates of the patent applica(cid:43)ons range from ﬁscal 2020 to 2035. These patents and patent applica(cid:43)ons represent dis(cid:43)nct families, with each familygenerally covering a successive genera(cid:43)on of the technology, including improvements that enhance coa(cid:43)ng performance, manufacturability, or other importantfeatures desired by our customers.Approximately 21% of our total revenue in ﬁscal 2019 was generated from our fourth-genera(cid:43)on PhotoLink technology, which are protected by a familyof patents that will begin to expire in ﬁscal 2020. Of the license agreements using our early genera(cid:43)on technologies, most will con(cid:43)nue to generate royaltyrevenue at a reduced royalty rate beyond patent expiration.In recent years, we have successfully converted a number of our customers’ products u(cid:43)lizing our early-genera(cid:43)on technologies to one of our advancedgenera(cid:43)on technologies. While we are ac(cid:43)vely seeking to convert our customers to one of our advanced genera(cid:43)ons of our hydrophilic coa(cid:43)ng technology,there can be no assurance that we will be successful in doing so, or that those customers that have converted, or will convert, will sell products u(cid:43)lizing ourtechnology which will generate earned royalty revenue for us.If we or any of our licensees breach any of the agreements under which we have in-licensed intellectual property from others, we could be deprived ofimportant intellectual property rights and future revenue.We are a party to various agreements through which we have in-licensed or otherwise acquired rights to certain technologies that are important to ourbusiness. In exchange for the rights granted to us under these agreements, we have agreed to meet certain research, development, commercializa(cid:43)on,sublicensing, royalty, indemniﬁca(cid:43)on, insurance or other obliga(cid:43)ons. If we or one of our licensees fails to comply with these obliga(cid:43)ons set forth in the relevantagreement through which we have acquired rights, we may be unable to eﬀec(cid:43)vely use, license, or otherwise exploit the relevant intellectual property rightsand may be deprived of current or future revenue that is associated with such intellectual property.24RISKS RELATING TO CLINICAL AND REGULATORY MATTERSThe development of new products and enhancement of exis(cid:30)ng products requires signiﬁcant research and development, clinical trials and regulatoryapprovals, all of which may be very expensive and time-consuming and may not result in commercially viable products.The development of new products and enhancement of exis(cid:43)ng products requires signiﬁcant investment in research and development, clinical trials andregulatory approvals.There can be no assurance that any products now in development, or that we may seek to develop in the future, will achieve technological feasibility,obtain regulatory approval or gain market acceptance. If we are unable to obtain regulatory approval for new products or enhanced products, our ability tosuccessfully compete in the markets in which we par(cid:43)cipate may be materially adversely impacted. A delay in the development or approval of new products andtechnologies may also adversely impact the timing of when these products contribute to our future revenue and earnings growth.Delays in clinical studies are common and have many causes, and any signiﬁcant delay in clinical studies being conducted by us could result in delaysin obtaining regulatory approvals and jeopardize the ability to proceed to commercialization of our products.We began enrollment in the TRANSCEND clinical study for our SurVeil DCB in the ﬁrst quarter of ﬁscal 2018 and, in December 2018, we commenced aﬁrst-in-human clinical study of our Avess DCB. There are risks involved in these and other clinical studies, including that they may fail to enroll a suﬃcientnumber of pa(cid:43)ents for a variety of reasons or be completed on schedule, if at all. Clinical trials for any of our products could be delayed for a variety of reasons,including, but not limited to: •delays in reaching agreement with applicable regulatory authorities on a clinical study design; •issuance of publica(cid:43)ons or communica(cid:43)ons rela(cid:43)ng to the safety of certain medical devices, including recent studies and communica(cid:43)onsregarding the evaluation of risks associated with paclitaxel-coated products including the FDA notice mentioned above; •suspension or termina(cid:43)on of a clinical study by us, the FDA or foreign regulatory authori(cid:43)es due to adverse events or safety concerns rela(cid:43)ng toour product; and •delays in recrui(cid:43)ng suitable pa(cid:43)ents willing to par(cid:43)cipate in a trial, or delays in having pa(cid:43)ents complete par(cid:43)cipa(cid:43)on or return for post-treatmentfollow-up.If the ini(cid:43)a(cid:43)on or comple(cid:43)on of any of the ongoing or planned clinical studies for our products is delayed for any of the above or other reasons, theregulatory approval process would be delayed and the ability to commercialize and commence sales of our products could be materially harmed. Addi(cid:43)onally,clinical study delays may allow our compe(cid:43)tors to bring products to market before we do, which could impair our ability to successfully commercialize ourproduct candidates. Any of these events could have a material adverse effect on our business, financial condition and results of operations.Healthcare policy changes may have a material adverse effect on us.Healthcare costs have risen signiﬁcantly during the past decade. There have been and con(cid:43)nue to be proposals by legislators, regulators and third-partypayers to keep these costs down. Certain proposals, if implemented, would impose limita(cid:43)ons on the prices our customers will be able to charge for ourproducts, or the amounts of reimbursement available for their products from governmental agencies or third-party payers, or otherwise nega(cid:43)vely impactpricing and reimbursement. Because a signiﬁcant por(cid:43)on of our revenue is currently derived from royal(cid:43)es on products which cons(cid:43)tute a percentage of ourcustomer’s product’s selling price, these limitations could have an adverse effect on our revenue.The Pa(cid:43)ent Protec(cid:43)on and Aﬀordable Care Act (the “ACA”) imposes signiﬁcant new taxes on medical device makers who make up a signiﬁcant por(cid:43)on ofour customers. Although signiﬁcant components of these taxes have been suspended un(cid:43)l December 31, 2019, their status is unclear for subsequent years. Thelegisla(cid:43)on has resulted in a signiﬁcant total cost increase to the medical device and diagnos(cid:43)c industries, which could have a material, nega(cid:43)ve impact on boththe ﬁnancial condi(cid:43)on of our customers as well as on our customers’ ability to a(cid:48)ract ﬁnancing, their willingness to commit capital to development projects ortheir ability to commercialize their products u(cid:43)lizing our technology, any of which could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on andresults of operations. There continues to be substantial risk to our customers, and therefore us, from the uncertainty25which con(cid:43)nues to surround the future of health care delivery and reimbursement both in the U.S. and abroad. In par(cid:43)cular, we cannot predict what otherhealthcare programs and regula(cid:43)ons will ul(cid:43)mately be implemented at the federal or state level or the eﬀect of any future legisla(cid:43)on or regula(cid:43)on in the U.S. orabroad may have on our business.Whole-product solu(cid:30)ons medical devices and other products incorpora(cid:30)ng our technologies are subject to increasing scru(cid:30)ny and regula(cid:30)ons,including extensive approval/clearance processes and manufacturing requirements. Any adverse regulatory and/ or enforcement ac(cid:30)on (for us or ourlicensees) may materially affect our financial condition and business operations.As a result of the March 15, 2019 FDA communica(cid:43)on and the poten(cid:43)al long-term mortality signal related to the use of paclitaxel-coated devices, theregulatory body with which we applied for a Conformité Européenne Mark (“CE Mark”) to allow for commercializa(cid:43)on of SurVeil in the European Union (“EU”)has no(cid:43)ﬁed us that they have temporarily paused review of submissions of paclitaxel-coated devices. This pause and the current regulatory debate overpaclitaxel-coated devices have caused uncertainty regarding our goal of receiving a CE Mark by the end of calendar 2019 and subsequent commercializa(cid:43)on ofthe product in ﬁscal 2020. There can be no assurance that we will receive CE Mark or U.S. FDA approval for our SurVeil DCB or other proprietary medical deviceproducts that are currently being developed.Our products and our business ac(cid:43)vi(cid:43)es are subject to a complex regime of regula(cid:43)ons both in the U.S. and interna(cid:43)onally. Addi(cid:43)onally, certain stategovernments and the federal government have enacted legisla(cid:43)on aimed at increasing transparency of industry interac(cid:43)ons with health care providers. Anyfailure to comply with these legal and regulatory requirements could impact our business. In addi(cid:43)on, we will con(cid:43)nue to devote substan(cid:43)al addi(cid:43)onal (cid:43)me andﬁnancial resources to further develop and implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which mayalso impact our business. We an(cid:43)cipate that governmental authori(cid:43)es will con(cid:43)nue to scru(cid:43)nize our industry closely, and that addi(cid:43)onal regula(cid:43)on mayincrease compliance and legal costs, exposure to litigation, and other adverse effects to our operations.To varying degrees, the FDA and comparable agencies outside the US require us to comply with laws and regula(cid:43)ons governing the development, tes(cid:43)ng,manufacturing, labeling, marke(cid:43)ng, and distribu(cid:43)on of our products. Our compliance with these laws and regula(cid:43)ons takes signiﬁcant (cid:43)me/ resources, involvesstringent tes(cid:43)ng/ surveillance, involves a(cid:48)en(cid:43)on to any needed product improvements (such as modiﬁca(cid:43)ons, repairs, or replacements), and may includesignificant limitations of the uses of our products.Changes in exis(cid:43)ng regula(cid:43)ons or adop(cid:43)on of new governmental regula(cid:43)ons or policies could prevent or delay regulatory approval of productsincorpora(cid:43)ng our technologies or subject us to addi(cid:43)onal regula(cid:43)on. Failure or delay by us or our licensees in obtaining FDA and other necessary regulatoryapproval or clearance, or the loss of previously obtained approvals, could have a material adverse eﬀect on our business, ﬁnancial condi(cid:43)on and results ofoperations.Our facili(cid:43)es and procedures are subject to periodic inspec(cid:43)ons by the FDA to determine compliance with the FDA’s requirements. The results of theseinspec(cid:43)ons can include inspec(cid:43)onal observa(cid:43)ons on FDA’s Form-483, warning le(cid:48)ers, or other forms of enforcement. The FDA has signiﬁcantly increased itsoversight of companies subject to its regula(cid:43)ons, including medical device companies. If the FDA were to conclude that we are not in compliance with applicablelaws or regula(cid:43)ons, or that any of our medical devices are ineﬀec(cid:43)ve or pose an unreasonable health risk, the FDA could ban such medical devices, detain orseize adulterated or misbranded medical devices, order a recall, repair, replacement, or refund of such devices, refuse to grant pending pre-market approvalapplica(cid:43)ons or require cer(cid:43)ﬁcates of non-U.S governments for exports, and/or require us to no(cid:43)fy health professionals and others that the devices presentunreasonable risks of substan(cid:43)al harm to the public health. The FDA may also assess civil or criminal penal(cid:43)es against us, our oﬃcers or employees and imposeopera(cid:43)ng restric(cid:43)ons on a company-wide basis, or enjoin and/or restrain certain conduct resul(cid:43)ng in viola(cid:43)ons of applicable law. The FDA may also recommendprosecu(cid:43)on to the U.S. Department of Jus(cid:43)ce. Any adverse regulatory ac(cid:43)on, depending on its magnitude, may restrict us from eﬀec(cid:43)vely marke(cid:43)ng and sellingour products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substan(cid:43)al modiﬁca(cid:43)on to our business prac(cid:43)cesand operations.We may face liability if we mishandle or improperly dispose of the hazardous materials used in some of our research, development and manufacturingprocesses.Our research, development and manufacturing ac(cid:43)vi(cid:43)es some(cid:43)mes involve the controlled use of various hazardous materials. Although we believe thatour safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regula(cid:43)ons, the risk of accidentalcontamina(cid:43)on or injury from these materials cannot be completely eliminated. While we currently maintain insurance in amounts that we believe areappropriate, we could be held liable for any26damages that might result from any such event. Any such liability could exceed our insurance and available resources and could have a material adverse eﬀecton our business, financial condition and results of operations.Addi(cid:43)onally, certain of our ac(cid:43)vi(cid:43)es are regulated by federal and state agencies in addi(cid:43)on to the FDA. For example, ac(cid:43)vi(cid:43)es in connec(cid:43)on withdisposal of certain chemical waste are subject to regula(cid:43)on by the U.S. Environmental Protec(cid:43)on Agency. We could be held liable in the event of improperdisposal of such materials, even if these acts were done by third par(cid:43)es. Some of our reagent chemicals must be registered with the agency, with basicinforma(cid:43)on ﬁled related to toxicity during the manufacturing process as well as the toxicity of the ﬁnal product. Failure to comply with exis(cid:43)ng or futureregulatory requirements could have a material adverse effect on our business, financial condition and results of operations.RISKS RELATING TO OUR SECURITIESOur stock price has been volatile and may continue to be volatile.The trading price of our common stock has been, and is likely to con(cid:43)nue to be, highly vola(cid:43)le, in large part a(cid:48)ributable to developments andcircumstances related to factors iden(cid:43)ﬁed in “Forward-Looking Statements” and “Risk Factors.” Our common stock price may rise or fall sharply at any (cid:43)mebecause of this vola(cid:43)lity, as a result of sales executed by signiﬁcant holders of our stock, and also because of short posi(cid:43)ons taken by investors from (cid:43)me to(cid:43)me in our stock. For instance, the market prices for securi(cid:43)es of medical technology, drug-delivery and biotechnology companies historically have been highlyvolatile, and the market has experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies.ITEM 1B. UNRESOLVED STAFF COMMENTS.None.ITEM 2. PROPERTIES.Our principal opera(cid:43)ons are located in Eden Prairie, a suburb of Minneapolis, Minnesota, where we own a building that has approximately 64,000 squarefeet of space u(cid:43)lized by our Corporate, Medical Device and IVD opera(cid:43)ng segments. We also own a 30,000 square foot building in Ballinasloe, Ireland dedicatedto our Medical Device opera(cid:43)ng segment. We lease a warehouse through November 2021 and a 36,000 square foot facility, which will primarily be used for R&Dand redundant manufacturing capacity in our Medical Device opera(cid:43)ng segment, through April 2028. In September 2019, we executed an amendment to thelease for the R&D space to add an addi(cid:43)onal 13,000 square feet, which we plan to occupy in the ﬁrst quarter of ﬁscal 2020. Both of the leased proper(cid:43)es arelocated near our principal opera(cid:43)ons in Eden Prairie, Minnesota. We also own an undeveloped parcel of land adjacent to our principal facility, which we may useto accommodate our growth needs.ITEM 3. LEGAL PROCEEDINGS.See the discussion of “Li(cid:43)ga(cid:43)on” in Note 10 to the consolidated ﬁnancial statements in “Item 8. Financial Statements and Supplementary Data” in thisAnnual Report on Form 10-K.ITEM 4. MINE SAFETY DISCLOSURES.Not Applicable. 27PART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.Our stock is traded on the NASDAQ Global Select Market under the symbol “SRDX.”Our transfer agent is:Broadridge Corporate Issuer Solutions, Inc.P.O. Box 1342Brentwood, NY 117171-877-830-4936According to the records of our transfer agent, as of December 2, 2019, there were 201 holders of record of our common stock.The declara(cid:43)on and payment by Surmodics of future dividends, if any, on its common stock will be at the sole discre(cid:43)on of the Board of Directors andwill depend on Surmodics’ continued earnings, financial condition, capital requirements and other factors that the Board of Directors deems relevant.On November 6, 2015, the Company’s Board of Directors authorized it to repurchase up to an addi(cid:43)onal $20.0 million (“ﬁscal 2016 authoriza(cid:43)on”) of theCompany’s outstanding common stock in open-market purchases, privately nego(cid:43)ated transac(cid:43)ons, block trades, accelerated share repurchase (“ASR”)transactions, tender offers or by any combination of such methods. The share repurchase program does not have a fixed expiration date.On November 5, 2014, the Company’s Board of Directors authorized it to repurchase up to $30.0 million (“ﬁscal 2015 authoriza(cid:43)on”) of the Company’soutstanding common stock in open-market purchases, privately nego(cid:43)ated transac(cid:43)ons, block trades, accelerated share repurchase ASR transac(cid:43)ons, tenderoﬀers or by any combina(cid:43)on of such methods. An aggregate of $20.0 million of the ﬁscal 2015 authoriza(cid:43)on was u(cid:43)lized in ﬁscal 2015, with an addi(cid:43)onal $4.7million utilized in fiscal 2017. The share repurchase program does not have a fixed expiration date.The Company has an aggregate of $25.3 million available for future common stock purchases under the current authorization.28Stock Performance ChartThe following chart compares the cumula(cid:43)ve total shareholder return on the Company’s Common Stock with the cumula(cid:43)ve total return on the NASDAQUS Benchmark Total Return (our broad equity market index) and the NASDAQ Medical Supplies Index (our published industry index). The comparisons assume$100 was invested on September 30, 2014 and assume reinvestment of dividends. 29ITEM 6. SELECTED FINANCIAL DATA.The data presented below as of September 30, 2019 and 2018 and for the years ended September 30, 2019, 2018 and 2017 is derived from our auditedconsolidated ﬁnancial statements included elsewhere in this report. The data as of September 30, 2017, 2016 and 2015 and for the years ended September 30,2016 and 2015 is derived from audited consolidated ﬁnancial statements not included in this report. The informa(cid:43)on set forth below should be read inconjunc(cid:43)on with the Company’s “Management’s Discussion and Analysis of Financial Condi(cid:43)on and Results of Opera(cid:43)ons” contained in Item 7 of this report andour consolidated financial statements and related notes beginning on page F-1 and other financial information included in this report. Fiscal Year 2019 2018 2017 2016 2015 (Dollars in thousands, except per share data) Statement of Operations Data: Total revenue $100,077 $81,336 $73,112 $71,366 $61,898 Operating income (loss) 6,469 (8,799) 7,103 16,859 19,089 Net income (loss) 7,592 (4,457) 3,926 9,985 11,947 Diluted income (loss) per share: Net income (loss) $0.55 $(0.34) $0.29 $0.76 $0.90 Balance Sheet Data: Cash, short-term and long-term investments $55,292 $65,020 $48,336 $ 46,941 $ 55,588 Total assets 159,865 164,135 136,593 132,894 98,710 Retained earnings 110,705 97,615 102,072 98,146 88,161 Total stockholders’ equity 122,516 108,610 111,557 106,833 81,873 Statement of Cash Flows Data: Net cash provided by operating activities from continuing operations $8,038 $34,052 $14,053 $ 25,166 $ 15,066 Note: Fiscal 2019, 2018, 2017 and 2016 figures include the effects of our acquisitions of Creagh Medical and NorMedix, as further discussed below. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.The following discussion and analysis of our ﬁnancial condi(cid:43)on and results of opera(cid:43)ons should be read together with “Selected Financial Data” and ouraudited consolidated ﬁnancial statements and related notes appearing elsewhere in this report. Any discussion and analysis regarding our future ﬁnancialcondi(cid:43)on and results of opera(cid:43)ons are forward-looking statements that involve risks, uncertain(cid:43)es and assump(cid:43)ons, as more fully iden(cid:43)ﬁed in “Forward-Looking Statements” and “Risk Factors.” Our actual future ﬁnancial condi(cid:43)on and results of opera(cid:43)ons may diﬀer materially from those an(cid:43)cipated in theforward-looking statements.OverviewSurmodics is a leading provider of medical device and in vitro diagnos(cid:43)c technologies to the healthcare industry, with the mission of improving thedetec(cid:43)on and treatment of disease. Our business performance con(cid:43)nues to be driven by growth in our medical device and IVD product oﬀerings. We remaincommi(cid:48)ed to developing medical device products and pla(cid:83)orms leveraging the technologies and manufacturing capabili(cid:43)es in our Medical Device business unitfor the treatment of peripheral vascular disease. These technologies include our DCB pla(cid:83)orm, specialty access delivery devices such as balloons and catheters,and our thrombectomy device platform technology.We operate two reportable business or segments as follows: (1) the Medical Device unit, which designs, develops and manufactures interven(cid:43)onalmedical devices, primarily balloons and catheters, including DCB’s, for PAD treatment and other applica(cid:43)ons; surface modiﬁca(cid:43)on coa(cid:43)ng technologies toimprove access, deliverability, and predictable deployment of medical devices; as well as drug-delivery coa(cid:43)ng technologies to provide site-speciﬁc drug-deliveryfrom the surface of a medical device, with end markets that include coronary, peripheral, and neurovascular, and urology, among others, and (2) the IVD unit,which consists of component products and technologies for diagnos(cid:43)c immunoassay as well as molecular tests and biomedical research applica(cid:43)ons, withproducts that include protein stabilization reagents, substrates, antigens and surface coatings.30We derive our revenue from three primary sources: (1) product revenues from the sale of reagent chemicals to licensees, the sale of stabiliza(cid:43)onproducts, an(cid:43)gens, substrates and surface coa(cid:43)ngs to the diagnos(cid:43)c and biomedical research markets as well as the sale of medical devices and relatedproducts (such as balloons and catheters) to original equipment manufacturer (OEM) suppliers and distributors; (2) royal(cid:43)es and license fees from licensing ourproprietary surface modiﬁca(cid:43)on coa(cid:43)ng and medical device technologies to customers; and (3) contract coa(cid:43)ng, design, research and commercial developmentfees generated on customer projects. Revenue ﬂuctuates from quarter to quarter depending on, among other factors: our customers’ success in selling productsincorpora(cid:43)ng our technologies; the (cid:43)ming of introduc(cid:43)ons of licensed products by us and our customers; the (cid:43)ming of introduc(cid:43)ons of products that competewith our customers’ products; the number and ac(cid:43)vity level associated with customer development projects; the number and terms of new license agreementsthat are finalized; and the value of reagent chemicals, medical device and diagnostic products sold to our customers.The majority of our royalty and license fee revenue is associated with our hydrophilic coa(cid:43)ng technology licenses. With the execu(cid:43)on of the SurVeil DCBlicense and development agreement with Abbo(cid:48) in February 2018, a growing por(cid:43)on of our license fee revenue, beginning in ﬁscal 2018, is associated with ourproprietary medical device technology. We have an extensive por(cid:83)olio of U.S. and interna(cid:43)onal patents and patent applica(cid:43)ons protec(cid:43)ng various aspects ofour surface modiﬁca(cid:43)on coa(cid:43)ng and medical device technologies, including device design, coa(cid:43)ng formula composi(cid:43)ons, methods of manufacture and methodsof coa(cid:43)ng devices. The expira(cid:43)on dates for our ac(cid:43)ve medical device technology patents and the an(cid:43)cipated expira(cid:43)on dates of the patent applica(cid:43)ons rangefrom ﬁscal 2020 to 2035. Among these, our fourth-genera(cid:43)on PhotoLink hydrophilic technology is protected by a family of patents that will expire in the ﬁrstquarter of ﬁscal 2020 in all countries where patent coverage existed for this technology. The royalty revenue associated with our fourth-genera(cid:43)on hydrophiliccoa(cid:43)ng technology was approximately 21% of our ﬁscal 2019 revenue. Of the license agreements using our early-genera(cid:43)on technologies, most con(cid:43)nue togenerate royalty revenue, at a reduced royalty rate, beyond patent expira(cid:43)on. The remainder of our royalty revenues are derived from other Surmodicscoatings that are protected by a number of patents that extend to at least fiscal 2035.Critical Accounting Policies and Significant EstimatesThe discussion and analysis of our ﬁnancial condi(cid:43)on and results of opera(cid:43)ons is based upon our consolidated ﬁnancial statements, which have beenprepared in accordance with accoun(cid:43)ng principles generally accepted in the U.S. (“GAAP”). The prepara(cid:43)on of these consolidated ﬁnancial statements is basedin part on the applica(cid:43)on of signiﬁcant accoun(cid:43)ng policies, many of which require management to make es(cid:43)mates and assump(cid:43)ons (see Note 2 to theconsolidated ﬁnancial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K). Actual results may diﬀer fromthese es(cid:43)mates and such diﬀerences could materially impact our results of opera(cid:43)ons. Cri(cid:43)cal accoun(cid:43)ng policies are those policies that require the applica(cid:43)onof management’s most challenging subjec(cid:43)ve or complex judgment, o(cid:80)en as a result of the need to make es(cid:43)mates about the eﬀect of ma(cid:48)ers that areinherently uncertain and may change in subsequent periods. Cri(cid:43)cal accoun(cid:43)ng policies involve judgments and uncertain(cid:43)es that are suﬃciently likely to resultin materially diﬀerent results under diﬀerent assump(cid:43)ons and condi(cid:43)ons. We believe the following are cri(cid:43)cal areas in the applica(cid:43)on of our accoun(cid:43)ng policiesthat currently affect our financial condition and results of operations.Revenue recognition. We license technology to third par(cid:43)es and collect royal(cid:43)es based on the greater of the contractual percentage of a customer’s salesof products incorpora(cid:43)ng our licensed technologies or minimum contractual royal(cid:43)es. Beginning in ﬁscal 2019, in connec(cid:43)on with the adop(cid:43)on of FinancialAccounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) issued Update No. 2014-09, Revenue from Contracts with Customers (“ASC Topic606”) the ﬁnancial informa(cid:43)on included in this Form 10-K includes sales-based royalty revenue recognized as our license customers sell products containing ourtechnologies, which is generally reported to us a quarter a(cid:80)er those sales occur. This requires us to es(cid:43)mate the revenue earned on these arrangements andrecord it prior to our customers repor(cid:43)ng the underlying sales to us. Sales-based royal(cid:43)es are es(cid:43)mated using the most-likely amount method based onhistorical sales informa(cid:43)on, adjusted for known changes such as product launches and patent expira(cid:43)ons. These inputs require signiﬁcant managementjudgement and are updated quarterly. Minimum royalty fees are recognized through the non-cancellable period, which is generally 90 days, but can be up to oneyear. Revenue related to contingent milestones is recognized upon the achievement of the milestone, provided collectability is assured.We license technology to third par(cid:43)es and, at (cid:43)mes, these arrangements include mul(cid:43)ple performance obliga(cid:43)ons that require us to determine theappropriate unit(s) of account and allocate the transfer price to each of the unit(s) of account iden(cid:43)ﬁed. The performance obliga(cid:43)ons may include license(s) toSurmodics’ technology, research, development and clinical ac(cid:43)vi(cid:43)es, and/or product sales. We did not generate revenue from any arrangements with mul(cid:43)pleperformance obligations in fiscal 2019.31Revenue associated with our license and development agreement with Abbo(cid:48) is recognized as the clinical and regulatory ac(cid:43)vi(cid:43)es are performed on apropor(cid:43)onal performance basis based on actual costs incurred rela(cid:43)ve to the expected total cost of the underlying ac(cid:43)vi(cid:43)es, most notably the comple(cid:43)on ofthe TRANSCEND clinical trial. A signiﬁcant component of the cost of this trial is the cost of our outsourced clinical trial clinical research organiza(cid:43)on (“CRO”)consultants, which are es(cid:43)mated based on executed statements of work, project budgets, and pa(cid:43)ent enrollment and follow-up (cid:43)ming, among other things.Costs related to the clinical and regulatory ac(cid:43)vi(cid:43)es are expensed in the period incurred. A signiﬁcant change to the Company’s es(cid:43)mate of the costs tocomplete the TRANSCEND clinical trial could have a material eﬀect on the Company’s results of opera(cid:43)ons. The total expected cost of the trial is a signiﬁcantmanagement es(cid:43)mate and is reviewed and assessed each repor(cid:43)ng period. The current por(cid:43)on of deferred revenue on the consolidated balance sheetrepresents the amount of deferred revenue that is expected to be recognized over the next year, based on es(cid:43)mated costs to be incurred. The es(cid:43)mate offuture revenue from the Abbott agreement will continue to be monitored and adjusted based on estimates in effect each period-end.As further described in the New Accoun(cid:43)ng Pronouncements sec(cid:43)on, we adopted ASC Topic 606 on revenue recogni(cid:43)on on October 1, 2018. Weadopted the standard using the modiﬁed retrospec(cid:43)ve approach and recorded cumula(cid:43)ve-eﬀect adjustments to the consolidated ﬁnancial statements to reﬂectthe recognition of minimum royalties, milestones and sales-based royalties earned under our hydrophilic coatings license agreements in a prior period under ASCTopic 606, along with the associated income tax impact.Customer advances are accounted for as a liability until all criteria for revenue recognition have been met.Goodwill and other indeﬁnite-lived intangible assets. We record all assets and liabili(cid:43)es acquired in purchase acquisi(cid:43)ons, including goodwill and otherintangible assets, at fair value as required by accoun(cid:43)ng guidance for business combina(cid:43)ons. The ini(cid:43)al recogni(cid:43)on of goodwill and other intangible assetsrequires management to make subjec(cid:43)ve judgments concerning es(cid:43)mates of how the acquired assets will perform in the future using valua(cid:43)on methodsincluding discounted cash flow analysis.On an ongoing basis, goodwill and certain indeﬁnite-lived intangible assets are not amor(cid:43)zed but are subject, at a minimum, to annual tests forimpairment at the repor(cid:43)ng unit level. A repor(cid:43)ng unit is an opera(cid:43)ng segment, or component thereof, for which discrete ﬁnancial informa(cid:43)on is available andreviewed by management on a regular basis. Management has determined that our reporting units are comprised of our Medical Device and IVD business units.Goodwill in our repor(cid:43)ng units is evaluated for impairment in two ways. First, an assessment of qualita(cid:43)ve factors is performed to determine whetherthe existence of events or circumstances leads to a determina(cid:43)on that it is more likely than not that the fair value of a repor(cid:43)ng unit is less than its carryingamount. If, a(cid:80)er assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a repor(cid:43)ng unit isless than its carrying amount, then performing an impairment test, as described below, becomes unnecessary. If events or circumstances occur that wouldindicate that the carrying amount may be impaired, or if the Company otherwise determines it necessary, the quantitative impairment test would be performed.These tests require management to make signiﬁcant judgments and es(cid:43)mates, most of which are based each repor(cid:43)ng unit’s projected future cash ﬂows.Our es(cid:43)mates associated with the annual test of goodwill and indeﬁnite-lived intangible assets are considered cri(cid:43)cal due to the amount of these assetsrecorded on our consolidated balance sheets and the judgment required in determining fair value, including projected future cash ﬂows and, in the case of aquantitative test and impairment measurement, applicable discount rates.We perform our annual impairment test of goodwill and indeﬁnite-lived intangible assets annually in the fourth quarter of our ﬁscal year. Based on theresults of these assessments, no goodwill impairment charges were recorded during ﬁscal 2019, 2018 or 2017. During ﬁscal 2019 and 2017, we recordedimpairment charges on our indeﬁnite-lived intangible assets of $0.3 million and $0.4 million, respec(cid:43)vely, as a result of decreases in future revenue es(cid:43)matesassociated with these assets. No impairment charges were recorded in fiscal 2018 related to indefinite-lived intangible assets.32Income tax accruals and valua(cid:45)on allowances. Signiﬁcant judgment is required in evalua(cid:43)ng our tax posi(cid:43)ons, and in determining our provision forincome taxes, our deferred tax assets and liabili(cid:43)es and any valua(cid:43)on allowance recorded against our deferred tax assets. We had total deferred tax assets inexcess of total deferred tax liabili(cid:43)es of $6.2 million and $6.3 million, respec(cid:43)vely, as of September 30, 2019 and 2018, including valua(cid:43)on allowances of $5.3million and $4.5 million, respec(cid:43)vely. The valua(cid:43)on allowances principally related to three items. First, ﬁnancial statement other-than-temporary losses onstrategic investments that were unrealized for tax purposes as we did not foresee future oﬀse(cid:85)ng taxable capital gains. Therefore, as of September 30, 2019and 2018, a valua(cid:43)on allowance has been recorded for all other-than-temporary impairment losses as realized tax capital losses from sales of the underlyingstrategic assets have not occurred. Second, deferred tax assets related to net opera(cid:43)ng losses of Creagh Medical, including those incurred prior to theacquisi(cid:43)on in ﬁscal 2016, have been oﬀset by a valua(cid:43)on allowance as it is not more likely than not that the tax assets will be realized in future periods, due toCreagh Medical’s history of taxable losses. Third, deferred tax assets related to state R&D tax credit carryforwards have been oﬀset by valua(cid:43)on allowances tothe extent they are not expected to be utilized in future years.We applied the accounting guidance associated with uncertain tax positions which defines standards for recognizing the benefits of tax return positions inthe consolidated ﬁnancial statements as “more-likely-than-not” to be sustained by the taxing authori(cid:43)es based solely on the technical merits of the posi(cid:43)on. Ifthe recogni(cid:43)on threshold is met, the tax beneﬁt is measured and recognized as the largest amount of tax beneﬁt that, in our judgment, is greater than 50%likely to be realized. We regularly monitor our uncertain tax posi(cid:43)ons and adjust the related liabili(cid:43)es to reﬂect comple(cid:43)on of tax audits, expira(cid:43)on of anapplicable statute of limita(cid:43)ons, changes in tax laws or interpreta(cid:43)ons, and changes in our business that result in uncertain(cid:43)es that previously did not meet therecogni(cid:43)on criteria. See Note 8, “Income taxes,” to the consolidated ﬁnancial statements in “Item 8. Financial Statements and Supplementary Data” in thisAnnual Report on Form 10-K for further informa(cid:43)on regarding income taxes and their eﬀect on the consolidated ﬁnancial statements for ﬁscal 2019, 2018 and2017.Results of OperationsYears Ended September 30, 2019, 2018 and 2017Revenue. Fiscal 2019 revenue was $100.1 million, an $18.7 million or 23% increase from ﬁscal 2018 revenue of $81.3 million. Fiscal 2018 revenue was$81.3 million, a $8.2 million or 11% increase from ﬁscal 2017 revenue of $73.1 million. The table below provides a summary of each opera(cid:43)ng segment’s annualrevenue for each of the three years ended September 30, 2019, 2018 and 2017. For the Year Ended September 30, Increase/(Decrease) Increase/(Decrease) (dollars in thousands) 2019 2018 2017 2019 vs. 2018 2018 vs. 2017 Revenue Medical Device $78,353 $60,513 $53,983 $17,840 29% $6,530 12%In Vitro Diagnostics 21,724 20,823 19,129 901 4% 1,694 9%Total Revenue $100,077 $81,336 $73,112 $18,741 23% $8,224 11% Medical Device. Revenue in our Medical Device business unit was $78.4 million in ﬁscal 2019, a 29% increase from $60.5 million in ﬁscal 2018. Theincrease in ﬁscal 2019 revenue was a result of growth in all our revenue categories. Product revenue increased by $1.4 million, largely driven by increasedballoon catheter sales volume, as well as growth in demand for our chemical reagents. Royalty and license fee revenue increased $13.0 million in ﬁscal 2019, ascompared with the prior-year. Driving the increase in royalty and license fee revenue from the prior year was $13.5 million of license fee revenue from ourSurVeil DCB license and development agreement with Abbo(cid:48), an increase of $9.1 million from ﬁscal 2018. Revenue from the Abbo(cid:48) agreement was primarilydriven by $5.1 million of revenue recognized from a $10.0 million milestone payment received during ﬁscal 2019. Growth in royal(cid:43)es totaled $4.2 million as aresult of increased customer sales of products u(cid:43)lizing our hydrophilic coa(cid:43)ngs technologies, as well as $1.0 million associated with the extension of an exis(cid:43)nghydrophilic coa(cid:43)ng technology license in ﬁscal 2019. Increased ac(cid:43)vity in our customer research and development programs, par(cid:43)cularly our coa(cid:43)ng servicesand technology feasibility services offerings, resulted in growth of $3.4 million in our research and development and other revenue.During ﬁscal 2019, 2018 and 2017, $20.6 million, $17.1 million, and $15.6 million, respec(cid:43)vely, of medical device royalty revenue was generated fromlicenses of our fourth-genera(cid:43)on PhotoLink hydrophilic coa(cid:43)ng technology, including the aforemen(cid:43)oned $1.0 million royalty associated with the extension of alicense agreement in ﬁscal 2019. As discussed above, the family of patents that protects this technology will expire in our ﬁrst quarter of ﬁscal 2020 in the U.Sand certain other countries and our ﬁrst quarter of ﬁscal 2021 in Japan. For some licensed customers, a royalty rate stepdown will occur following the date onwhich33these patents expire, while the royalty obliga(cid:43)ons for certain other customers will cease en(cid:43)rely. We expect a decline of $5.0 million to $5.5 million inhydrophilic coa(cid:43)ng royal(cid:43)es in ﬁscal 2020 as the result of these patent expirations. While we have con(cid:43)nued to earn royalty revenue from customers licensingour previous PhotoLink technology generations a(cid:80)er the associated patents have expired, we are ac(cid:43)vely seeking to convert these customers to our Serenecoating technologies or extend the royalty-bearing period.Revenue in our Medical Device business unit was $60.5 million in ﬁscal 2018, a 12% increase from $53.9 million in ﬁscal 2017. The increase in ﬁscal 2018revenue was a result of growth in product sales and royalty and license fee revenue, par(cid:43)ally oﬀset by a reduc(cid:43)on in research, development and other revenue.Product revenue increased by $3.4 million, largely driven by increased sales of balloon catheters, as well as growth in demand for our chemical reagents. Royaltyand license fee revenue increased $3.7 million in ﬁscal 2018, as compared with the prior-year, despite facing headwinds from the one-(cid:43)me $1.1 million licensefee recognized in ﬁscal 2017, along with the eﬀects of the prior-year expira(cid:43)on of patents covering our third-genera(cid:43)on PhotoLink technology which reducedroyalty revenue by $2.2 million in ﬁscal 2018. Driving the increase in royalty and license fee revenue from the prior year was $4.4 million of license fee revenuefrom our SurVeil DCB license and development agreement with Abbo(cid:48), as well as increases in royal(cid:43)es from licenses of our advanced-genera(cid:43)on coa(cid:43)ngs.These revenue increases were partly oﬀset by a $0.6 million decrease in research, development and other revenue as we experienced delays in customerresearch and development programs.In Vitro Diagnos(cid:45)cs. IVD revenue was $21.7 million in ﬁscal 2019, a 4% increase from $20.8 million in ﬁscal 2018. Revenue growth in ﬁscal 2019 wasdriven by sales volume increases in our microarray slides and BioFX-branded products, partly offset by a decline in sales of distributed antigen products.IVD revenue was $20.8 million in ﬁscal 2018, a 9% increase from $19.1 million in ﬁscal 2017. Revenue growth in ﬁscal 2018 was driven by sales volumeincreases in our microarray slides, distributed antigen products and BioFX-branded products.The following is a summary of major costs and expenses as a percentage of total revenue: For the Year Ended September 30, 2019 2018 2017 (dollars in thousands) Amount % TotalRevenue Amount % TotalRevenue Amount % TotalRevenue Product costs $13,639 14% $13,997 17% $11,422 16%Research and development 52,885 53% 40,973 50% 31,817 44%Selling, general and administrative 23,950 24% 24,111 30% 20,478 28%Acquired in-process research and development 890 1% 7,888 8% — — Acquired intangible asset amortization 2,405 2% 2,491 3% 2,419 3%Contingent consideration (gain) expense (161) 0% 675 1% (127) — Product costs. Product gross margins (deﬁned as product sales less related product costs) were 66%, 63% and 65% of product sales in ﬁscal 2019, 2018and 2017, respec(cid:43)vely. Product costs have grown over each of the past three ﬁscal years, largely driven by increased product sales in each of our business units.As we grow our Medical Device business, product gross margins may con(cid:43)nue to be impacted during the scale-up period of our manufacturing opera(cid:43)ons,particularly in our Irish facility.Research and development expenses. The ﬁscal 2019 increase in R&D expense of $11.9 million, or 29%, as compared with ﬁscal 2018 was primarily theresult of expense related to the TRANSCEND clinical trial for our SurVeil DCB, as well as pre-commercial manufacturing and inventory-related costs for ourSurVeil DCB as we prepare to commercialize this product. Addi(cid:43)onally, we con(cid:43)nued to increase investment into development of our radial access andthrombectomy device pla(cid:83)orms, as well as development and clinical study ac(cid:43)vi(cid:43)es related to our Sundance and Avess DCB’s. Internal R&D costs includeemployee costs, supplies, materials, facili(cid:43)es and overhead related to the design, development, tes(cid:43)ng and pursuit of regulatory approval for our products,including clinical costs.The ﬁscal 2018 increase in R&D expense of $9.2 million, or 29%, as compared with ﬁscal 2017 was primarily the result of expense related to theTRANSCEND clinical trial for our SurVeil DCB, as well as internal R&D expense related to development of our whole-product solu(cid:43)ons products, development andclinical study ac(cid:43)vi(cid:43)es related to our Sundance and Avess DCB’s. Internal R&D costs include employee costs, supplies, materials, facili(cid:43)es and overhead relatedto the design, development, tes(cid:43)ng and pursuit of regulatory approval for our products, including clinical costs. We an(cid:43)cipate R&D expenses will be in the mid-to-high ﬁ(cid:80)ies as a percent of ﬁscal 2020 revenue. Our ﬁscal 2020 R&D investment will be driven by pa(cid:43)ent follow-up costs for our SurVeil and Avess clinicaltrials, as well as the expected commencement of a ﬁrst-in-human clinical study for our Sundance DCB and con(cid:43)nued investment in our proprietary non-drugdelivery product pipeline.34Selling, general and administra(cid:45)ve expenses. Selling, general and administra(cid:43)ve (“SG&A”) expenses decreased by $0.2 million or 1%, in ﬁscal 2019 ascompared with ﬁscal 2018. In ﬁscal 2019 increases in compensa(cid:43)on-related SG&A costs were more than oﬀset by a $0.6 million beneﬁt from a customer claimwhich was se(cid:48)led in the second quarter for less than the amount accrued in ﬁscal 2018. In ﬁscal 2018, SG&A expenses increased by $3.6 million or 18%, ascompared with ﬁscal 2017, primarily driven by a $1.6 million increase in stock based and incen(cid:43)ve compensa(cid:43)on, an es(cid:43)mated customer claim accrual totaling$1.0 million, as well as $0.5 million of costs associated with the Abbo(cid:48) agreement. We expect SG&A expenses as a percent of ﬁscal 2020 revenue to beapproximately in the low-to-mid thirties as we continue to invest in our sales and marketing infrastructure to support upstream marketing and clinical evaluationactivities associated with our cleared products.Acquired in-process research and development. We acquired certain intellectual property assets in the fourth quarter of ﬁscal 2019 that resulted in acharge to acquired in-process research and development expense totaling $0.9 million. In ﬁscal 2018, we acquired an innova(cid:43)ve thrombectomy technologypla(cid:83)orm from Embolitech, LLC. As a result, we recognized acquired in-process research and development expense totaling $7.9 million in ﬁscal 2018,representing the present value of upfront and probable future payments expected to be made under the agreement.Acquisi(cid:45)on related intangible asset amor(cid:45)za(cid:45)on. We have previously acquired certain intangible assets through business combina(cid:43)ons, which are beingamor(cid:43)zed over periods ranging from four to 14 years. Amor(cid:43)za(cid:43)on expense on acquired intangible assets was $2.4 million, $2.5 million and $2.4 million in ﬁscal2019, fiscal 2018 and fiscal 2017, respectively.Con(cid:45)ngent considera(cid:45)on (gain) expense. In ﬁscal 2019, 2018 and 2017, we recorded ($0.2) million, $0.7 million and ($0.1) million, respec(cid:43)vely, of netcon(cid:43)ngent considera(cid:43)on (gain) expense from changes in the es(cid:43)mated fair value of our con(cid:43)ngent considera(cid:43)on obliga(cid:43)ons stemming from our previously-disclosed ﬁscal 2016 business acquisi(cid:43)ons. Expense (gain) in each ﬁscal year relates to changes in the probability and (cid:43)ming of achieving certain revenue andopera(cid:43)onal milestones, as well as expense for the passage of (cid:43)me (i.e. accre(cid:43)on). We expect the impact of con(cid:43)ngent considera(cid:43)on ac(cid:43)vity to be insigniﬁcantto our fiscal 2020 statement of operations as the contingency periods for all outstanding obligations was complete as of September 30, 2019.Other income (loss). Major classifications of other income (loss) are as follows: Year Ended September 30, (dollars in thousands) 2019 2018 2017 Investment income, net $1,097 $851 $390 Foreign exchange gain (loss) 134 239 (504)Interest expense (152) — — Gains on strategic investments and other 10 177 44 Other income (loss) $1,089 $1,267 $(70) Other income (loss) has varied as a result of gains from available-for-sale securi(cid:43)es and strategic investments, as well as foreign currency exchange rateﬂuctua(cid:43)ons. The increase in investment income in ﬁscal 2019 as compared with ﬁscal 2018 is the result of an increase in average investment principal stemmingfrom the $35 million of total payments received related to the Abbo(cid:48) agreement in ﬁscal 2019 and 2018. The increase in investment income in ﬁscal 2018 ascompared with ﬁscal 2017 is the result of higher interest rates on debt investments, as well as an increase in average investment principal stemming from the$25 million Abbott upfront payment. Fiscal 2019, 2018 and 2017 included $0.1 million, $0.2 million and ($0.5) million of foreign currency gains (losses), primarilyrelated to Euro-denominated con(cid:43)ngent considera(cid:43)on liabili(cid:43)es arising from the Creagh Medical acquisi(cid:43)on. These gains (losses) reﬂect weakening(strengthening) of the Euro as compared with the U.S. dollar in each respec(cid:43)ve period. Fiscal 2019 includes $0.2 million of interest expense on long-termliabilities related to our acquisitions of certain in-process research and development technology assets in fiscal 2019 and 2018.Income tax provision. In December 2017, the Tax Cuts and Jobs Act (“TCJA”) tax legisla(cid:43)on was signed into law, which reduced the U.S. Federal statutorytax rate from 35% to 21%, among other changes. As of September 30, 2018, we completed our assessment of the TCJA which resulted in discrete tax expense of$1.6 million in ﬁscal 2018 stemming from the revalua(cid:43)on of our net deferred tax assets based on the change in the enacted tax rate. U.S. tax law requires thattaxpayers with a ﬁscal year beginning before and ending a(cid:80)er the eﬀec(cid:43)ve date of a rate change calculate a blended tax rate for the year based on the pro ratanumber of days in the year before and after such effective date. Accordingly, for fiscal 2018, our statutory income tax rate was 24.5% in the U.S.35The reconcilia(cid:43)on of the statutory U.S. federal tax rates of 21%, 24.5% and 35% in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely, and our eﬀec(cid:43)ve tax rates isas follows: Year Ended September 30, 2019 2018 2017 Statutory U.S. federal income tax rate 21.0% 24.5% 35.0%State income taxes, net of federal benefit (6.0) 9.6 0.3 Federal and foreign research and development tax credits (32.6) 22.7 (10.0)Foreign and state rate differential 2.1 (4.9) 13.5 Valuation allowance change 8.9 (12.7) 7.2 Stock based compensation (1) (2.2) 27.4 4.7 Contingent consideration (gain) expense and related foreign currencyrevaluation (0.8) (2.2) (0.6)U.S. Federal & state rate change 0.6 (21.0) — Tax reserve change 10.2 (2.1) (0.7)Foreign-derived income deduction (2.0) — — Federal manufacturing deduction — — (4.4)Other 0.4 (0.5) (0.8)Effective tax rate (0.4)% 40.8% 44.2% (1)Includes non-deductible stock-based compensation.The diﬀerence between the respec(cid:43)ve U.S. federal statutory tax rates and our annual eﬀec(cid:43)ve tax rates reﬂects the impact of various diﬀerencesbetween amounts recorded in our consolidated financial statements and our tax returns.Our eﬀec(cid:43)ve tax rate in ﬁscal 2019 diﬀered from the U.S. federal statutory rate due primarily to our U.S. federal R&D tax credit, the impact of which waspartly oﬀset by related tax reserve changes as well as opera(cid:43)ng losses in Ireland, where the 12.5% statutory rate tax beneﬁts are oﬀset by a full valua(cid:43)onallowance.Our eﬀec(cid:43)ve tax rate in ﬁscal 2018 diﬀered from the U.S. federal statutory rate due primarily to the impact of U.S. tax rate decreases on our deferred taxassets, research and development tax credits, and excess tax beneﬁts associated with stock-based compensa(cid:43)on. Addi(cid:43)onally, as in prior years, opera(cid:43)ng lossesin Ireland, where the 12.5% statutory rate tax beneﬁts are oﬀset by a full valua(cid:43)on allowance, non-deduc(cid:43)ble amor(cid:43)za(cid:43)on expense, and con(cid:43)ngentconsidera(cid:43)on expense impacted the eﬀec(cid:43)ve tax rate in ﬁscal 2018. These items had an inverse impact rela(cid:43)ve to the impact of the same items in prior yearsdue to the fact that we generated a net loss in our U.S. opera(cid:43)ons in ﬁscal 2018, as compared with net income generated in prior years. As a result, items thatdecreased the amount of taxes payable, such as federal R&D tax credits, increased the amount of the tax beneﬁt rela(cid:43)ve to the pretax net loss incurred, thusincreasing the effective tax rate.The variability in our ﬁscal 2017 eﬀec(cid:43)ve tax rate from the U.S. federal statutory rate is primarily the result of opera(cid:43)ng losses in Ireland, where the12.5% statutory rate tax beneﬁts are oﬀset by a full valua(cid:43)on allowance, non-deduc(cid:43)ble amor(cid:43)za(cid:43)on expense, non-taxable con(cid:43)ngent considera(cid:43)on gains, andforeign currency losses associated with our Creagh Medical Euro-denominated con(cid:43)ngent considera(cid:43)on obliga(cid:43)ons. Also, in ﬁscal 2017, U.S. federal income taxexpense was reduced by an increase in the U.S. federal research and development tax credit resul(cid:43)ng from our increased R&D ac(cid:43)vi(cid:43)es and excess tax beneﬁtsassociated with stock-based compensation.During ﬁscal 2019, 2018 and 2017, we recognized net excess tax beneﬁt (expense) from share op(cid:43)ons exercised, expired, forfeited, or vested totaling$0.5 million, $2.0 million and ($0.2) million, respec(cid:43)vely. These items have had a signiﬁcant impact on our eﬀec(cid:43)ve tax rate due to the level of stock awardexercise activity over the past three years, and we anticipate it will continue to have an impact in fiscal 2020. 36Segment Operating ResultsOperating results for each of our reportable segments were as follows: For the Year Ended September 30, Increase/(Decrease) Increase/(Decrease) (dollars in thousands) 2019 2018 2017 2019 vs. 2018 2018 vs. 2017 Operating income (loss) Medical Device $4,794 $(8,478) $6,902 $13,272 (157)% $(15,380) (223)%In Vitro Diagnostics 10,620 8,619 8,293 2,001 23% 326 4%Total segment operating income 15,414 141 15,195 15,273 10832% (15,054) (99)%Corporate (8,945) (8,940) (8,092) (5) 0% (848) 10%Total operating income (loss) $6,469 $(8,799) $7,103 $15,268 (174)% $(15,902) (224)%Medical Device. Opera(cid:43)ng income in ﬁscal 2019, as compared with opera(cid:43)ng losses in ﬁscal 2018, were driven by $17.8 million in higher revenue, partlyoﬀset by $11.9 million in higher R&D expenses. Addi(cid:43)onally, in ﬁscal 2019 we spent $0.9 million on acquisi(cid:43)ons of early-stage medical device technology,compared with $7.9 million in the prior year. R&D expense increased as we completed enrollment in the TRANSCEND clinical trial, ini(cid:43)ated and completedenrollment in a ﬁrst-in-human trial of our Avess DCB, and incurred pre-clinical expenses in our Sundance DCB program to prepare for an expected ﬁrst-in-humantrial in ﬁscal 2020. Addi(cid:43)onally, we con(cid:43)nued to invest signiﬁcantly into development of our medical device pipeline as well as continued investment in sales andmarke(cid:43)ng infrastructure, including addi(cid:43)onal headcount, to support our whole-products solu(cid:43)ons strategy. Opera(cid:43)ng income in ﬁscal 2019 as compared withfiscal 2018 was positively impacted by contingent consideration activity ($0.8 million) as well as the settlement of a customer claim ($1.7 million).Opera(cid:43)ng losses in ﬁscal 2018, as compared with opera(cid:43)ng income in ﬁscal 2017, were driven by $7.9 million in higher R&D expenses, a $7.9 millionacquired in-process research and development charge from the Embolitech transac(cid:43)on, a $1.0 million increase in SG&A, primarily from a $1.0M customer claimaccrual, as well as a $0.8 million increase in con(cid:43)ngent considera(cid:43)on expense, partly oﬀset by the revenue increases described above. R&D expense increased aswe began enrollment in the TRANSCEND clinical trial, incurred pre-clinical expenses related to our other DCB programs and con(cid:43)nued investment in proprietaryproduct development ac(cid:43)vi(cid:43)es. SG&A expenses increased due to increased expense related to stock-based and incen(cid:43)ve compensa(cid:43)on, as well as con(cid:43)nuedinvestment in infrastructure necessary to support our whole-products solutions strategy.In Vitro Diagnostics. Opera(cid:43)ng income in our IVD segment increased by 23% in ﬁscal 2019 as compared with ﬁscal 2018 resul(cid:43)ng from revenue increasesand product gross margin improvement, as well as reduced SG&A and allocated corporate costs. Product gross margins as a percent of sales increased to 68.6%in fiscal 2019 from 64.6% in 2018 due to increased revenue, favorable product mix and manufacturing leverage.Opera(cid:43)ng income in our IVD segment increased by 4% in ﬁscal 2018 as compared with ﬁscal 2017 resul(cid:43)ng from increased product sales resul(cid:43)ng inproduct gross margin increases of $1.0 million, par(cid:43)ally oﬀset by increased R&D, SG&A and allocated corporate costs. Product gross margins as a percent ofsales decreased to 64.6% in fiscal 2018 from 65.4% in 2017 due to unfavorable product mix.Corporate. The Corporate category includes expenses for administra(cid:43)ve corporate func(cid:43)ons, such as execu(cid:43)ve, corporate accoun(cid:43)ng, legal, humanresources and Board of Directors related fees and expenses that have not been fully allocated to the Medical Device and In Vitro Diagnos(cid:43)cs segments.Corporate also includes expenses, such as li(cid:43)ga(cid:43)on, which if not speciﬁc to a segment are not allocated to our opera(cid:43)ng segments. The unallocated Corporateexpense opera(cid:43)ng loss was $8.9 million, $8.9 million and $8.1 million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely. Corporate expense was ﬂat from ﬁscal 2018 to2019. The $0.8 million, or 10% increase in corporate expenses from ﬁscal 2017 to ﬁscal 2018 was due primarily to increases in regulatory personnel headcount,as well as stock-based and incentive compensation.Liquidity and Capital ResourcesAs of September 30, 2019, we had working capital of $61.2 million, a $14.8 million increase from $46.4 million as of September 30, 2018. Working capitalis deﬁned by us as current assets minus current liabili(cid:43)es. The increase from the prior year is a result of the receipt of the $10.0 million milestone payment fromAbbo(cid:48), of which $5.1 million was recognized in ﬁscal 2019, as well as improved opera(cid:43)ng cash ﬂow from our core businesses. The current por(cid:43)on of deferredrevenue was also reduced by $4.1 million in ﬁscal 2019 as a result of recogni(cid:43)on of a por(cid:43)on of the $25 million upfront fee received from Abbo(cid:48) in ﬁscal 2018.Addi(cid:43)onally, the adop(cid:43)on of ASC Topic 606 resulted in the addi(cid:43)on of $8.2 million of contract asset receivables to our balance sheet as of September 30, 2019,which represent royalties and license fees earned but not yet due from our customers. Offsetting these37increases in working capital were con(cid:43)ngent considera(cid:43)on obliga(cid:43)ons totaling $3.2 million related to the NorMedix acquisi(cid:43)on that are classiﬁed as currentliabili(cid:43)es as of September 30, 2019. As of September 30, 2019, the NorMedix con(cid:43)ngent considera(cid:43)on obliga(cid:43)ons, which are recorded at their es(cid:43)mated fairmarket value using Level 3 inputs, were included in current liabili(cid:43)es. Based on milestones achieved during the con(cid:43)ngency period, a payment totaling $3.2million is expected to be made by December 31, 2019. Our cash and cash equivalents and available-for-sale investments totaled $55.3 million as of September30, 2019, a decrease of $9.4 million from $65.0 million as of September 30, 2018, principally associated with cash ﬂow from opera(cid:43)ng ac(cid:43)vi(cid:43)es of $8.0 million,oﬀset by $6.0 million of plant and equipment expenditures, $0.8 million paid for acquired in process research and development assets, $11.1 million of cashpaid to se(cid:48)le con(cid:43)ngent considera(cid:43)on obliga(cid:43)ons related to the Creagh Medical acquisi(cid:43)on, $2.0 million of which reduced cash from opera(cid:43)ons, and $2.0million of net cash payments for taxes related to net share settlement of equity awards.The Company’s investment policy prohibits ownership of collateralized mortgage obliga(cid:43)ons, mortgage-backed deriva(cid:43)ves and other deriva(cid:43)ve securi(cid:43)eswithout prior wri(cid:48)en approval of the Board of Directors. Throughout 2019 and 2018, the Company made investments in short-term, available for sale securi(cid:43)es,resul(cid:43)ng in an ending balance as of September 30, 2019 and 2018 of $25.0 million and $41.4 million, respec(cid:43)vely. Our investment policy requires that forinvestments with a dura(cid:43)on of greater than one year, no more than 5% of investments be held in any one credit or issue, excluding U.S. government andgovernment agency obliga(cid:43)ons. The primary investment objec(cid:43)ve of the por(cid:83)olio is to provide for the safety of principal and appropriate liquidity. Managementplans to con(cid:43)nue to direct its investment advisors to manage the Company’s securi(cid:43)es investments primarily for the safety of principal for the foreseeablefuture as it continues to assess other investment opportunities and uses of its cash and securities investments, including those described below.We believe that our exis(cid:43)ng cash, cash equivalents and investments, will provide liquidity suﬃcient to fund our opera(cid:43)ons and planned capitalexpenditures in the next twelve months. There can be no assurance, however, that our business will con(cid:43)nue to generate cash ﬂows at current levels.Addi(cid:43)onally, disrup(cid:43)ons in ﬁnancial markets or an increase in interest rates may nega(cid:43)vely impact our ability to access capital in a (cid:43)mely manner and onattractive terms.The following table is a summary of cash provided by (used in) opera(cid:43)ng, inves(cid:43)ng, and ﬁnancing ac(cid:43)vi(cid:43)es, the eﬀect of exchange rate changes on cashand cash equivalents, and the net change in cash and cash equivalents: For the Years Ended September 30, 2019 2018 2017 (dollars in thousands) Cash provided by (used for): Operating activities $8,038 $34,052 $14,053 Investing activities 9,754 (23,500) (16,189)Financing activities (11,029) (3,393) (6,510)Effect of exchange rates on changes in cash and cash equivalents (70) (25) 193 Net change in cash and cash equivalents $6,693 $7,134 $(8,453) Opera(cid:45)ng Ac(cid:45)vi(cid:45)es. We generated cash from opera(cid:43)ng ac(cid:43)vi(cid:43)es of $8.0 million, $34.1 million and $14.1 million in ﬁscal 2019, 2018 and 2017,respec(cid:43)vely. During ﬁscal 2019, 2018 and 2017, we had net income (loss) of $7.6 million, ($4.5) million and $3.9 million, respec(cid:43)vely. Net changes in opera(cid:43)ngassets and liabili(cid:43)es increased (reduced) cash ﬂows from opera(cid:43)ng ac(cid:43)vi(cid:43)es by ($9.9) million, $21.2 million and ($0.8) million in ﬁscal 2019, 2018 and 2017,respectively. Significant changes in operating assets and liabilities affecting cash flows during these years included: •Cash (used for) provided by deferred revenue was ($3.5) million and $20.7 million in ﬁscal 2019 and 2018, respec(cid:43)vely, as compared with lessthan $0.1 million in the ﬁscal 2017 period. The ﬁscal 2019 ac(cid:43)vity was a result of the receipt of the $10 million SurVeil milestone from Abbo(cid:48),oﬀset by recogni(cid:43)on of $13.5 million of license fee revenue. The ﬁscal 2018 cash from deferred revenue was driven by the $25.0 millionupfront fees received from Abbott in fiscal 2018, net of amounts recognized through September 30, 2018.38 •Cash used for prepaids and other current assets totaled $2.1 million, $1.6 million and $0.6 million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely.These changes were primarily due to increases in refundable Irish research and development tax credit assets and other reimbursable R&Dexpenses as well as increased prepaid clinical trial expenses in each fiscal year. •Cash (used for) provided by accrued liabili(cid:43)es was ($2.2) million, $5.1 million and ($0.7) million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely. Thecash used in accrued liabili(cid:43)es in ﬁscal 2019 was primarily a result of a $1.1 million reduc(cid:43)on in accrued compensa(cid:43)on due to lower incen(cid:43)vecompensa(cid:43)on in ﬁscal 2019, as well as a $1.0 million reduc(cid:43)on from a customer claim se(cid:48)lement in ﬁscal 2019. The increase in cash fromaccrued liabili(cid:43)es in ﬁscal 2018 was driven primarily by a $2.4 million increase in accrued clinical study expense and a $1.0 million accruedcustomer claim related to an es(cid:43)mated overpayment of coa(cid:43)ng royal(cid:43)es. Addi(cid:43)onally, an increase in accrued compensa(cid:43)on of $1.7 million infiscal 2018 was due to an increase in accrued incentive compensation at September 30, 2019 as compared with the prior year. •Cash used for accounts receivable was $1.6 million, $0.8 million and $0.5 million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely, due primarily tofluctuations in product sales volume.Investing Activities. We generated cash from inves(cid:43)ng ac(cid:43)vi(cid:43)es of $9.8 million in ﬁscal 2019, and used cash for inves(cid:43)ng ac(cid:43)vi(cid:43)es of ($23.5) million and($16.2) million in ﬁscal 2018 and 2017, respec(cid:43)vely. We invested $6.0 million, $9.1 million and $6.4 million in property and equipment in ﬁscal 2019, 2018 and2017, respec(cid:43)vely. Capital expenditures in each ﬁscal year were primarily related to investments in property and equipment to facilitate our whole-productsstrategy. These investments included expansion of R&D and manufacturing clean rooms and assembly space as well as an analy(cid:43)cal lab in our Irish facility and,in ﬁscal 2019 and 2018, costs related to the buildout of our R&D facility in Eden Prairie, Minnesota. We sold (purchased) available-for-sale securi(cid:43)es totaling$16.5 million, ($9.6) million and ($9.8) million, on a net basis, in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely. In ﬁscal 2019 and 2018, we invested $0.8 million and$5.0 million in in-process research and development assets to expand our product development pipeline.Financing Activities. We used cash ﬂows from ﬁnancing ac(cid:43)vi(cid:43)es of $11.0 million, $3.4 million and $6.5 million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely.In ﬁscal 2019 we paid con(cid:43)ngent considera(cid:43)on of $11.0 million related to the Creagh Medical acquisi(cid:43)on, $9.1 million of which was recorded as cash fromfinancing activities. In addition, in fiscal 2019 we paid $2.7 million, to purchase common stock to pay employee taxes resul(cid:43)ng from the exercise of stock op(cid:43)onsand ves(cid:43)ng of other stock awards. In ﬁscal 2018, our cash used for ﬁnancing ac(cid:43)vi(cid:43)es was primarily related to $4.5 million to purchase common stock to payemployee taxes resul(cid:43)ng from stock award ac(cid:43)vity during the ﬁscal year. The primary ﬁnancing ac(cid:43)vi(cid:43)es in ﬁscal 2017 were the repurchase of common stockunder our stock repurchase authoriza(cid:43)on for $4.7 million and $2.2 million paid to purchase common stock to pay employee taxes resul(cid:43)ng from stock awardac(cid:43)vity during the ﬁscal year. We also generated $0.7 million, $2.1 million and $0.4 million in ﬁscal 2019, 2018 and 2017, respec(cid:43)vely, from the sale of commonstock pursuant to our stock-based compensation arrangements.On November 6, 2015, the Company’s Board of Directors authorized it to repurchase up to an addi(cid:43)onal $20.0 million (“ﬁscal 2016 authoriza(cid:43)on”) of theCompany’s outstanding common stock in open-market purchases, privately nego(cid:43)ated transac(cid:43)ons, block trades, accelerated share repurchase (“ASR”)transactions, tender offers or by any combination of such methods. This share repurchase program does not have a fixed expiration date.On November 5, 2014, the Company’s Board of Directors authorized it to repurchase up to $30.0 million (“ﬁscal 2015 authoriza(cid:43)on”) of the Company’soutstanding common stock in open-market purchases, privately nego(cid:43)ated transac(cid:43)ons, block trades, accelerated share repurchase transac(cid:43)ons, tender oﬀersor by any combination of such methods. An aggregate of $5.3 million remains outstanding under this authorization. This share repurchase program does not havea fixed expiration date.During fiscal 2017, we paid $4.7 million to repurchase 196,190 common shares in open market purchases at an average price of $23.97 per share. We didnot repurchase any shares in fiscal 2019 or fiscal 2018.As of September 30, 2019, the Company has an aggregate of $25.3 million available for future common stock purchases under the current authorization.Customer Concentra(cid:45)ons. Our licensed technologies provide royalty and license fee revenue. We have licenses with a diverse base of customers andcertain customers have mul(cid:43)ple products using our technology. We have technology licenses and product supply agreements with a diverse base of customersand certain customers have mul(cid:43)ple products using our technologies. Abbo(cid:48) and Medtronic plc (“Medtronic”) are our largest customers, comprising 19% and14%, respectively, of our consolidated revenue for fiscal 2019. These same customers each comprised 11% and 16%, respectively of our consolidated revenue forfiscal 2018. In fiscal 2017, revenue from Medtronic comprised 18% of our consolidated revenue. Abbott has several separately licensed products,39including the SurVeil license, which generate royalty and license fee revenue for Surmodics. Revenue from the SurVeil license represented 13%, 5% and 0% oftotal revenue for fiscal 2019, 2018 and 2017, respectively. Medtronic has several separately licensed products that generate royalty revenue for Surmodics, noneof which represented more than 3% of our total revenue. No other individual customer cons(cid:43)tutes more than 10% of Surmodics’ total ﬁscal 2019, 2018 or 2017revenue.Our licensing agreements with many of our customers, including most of our signiﬁcant customers, cover many licensed products that each separatelygenerates royalty revenue. This structure reduces the poten(cid:43)al risk to our opera(cid:43)ons that may result from reduced sales (or the termina(cid:43)on of a license) of asingle product for any specific customer.Off-Balance Sheet Arrangements and Contractual Obligations. As of September 30, 2019, we did not have any off-balance sheet arrangements.Presented below is a summary of contractual obliga(cid:43)ons as of September 30, 2019 and payments due under these arrangements by period (inthousands). See Note 10 to the consolidated ﬁnancial statements in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-Kfor additional information regarding the below obligations. (dollars in thousands) Total Less than1 Year 1-3 Years 4-5 Years More than5 Years Operating leases (1) $4,765 $493 $1,075 $1,105 $2,092 Contingent consideration (2) 6,850 4,200 650 2,000 — Minimum annual royalty obligation (3) 1,747 218 437 437 655 Clinical trial CRO obligations (4) 11,824 4,163 4,252 2,889 520 Total $25,186 $9,074 $6,414 $6,431 $3,267 (1)Opera(cid:43)ng lease obliga(cid:43)ons reﬂect contractual obliga(cid:43)ons for the lease of addi(cid:43)onal space in our R&D facility in Eden Prairie, Minnesota, including thelease which we executed in September 2019. This lease requires escalating annual payments of approximately $0.2 million over an eight-year term.(2)Includes $3.7 million of payments to be made in connec(cid:43)on with the in-process research and development technology asset acquisi(cid:43)ons completed inﬁscal 2019 and 2018, excluding amounts that are con(cid:43)ngent upon regulatory or commercial milestones. In connec(cid:43)on with the acquisi(cid:43)on of NorMedix,we are con(cid:43)ngently liable for milestone payments aggrega(cid:43)ng up to $7.0 million. The considera(cid:43)on payable under the NorMedix acquisi(cid:43)on agreementwas ﬁnalized as of September 30, 2019 and will be paid in December 2019. See Note 5 to the consolidated ﬁnancial statements in “Item 8. FinancialStatements and Supplementary Data” in this Annual Report on Form 10-K for addi(cid:43)onal informa(cid:43)on regarding these acquisi(cid:43)ons and the relatedcontingent consideration liabilities.(3)Minimum annual royalty obliga(cid:43)on relates to payments associated with an in-bound license agreement whereby we pay, at a minimum, €200,000 euros(equivalent to approximately $218,000 as of September 30, 2019) to gain access to polymer technology which is utilized in a drug-delivery customer license.The agreement includes an early termina(cid:43)on clause. However, the future obliga(cid:43)ons above are presented through September 2027, the remaining term ofthe agreement, as it is not currently more likely than not that the agreement will be terminated early.(4)CRO obliga(cid:43)ons represent contractual periodic payments for services performed and milestone payments to third-party CROs for services related to ourongoing clinical trials. The (cid:43)ming of payments and recogni(cid:43)on of expenses under these contracts is dependent on enrollment in our ongoing clinical trialsand may be diﬀerent from the amounts presented, which are es(cid:43)mated based on projected enrollment rates. The aggregate future contractual obliga(cid:43)onis up to $11.8 million as of September 30, 2019.As of September 30, 2019, our gross liability, including interest and penal(cid:43)es, for uncertain tax posi(cid:43)ons was $2.3 million. We are not able to reasonablyes(cid:43)mate the amount by which the liability will increase or decrease over an extended period of (cid:43)me or whether a cash se(cid:48)lement of the liability will berequired. Therefore, these amounts have been excluded from the schedule of contractual obligations above.In addi(cid:43)on, we may be required to pay stock considera(cid:43)on of up to 480,059 of our common shares related to another business acquisi(cid:43)on, con(cid:43)ngent onfuture achievement of certain development objec(cid:43)ves of the acquired business. The (cid:43)ming and amount is uncertain, thus we are not able to reasonablyes(cid:43)mate whether se(cid:48)lement of the con(cid:43)ngent liability will be required. Therefore, this amount has been excluded from the schedule of contractual obliga(cid:43)onsabove.40New Accounting PronouncementsAccounting Standards AdoptedIn May 2014, the Financial Accoun(cid:43)ng Standards Board (“FASB”) Accoun(cid:43)ng Standards Codiﬁca(cid:43)on (“ASC”) issued Update No. 2014-09, Revenue fromContracts with Customers (“ASC Topic 606”). The core principal of ASC Topic 606 is to recognize revenue in a manner that depicts the transfer of goods orservices to customers in amounts that reﬂect the considera(cid:43)on an en(cid:43)ty expects to be en(cid:43)tled to in exchange for those goods or services. The guidance alsorequires expanded disclosures rela(cid:43)ng to the nature, amount, (cid:43)ming, and uncertainty of revenue and cash ﬂows arising from contracts with customers, as wellas signiﬁcant judgements and changes in judgements, which are described in Note 2 to the consolidated ﬁnancial statements in “Item 8. Financial Statementsand Supplementary Data” in this Annual Report on Form 10-K. The Company adopted ASC Topic 606 in the ﬁrst quarter of ﬁscal year 2019 using the modiﬁedretrospec(cid:43)ve method and applied the new revenue standard to all new customer contracts ini(cid:43)ated on or a(cid:80)er the eﬀec(cid:43)ve date and contracts which hadremaining performance obliga(cid:43)ons as of the eﬀec(cid:43)ve date. The adop(cid:43)on of ASC Topic 606 resulted in an accelera(cid:43)on of minimum license fees and sales-basedroyalty revenue earned under the Company’s hydrophilic coa(cid:43)ng technology license agreements by approximately one quarter. Prior to the adop(cid:43)on of ASCTopic 606, sales-based royal(cid:43)es were recognized in the period the Company’s customers reported the underlying sales, which is generally one quarter a(cid:80)er thesales occur. Addi(cid:43)onally, minimum royal(cid:43)es were recognized in the period they were contractually owed to the Company. Upon adop(cid:43)on of ASC Topic 606,sales-based royal(cid:43)es are recognized in the period the underlying customer sale occurs, while the minimum royal(cid:43)es are recognized at each renewal of thelicense contract, which generally occurs on the last day of the quarter for minimum royal(cid:43)es contractually due in the following quarter. The adop(cid:43)on of ASCTopic 606 resulted in cumula(cid:43)ve-eﬀect adjustments to opening retained earnings, contract assets, deferred tax assets and income tax receivable. The impact ofthe adoption of ASC Topic 606 on the consolidated financial statements is disclosed in Note 2 to the consolidated financial statements.Accounting Standards Not Yet AdoptedIn February 2016, the FASB issued Accoun(cid:43)ng Standards Update ASU 2016-02, Leases (ASC Topic 842). The new guidance primarily aﬀects lesseeaccoun(cid:43)ng, while accoun(cid:43)ng by lessors will not be signiﬁcantly impacted by the update. The update maintains two classiﬁca(cid:43)ons of leases: ﬁnance leases, whichreplace capital leases, and opera(cid:43)ng leases. Lessees will need to recognize a right-of-use asset and a lease liability on the statement of ﬁnancial posi(cid:43)on forthose leases previously classiﬁed as opera(cid:43)ng leases under the old guidance. The liability will be equal to the present value of remaining contractual leasepayments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accoun(cid:43)ng standard will be eﬀec(cid:43)ve for the Companybeginning the ﬁrst quarter of ﬁscal year 2020 (October 1, 2019) and will be applied using a modiﬁed retrospec(cid:43)ve approach. The Company es(cid:43)mates that a rightof use asset totaling approximately $1.7 million and a lease obliga(cid:43)on liability totaling approximately $2.9 million will be recorded as a result of the adop(cid:43)on ofthe new lease accoun(cid:43)ng standard. Addi(cid:43)onally, the deferred rent liability totaling approximately $1.2 million that is currently included in other current andlong-term liabili(cid:43)es will be eliminated as it will reduce the amount of the right-of-use asset recorded upon adop(cid:43)on. Several new disclosures will also berequired upon adop(cid:43)on of ASC Topic 842. The Company expects the adop(cid:43)on of the lease standard will not have a signiﬁcant impact on stockholders’ equity,the consolidated statements of operations, or the consolidated statements of cash flows.No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on our consolidated financial statements.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Our investment policy requires investments with high credit quality issuers and limits the amount of credit exposure to any one issuer. Our investmentsconsist principally of commercial paper instruments and corporate bonds with varying maturity dates, substan(cid:43)ally all of which are less than one year. Becauseof the credit criteria of our investment policies, the primary market risk associated with these investments is interest rate risk. Surmodics does not use deriva(cid:43)veﬁnancial instruments to manage interest rate risk or to speculate on future changes in interest rates. As of September 30, 2019, the Company owned no interest-bearing securi(cid:43)es with more than twelve months remaining un(cid:43)l maturity, and therefore a one percentage point increase in interest rates would not have amaterial impact on the results of opera(cid:43)ons or cash ﬂows. Our policy also allows the Company to hold a substan(cid:43)al por(cid:43)on of our funds in cash and cashequivalents, which are deﬁned as ﬁnancial instruments with original maturi(cid:43)es of three months or less and may include money market instruments, cer(cid:43)ﬁcatesof deposit, repurchase agreements, corporate bonds and commercial paper instruments.Management believes that a change in raw material prices would not have a material impact on future earnings or cash ﬂows because our inventoryexposure is not material.41With the Creagh Medical acquisi(cid:43)on in November 2015, we are exposed to increasing Euro currency risk with respect to our manufacturing opera(cid:43)ons inIreland. In a period where the U.S. dollar is strengthening or weakening as compared with the Euro, our revenue and expenses denominated in Euro’s aretranslated into U.S. dollars at a lower or higher value than they would be in an otherwise constant currency exchange rate environment. During fiscal 2019, 2018and ﬁscal 2017, we recognized $0.1 million, $0.2 million, and ($0.5) million, respec(cid:43)vely, in foreign currency gains (losses) which were primarily related to ourEuro-denominated obliga(cid:43)on for con(cid:43)ngent considera(cid:43)on, which was paid in December 2018. Other than the Ireland opera(cid:43)ons and the previously disclosedEuro-denominated contingent consideration obligation, our international operations consist primarily of sales of reagent and stabiliza(cid:43)on chemicals and changesin foreign currencies rela(cid:43)ve to the U.S. Dollar did not have a signiﬁcant impact on our opera(cid:43)ons. All sales transac(cid:43)ons are denominated in either U.S. dollarsor Euros. We generate royalty revenue from customers’ product sales in foreign jurisdic(cid:43)ons, which are converted and paid in U.S. dollars per contractual terms.Substan(cid:43)ally all of our purchasing transac(cid:43)ons are denominated in either U.S. Dollars or Euros. To date, we have not entered into any foreign currency forwardexchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.The consolidated balance sheets as of September 30, 2019 and 2018 and the consolidated statements of opera(cid:43)ons, comprehensive income (loss),stockholders’ equity and cash ﬂows for each of the three years in the period ended September 30, 2019, together with Report of Independent Registered PublicAccounting Firm and related notes (including selected unaudited quarterly financial data) begin on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A. CONTROLS AND PROCEDURES.1.Disclosure Controls and Procedures.The Company maintains disclosure controls and procedures as deﬁned in Rules 13a-15(e) and 15d-15(e) of the Securi(cid:43)es Exchange Act of 1934, asamended (the “Exchange Act”) that are designed to ensure that informa(cid:43)on required to be disclosed in our reports ﬁled under the Exchange Act, is recorded,processed, summarized and reported within the (cid:43)me periods speciﬁed in the SEC’s rules and forms, and that such informa(cid:43)on is accumulated andcommunicated to our management, including our Chief Execu(cid:43)ve Oﬃcer and Chief Financial Oﬃcer, as appropriate, to allow (cid:43)mely decisions regarding requireddisclosure.In designing and evalua(cid:43)ng the disclosure controls and procedures, management recognizes that any controls and procedures, no ma(cid:48)er how welldesigned and operated, can provide only reasonable assurance of achieving the desired control objec(cid:43)ves, and no evalua(cid:43)on can provide absolute assurancethat all control issues and instances of fraud, if any, within the company have been detected.The Company’s management, under the supervision and with the par(cid:43)cipa(cid:43)on of the Company’s Chief Execu(cid:43)ve Oﬃcer and Chief Financial Oﬃcer,referred to collec(cid:43)vely herein as the Cer(cid:43)fying Oﬃcers, carried out an evalua(cid:43)on of the eﬀec(cid:43)veness of the design and opera(cid:43)on of the Company’s disclosurecontrols and procedures as of September 30, 2019, the end of the period covered by this Annual Report on Form 10-K. Based on that evalua(cid:43)on, the Cer(cid:43)fyingOﬃcers concluded that the Company’s disclosure controls and procedures (as deﬁned in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were eﬀec(cid:43)ve as ofSeptember 30, 2019, as designed and implemented to ensure that informa(cid:43)on required to be disclosed by the Company in reports that it ﬁles under theExchange Act is recorded, processed, summarized and reported within the (cid:43)me period speciﬁed in the Securi(cid:43)es Exchange Commission rules and forms, and toensure that informa(cid:43)on required to be disclosed by the Company in the reports the Company ﬁles or submits under the Exchange Act is accumulated andcommunicated to the Company’s management, including its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosures.422.Internal Control over Financial Reporting.a. Management’s Annual Report on Internal Control Over Financial Repor(cid:45)ng. Our management is responsible for establishing and maintaining adequateinternal control over ﬁnancial repor(cid:43)ng, as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over ﬁnancial repor(cid:43)ng is aprocess designed to provide reasonable assurance regarding the reliability of ﬁnancial repor(cid:43)ng and the prepara(cid:43)on of ﬁnancial statements for externalpurposes in accordance with U.S. GAAP. Our internal control over ﬁnancial repor(cid:43)ng includes those policies and procedures that: (i) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reﬂect the transac(cid:43)ons and disposi(cid:43)ons of our assets; (ii) provide reasonable assurance thattransac(cid:43)ons are recorded as necessary to permit prepara(cid:43)on of ﬁnancial statements in accordance with U.S. GAAP, and that our receipts and expenditures arebeing made only in accordance with authoriza(cid:43)on of our management and directors; and (iii) provide reasonable assurance regarding preven(cid:43)on or (cid:43)melydetection of unauthorized acquisition, use or disposition of assets that could have a material effect on our consolidated financial statements.Management evaluated the design and opera(cid:43)ng eﬀec(cid:43)veness of the Company’s internal control over ﬁnancial repor(cid:43)ng based on the criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Commi(cid:48)ee of Sponsoring Organiza(cid:43)ons of the Treadway Commission. Based onthe evaluation, management concluded that internal control over financial reporting was effective as of September 30, 2019. The Company’s independent registered public accoun(cid:43)ng ﬁrm, Deloi(cid:48)e & Touche LLP, who audited the consolidated ﬁnancial statements included in thisAnnual Report on Form 10-K, has issued an a(cid:48)esta(cid:43)on report on the eﬀec(cid:43)veness of management’s internal control over ﬁnancial repor(cid:43)ng as of September 30,2019. This report states that internal control over financial reporting was effective and appears on page F-1 of this Annual Report on Form 10-K.b. Changes in Internal Controls Over Financial Reporting.There were no changes in our internal control over ﬁnancial repor(cid:43)ng iden(cid:43)ﬁed in management’s evalua(cid:43)on pursuant to Rules 13a-15(d) or 15d-15(d) ofthe Exchange Act during the quarter ended September 30, 2019 that materially aﬀected, or are reasonable likely to materially aﬀect, our internal control overfinancial reporting.ITEM 9B. OTHER INFORMATION.None.43PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.The informa(cid:43)on required by Item 10 rela(cid:43)ng to directors, our audit commi(cid:48)ee, the nature of changes, if any, to procedures by which our shareholdersmay recommend nominees for directors, our code of ethics and compliance with Sec(cid:43)on 16(a) of the Exchange Act is incorporated herein by reference to thesec(cid:43)ons en(cid:43)tled “Elec(cid:43)on of Directors,” “Delinquent Sec(cid:43)on 16(a) Reports,” “Corporate Governance — Code of Ethics and Business Conduct,” “CorporateGovernance — Corporate Governance and Nomina(cid:43)ng Commi(cid:48)ee; Procedures and Policy” and “Audit Commi(cid:48)ee Report,” which will appear in the Company’sProxy Statement for its 2020 Annual Mee(cid:43)ng of Shareholders. The informa(cid:43)on required by Item 10 rela(cid:43)ng to execu(cid:43)ve oﬃcers appears in Part I of thisForm 10-K.ITEM 11. EXECUTIVE COMPENSATION.The informa(cid:43)on required by Item 11 is incorporated herein by reference to the sec(cid:43)ons en(cid:43)tled “Execu(cid:43)ve Compensa(cid:43)on and Other Informa(cid:43)on,”“Compensa(cid:43)on Discussion and Analysis,” “Director Compensa(cid:43)on During Fiscal 2019” and “Organiza(cid:43)on and Compensa(cid:43)on Commi(cid:48)ee Report,” which willappear in the Company’s Proxy Statement for its 2020 Annual Meeting of Shareholders.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.The informa(cid:43)on required by Item 12 is incorporated herein by reference to the sec(cid:43)ons en(cid:43)tled “Principal Shareholders,” and “ManagementShareholdings” which will appear in the Company’s Proxy Statement for its 2020 Annual Meeting of Shareholders.Equity Compensation Plan InformationThe following table provides information related to the Company’s equity compensation plans in effect as of September 30, 2019: Plan Category (a)Number of Securities tobe Issued Upon Exerciseof Outstanding Options,Warrants and Rights (b)Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights (c)Number of SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationPlans (Excluding SecuritiesReflected in Column (a)) Equity compensation plans approved by shareholders 1,100,314 (1) $25.48 (1) 1,084,492 (2)Equity compensation plans not approved by shareholders — N/A — Total 1,100,314 $25.48 1,084,492 (1)Excludes shares that may be issued under the Company’s amended and restated 1999 Employee Stock Purchase Plan, but includes amounts reserved forpreviously-granted restricted stock and performance share awards under the 2009 Equity Incentive Plan.(2)Includes 1,084,492 shares available for future issuance under the 2019 Equity Incen(cid:43)ve Plan. Excludes 179,274 shares available under the amended andrestated 1999 Employee Stock Purchase Plan.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The informa(cid:43)on required by Item 13 is incorporated herein by reference to the sec(cid:43)ons en(cid:43)tled “Corporate Governance — Related Person Transac(cid:43)onApproval Policy” and “Corporate Governance — Majority of Independent Directors; Commi(cid:48)ees of Independent Directors,” which will appear in the Company’sProxy Statement for its 2020 Annual Meeting of Shareholders.ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.The informa(cid:43)on required by Item 14 is incorporated herein by reference to the sec(cid:43)on en(cid:43)tled “Audit Commi(cid:48)ee Report,” which will appear in theCompany’s Proxy Statement for its 2020 Annual Meeting of Shareholders.44PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(a) 1. Financial Statements The following statements are included in this report on the pages indicated: Page (s)Report of Independent Registered Public Accounting FirmF-2Consolidated Balance SheetsF-3Consolidated Statements of OperationsF-4Consolidated Statements of Comprehensive (Loss) IncomeF-5Consolidated Statements of Stockholders’ EquityF-6Consolidated Statements of Cash FlowsF-7 to F-8Notes to Consolidated Financial StatementsF-9 to F-32 2. Financial Statement Schedule. See Schedule II — “Valua(cid:43)on and Qualifying Accounts” in this sec(cid:43)on of this Form 10-K. All other schedules are omi(cid:48)edbecause they are inapplicable, not required, or the information is in the consolidated financial statements or related notes.3. Lis(cid:45)ng of Exhibits. The exhibits which are ﬁled with this report or which are incorporated herein by reference are set forth in the Exhibit Indexfollowing the signature page. Surmodics, Inc.Valuation and Qualifying Accounts(In thousands) Description (1) Balance atBeginning ofPeriod AdditionsCharged(Credited)to Expenses DeductionsFromReserves Balance atEnd ofPeriod Year Ended September 30, 2017: Allowance for doubtful accounts $19 $222 $11 (a) $230 Year Ended September 30, 2018: Allowance for doubtful accounts $230 $64 $147 (a) $147 Year Ended September 30, 2019: Allowance for doubtful accounts $147 $188 $135 (a) $200 (1)Uncollectible accounts written off and adjustments to the allowance.45UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549EXHIBIT INDEX TO FORM 10-KFor the Fiscal Year Ended September 30, 2019SURMODICS, INC. Exhibit 2.1 Agreement of Merger, dated January 18, 2005, with InnoRx, Inc. — incorporated by reference to Exhibit 2.1 to the Company’s on Form 8-Kfiled on January 24, 2005, SEC File No. 0-23837. 2.2 Share Purchase Agreement by and among Surmodics, Inc. and the shareholders of Creagh Medical Ltd. dated as of November 20, 2015 —incorporated by reference to Exhibit 2.1 to the Company’s 8-K dated November 27, 2015, SEC File No. 0-23837. 2.3 Put and Call Op(cid:43)on Agreement by and among Surmodics, Inc. and the shareholders of Creagh Medical Ltd. dated as of November 20, 2015 —incorporated by reference to Exhibit 2.2 to the Company’s 8-K filed on, SEC File No. 0-23837.2.4 Stock Purchase Agreement, dated January 8, 2016, among Surmodics, Inc. and the shareholders of NorMedix, Inc. and Gregg Su(cid:48)on as Seller’sAgent — incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on January 13, 2016, SEC File No. 0-23837.3.1 Restated Ar(cid:43)cles of Incorpora(cid:43)on, as amended — incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Qfiled on July 29, 2016, SEC File No. 0-23837. 3.2 Restated Bylaws of Surmodics, Inc., as amended December 18, 2015 — incorporated by reference to Exhibit 3.2 of the Company’s CurrentReport on Form 8-K filed on December 23, 2015. 4.1** Description of Securities of Surmodics, Inc. 10.1* 2003 Equity Incen(cid:43)ve Plan (as amended and restated December 13, 2005) (adopted December 13, 2005 by the board of directors andapproved by the shareholders on January 30, 2006) — incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K ﬁled onFebruary 3, 2006, SEC File No. 0-23837. 10.2* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Non-qualiﬁed Stock Op(cid:43)on Agreement — incorporated by reference to Exhibit 99.1 to theCompany’s Form 8-K/A filed on March 20, 2006, SEC File No. 0-23837. 10.3* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Incen(cid:43)ve Stock Op(cid:43)on Agreement — incorporated by reference to Exhibit 99.2 to theCompany’s 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.4* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Restricted Stock Agreement — incorporated by reference to Exhibit 99.3 to the Company’sForm 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.5* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Performance Share Award Agreement — incorporated by reference to Exhibit 99.4 to theCompany’s Form 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.6* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Performance Unit Award (cash se(cid:48)led) Agreement — incorporated by reference toExhibit 99.5 to the Company’s Form 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.7* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Restricted Stock Unit Agreement — incorporated by reference to Exhibit 99.6 to theCompany’s Form 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.8* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Stock Apprecia(cid:43)on Rights (cash se(cid:48)led) Agreement — incorporated by reference toExhibit 99.7 to the Company’s Form 8-K filed on March 20, 2006, SEC File No. 0-23837. 10.9* Form of Surmodics, Inc. 2003 Equity Incen(cid:43)ve Plan Stock Apprecia(cid:43)on Rights (stock se(cid:48)led) Agreement — incorporated by reference toExhibit 99.8 to the Company’s Form 8-K filed on March 20, 2006, SEC File No. 0-23837.4610.10* Form of Incen(cid:43)ve Stock Op(cid:43)on Agreement for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by reference to Exhibit 10.2 tothe Company’s Form 8-K filed on February 12, 2010, SEC File No. 0- 23837. 10.11* Form of Non-Statutory Stock Op(cid:43)on Agreement for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by reference to Exhibit 10.3to the Company’s Form 8-K filed on February 12, 2010, SEC File No. 0-23837. 10.12* Form of Performance Share Agreement for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by reference to Exhibit 10.4 to theCompany’s Form 8-K filed on February 12, 2010, SEC File No. 0-23837. 10.13* Form of Restricted Stock Agreement for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by reference to Exhibit 10.5 to theCompany’s Form 8-K filed on February 12, 2010, SEC File No. 0-23837. 10.14* Form of Restricted Stock Agreement for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by reference to Exhibit 10.5 to theCompany’s Quarterly Report on Form 10-Q filed on February 4, 2015, SEC File No. 0-23837. 10.15* Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan (as amended and restated on February 17, 2016) — incorporated by reference to Appendix B to theCompany’s Deﬁni(cid:43)ve Proxy Statement for the annual mee(cid:43)ng of shareholders held on February 17, 2016 ﬁled on January 8, 2016, SEC FileNo. 0-23837. 10.16* Surmodics, Inc. 1999 Employee Stock Purchase Plan (as amended and restated on February 17, 2016) — incorporated by reference to AppendixD to the Company’s Deﬁni(cid:43)ve Proxy Statement for the annual mee(cid:43)ng of shareholders held on February 17, 2016 ﬁled on January 8, 2016, SECFile No. 0-23837. 10.17* Severance Agreement by and between Gary R. Maharaj and Surmodics, Inc. dated as of December 14, 2010 – incorporated by reference toExhibit 10.2 to the Company’s Form 10-Q filed on February 4, 2011, SEC File No. 0-23837. 10.18* Change of Control Agreement with Charles W. Olson dated February 9, 2012 — incorporated by reference to Exhibit 10.2 to the Company’sForm 8‑K filed on February 10, 2012, SEC File No. 0‑23837. 10.19* Amendment to Change of Control Agreement with Charles W. Olson dated February 9, 2012 — incorporated by reference to Exhibit 10.1 to theCompany’s Form 8‑K filed on February 13, 2015, SEC File No. 0‑23837. 10.20* Change of Control Agreement with Bryan K. Phillips dated February 9, 2012 — incorporated by reference to Exhibit 10.3 to the Company’sForm 8‑K filed on February 10, 2012, SEC File No. 0‑23837. 10.21* Amendment to Change of Control Agreement with Bryan K. Phillips dated February 9, 2015 — incorporated by reference to Exhibit 10.3 to theCompany’s Form 8‑K filed on February 13, 2015, SEC File No. 0‑23837. 10.22* Change of Control Agreement with Joseph J. S(cid:43)ch dated February 9, 2012 — incorporated by reference to Exhibit 10.4 to the Company’sForm 8‑K filed on February 10, 2012, SEC File No. 0‑23837. 10.23* Amendment to Change of Control Agreement with Joseph J. S(cid:43)ch dated February 9, 2015 — incorporated by reference to Exhibit 10.4 to theCompany’s Form 8‑K filed on February 13, 2015, SEC File No. 0‑23837. 10.24* 10.25* Form of Restricted Stock Unit Award Agreement (Non-Employee Director) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated byreference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2014, SEC File No. 0‑23837. Form of Restricted Stock Unit Award Agreement (Non-Employee Director) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated byreference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on February 4, 2015, SEC File No. 0‑23837. 4710.26* Form of Deferred Stock Unit Master Agreement (Quarterly Awards) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated byreference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on February 8, 2013, SEC File No. 0‑23837. 10.27* Form of Deferred Stock Unit Master Agreement (Quarterly Awards) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated byreference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on February 4, 2015, SEC File No. 0‑23837. 10.28* Form of Restricted Stock Unit Award Agreement (Employee) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporated by referenceto Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 22, 2016, SEC File No. 0‑23837. 10.29* Omnibus Amendment to Certain Equity Agreements with Non-Employee Directors under the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan —incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2014, SEC File No. 0‑23837. 10.30* Form of Non-Statutory Stock Op(cid:43)on Agreement (Non-Employee Director) for the Surmodics, Inc. 2009 Equity Incen(cid:43)ve Plan — incorporatedby reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2014, SEC File No. 0‑23837. 10.31* Change of Control Agreement by and between Surmodics, Inc. and Thomas A. Greaney, dated as of February 22, 2018 – incorporated byreference to Exhibit 10.1 to the Company’s Form 8-K filed on February 23, 2018, SEC File No. 0-23837. 10.32*** Development and Distribu(cid:43)on Agreement between Surmodics, Inc. and Abbo(cid:48) Vascular, Inc., dated as of February 26, 2018. – incorporatedby reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 4, 2018, SEC File No. 0-23837. 10.33* Change of Control Agreement by and between Surmodics, Inc. and Teri W. Sides, dated as of October 30, 2018 – incorporated by reference toExhibit 10.34 to the Company’s Form 10-K filed on November 30, 2018, SEC File No. 0-23837. 10.34* Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan – incorporated by reference to Appendix A to the Company’s Schedule 14A ﬁled on December 21,2018, SEC File No. 0-23837. 10.35* Form of Non-Qualiﬁed Stock Op(cid:43)on Award Agreement for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan – incorporated by reference toExhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.36* Form of Restricted Stock Award Agreement for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan – incorporated by reference to Exhibit 10.2 ofthe Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.37* Form of Restricted Stock Unit Award Agreement (for employees) for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan – incorporated byreference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.38* Form of Performance Stock Unit Award Agreement for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan – incorporated by reference to Exhibit10.4 of the Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.39* Form of Restricted Stock Unit Award Agreement (for non-employee directors) for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan –incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.40* Form of Deferred Stock Unit Master Agreement (for non-employee directors) for the Surmodics, Inc. 2019 Equity Incen(cid:43)ve Plan –incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed on May 6, 2019, SEC File No. 0-23837. 10.41* Surmodics, Inc. Board Compensa(cid:43)on Policy, Amended and restated as of May 14, 2019 – incorporated by reference to Exhibit 10.1 of theCompany’s Form 10-Q filed on August 1, 2019, SEC File No. 0-23837. 21** Subsidiaries of the Registrant. 23** Consent of Deloitte & Touche LLP. 24 Power of Attorney (included on signature page of this Form 10-K). 31.1** Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2** Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS** XBRL Instance Document 101.SCH** XBRL Taxonomy Extension Schema Document 101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF** XBRL Taxonomy Extension Definition Linkbase Document 101.LAB** XBRL Taxonomy Extension Label Linkbase Document 101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document *Management contract or compensatory plan or arrangement**Filed herewith***Por(cid:43)ons of this document, which have been separately ﬁled with the Securi(cid:43)es and Exchange Commission, have been omi(cid:48)ed pursuant to a request forconfidential treatment.48SIGNATURESPursuant to the requirements of Sec(cid:43)on 13 or 15(d) of the Securi(cid:43)es Exchange Act of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized. SURMODICS, INC. By: /s/ Gary R. Maharaj Gary R. Maharaj President and Chief Executive Officer Dated: December 3, 2019Pursuant to the requirements of the Securi(cid:43)es Exchange Act of 1934, this Report has been signed below by the following persons on behalf of theRegistrant, in the capacities, and on the dates indicated.(Power of Attorney)Each person whose signature appears below authorizes GARY R. MAHARAJ or TIMOTHY J. ARENS, and cons(cid:43)tutes and appoints said persons as his or hertrue and lawful a(cid:48)orneys-in-fact and agents, with full power of subs(cid:43)tu(cid:43)on and resubs(cid:43)tu(cid:43)on, for him or her and in his or her name, place and stead, in any andall capaci(cid:43)es, to sign any or all amendments to this Annual Report on Form 10-K and to ﬁle the same, with all exhibits thereto, and other documents inconnec(cid:43)on therewith, with the Securi(cid:43)es and Exchange Commission, authorizing said persons and gran(cid:43)ng unto said a(cid:48)orneys-in-fact and agents, full powerand authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposesas he or she might or could do in person, hereby ra(cid:43)fying and conﬁrming all said a(cid:48)orneys-in-fact and agents, or his subs(cid:43)tute or subs(cid:43)tutes, may lawfully do orcause to be done by virtue thereof. Signature Title Date /s/ Gary R. MaharajGary R. Maharaj President and Chief ExecutiveOfficer (principal executive officer)and Director December 3, 2019 /s/ Timothy J. ArensTimothy J. Arens Vice President of Finance and Chief Financial Officer(principal financial officer) December 3, 2019 /s/ John D. Manders Corporate Controller December 3, 2019John D. Manders/s/ Susan E. KnightSusan E. Knight (principal accounting officer)Chairman of the Board of Directors December 3, 2019 /s/ José H. BedoyaJosé H. Bedoya Director December 3, 2019 /s/ David R. Dantzker, M.D.David R. Dantzker, M.D. Director December 3, 2019 /s/ Ronald B. KalichRonald B. Kalich Director December 3, 2019 /s/ Shawn T McCormickShawn T McCormick Director December 3, 2019/s/ Lisa Wipperman Heine Director December 3, 2019Lisa Wipperman Heine 49REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofSurmodics, Inc.Eden Prairie, MinnesotaOpinion on Internal Control over Financial ReportingWe have audited the internal control over ﬁnancial repor(cid:43)ng of Surmodics, Inc. and subsidiaries (the “Company”) as of September 30, 2019, based on criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Commi(cid:48)ee of Sponsoring Organiza(cid:43)ons of the Treadway Commission (COSO). Inour opinion, the Company maintained, in all material respects, eﬀec(cid:43)ve internal control over ﬁnancial repor(cid:43)ng as of September 30, 2019, based on criteriaestablished in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accoun(cid:43)ng Oversight Board (United States) (PCAOB), the consolidated ﬁnancialstatements as of and for the year ended September 30, 2019, of the Company and our report dated December 3, 2019, expressed an unqualiﬁed opinion onthose consolidated financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.Basis for OpinionThe Company’s management is responsible for maintaining eﬀec(cid:43)ve internal control over ﬁnancial repor(cid:43)ng and for its assessment of the eﬀec(cid:43)veness ofinternal control over ﬁnancial repor(cid:43)ng, included in the accompanying Management’s Report on Internal Control over Financial Repor(cid:43)ng. Our responsibility isto express an opinion on the Company’s internal control over ﬁnancial repor(cid:43)ng based on our audit. We are a public accoun(cid:43)ng ﬁrm registered with the PCAOBand are required to be independent with respect to the Company in accordance with the U.S. federal securi(cid:43)es laws and the applicable rules and regula(cid:43)ons ofthe Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether eﬀec(cid:43)ve internal control over ﬁnancial repor(cid:43)ng was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over ﬁnancial repor(cid:43)ng, assessing the risk that a material weakness exists, tes(cid:43)ng and evalua(cid:43)ng the design and opera(cid:43)ngeﬀec(cid:43)veness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and theprepara(cid:43)on of ﬁnancial statements for external purposes in accordance with generally accepted accoun(cid:43)ng principles. A company’s internal control overﬁnancial repor(cid:43)ng includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂectthe transac(cid:43)ons and disposi(cid:43)ons of the assets of the company; (2) provide reasonable assurance that transac(cid:43)ons are recorded as necessary to permitprepara(cid:43)on of ﬁnancial statements in accordance with generally accepted accoun(cid:43)ng principles, and that receipts and expenditures of the company are beingmade only in accordance with authoriza(cid:43)ons of management and directors of the company; and (3) provide reasonable assurance regarding preven(cid:43)on ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limita(cid:43)ons, internal control over ﬁnancial repor(cid:43)ng may not prevent or detect misstatements. Also, projec(cid:43)ons of any evalua(cid:43)on ofeﬀec(cid:43)veness to future periods are subject to the risk that controls may become inadequate because of changes in condi(cid:43)ons, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Minneapolis, MinnesotaDecember 3, 2019 50 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofSurmodics, Inc.Eden Prairie, MinnesotaOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Surmodics, Inc. and subsidiaries (the "Company") as of September 30, 2019 and 2018, andthe related consolidated statements of opera(cid:43)ons, comprehensive income (loss), stockholders' equity, and cash ﬂows for each of the three years in the periodended September 30, 2019, and the related notes and the ﬁnancial statement schedule listed in the Index at Item 15 (collec(cid:43)vely referred to as the "ﬁnancialstatements"). In our opinion, the ﬁnancial statements present fairly, in all material respects, the ﬁnancial posi(cid:43)on of the Company as of September 30, 2019 and2018, and the results of its opera(cid:43)ons and its cash ﬂows for each of the three years in the period ended September 30, 2019, in conformity with accoun(cid:43)ngprinciples generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accoun(cid:43)ng Oversight Board (United States) (PCAOB), the Company's internalcontrol over ﬁnancial repor(cid:43)ng as of September 30, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by theCommi(cid:48)ee of Sponsoring Organiza(cid:43)ons of the Treadway Commission and our report dated December 3, 2019, expressed an unqualiﬁed opinion on theCompany's internal control over financial reporting.Change in Accounting PrincipleAs discussed in Note 2 to the ﬁnancial statements, eﬀec(cid:43)ve October 1, 2018, the Company adopted Accoun(cid:43)ng Standards Update ASU 2014-09, Revenue fromContracts with Customers (ASC Topic 606), as amended, using the modified retrospective method.Basis for OpinionThese ﬁnancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's ﬁnancialstatements based on our audits. We are a public accoun(cid:43)ng ﬁrm registered with the PCAOB and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the ﬁnancial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the ﬁnancial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the ﬁnancial statements. Our audits also includedevalua(cid:43)ng the accoun(cid:43)ng principles used and signiﬁcant es(cid:43)mates made by management, as well as evalua(cid:43)ng the overall presenta(cid:43)on of the ﬁnancialstatements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Minneapolis, MinnesotaDecember 3, 2019 We have served as the Company’s auditor since 2002. F-1 Surmodics, Inc. and SubsidiariesConsolidated Balance SheetsAs of September 30 2019 2018 (In thousands, except share andper share data) ASSETS Current Assets: Cash and cash equivalents $30,361 $23,318 Restricted cash — 350 Available-for-sale securities 24,931 41,352 Accounts receivable, net of allowance for doubtful accounts of $200 and $147 as of September 30, 2019 and 2018, respectively 8,993 8,877 Contract assets - royalties and license fees 8,210 — Inventories 4,501 4,016 Income tax receivable 558 1,152 Prepaids and other 3,866 2,462 Total Current Assets 81,420 81,527 Property and equipment, net 29,748 30,143 Deferred income taxes 6,176 6,304 Intangible assets, net 14,226 17,683 Goodwill 26,171 27,032 Other assets 2,124 1,446 Total Assets $159,865 $164,135 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $2,085 $2,546 Accrued liabilities: Compensation 4,581 5,635 Accrued other 4,790 6,265 Deferred revenue 5,553 9,646 Contingent consideration 3,200 11,041 Total Current Liabilities 20,209 35,133 Contingent consideration, less current portion — 3,425 Deferred revenue, less current portion 11,628 11,247 Other long-term liabilities 5,512 5,720 Total Liabilities 37,349 55,525 Commitments and Contingencies (Note 10) Stockholders’ Equity: Series A preferred stock — $.05 par value, 450,000 shares authorized; no shares issued and outstanding — — Common stock — $.05 par value, 45,000,000 shares authorized; 13,504,102 and 13,397,647 shares issued and outstanding, as of September 30, 2019 and 2018, respectively 675 670 Additional paid-in capital 10,740 7,607 Accumulated other comprehensive income 396 2,718 Retained earnings 110,705 97,615 Total Stockholders’ Equity 122,516 108,610 Total Liabilities and Stockholders’ Equity $159,865 $164,135 The accompanying notes are an integral part of these consolidated financial statements. F-2 Surmodics, Inc. and SubsidiariesConsolidated Statements of OperationsFor the Years Ended September 30 2019 2018 2017 (In thousands, exceptper share data) Revenue: Product sales $40,219 $37,953 $32,790 Royalties and license fees 48,458 35,424 31,787 Research, development and other 11,400 7,959 8,535 Total revenue 100,077 81,336 73,112 Operating costs and expenses: Product costs 13,639 13,997 11,422 Research and development 52,885 40,973 31,817 Selling, general and administrative 23,950 24,111 20,478 Acquired in-process research and development 890 7,888 — Acquired intangible asset amortization 2,405 2,491 2,419 Contingent consideration (gain) expense (161) 675 (127)Total operating costs and expenses 93,608 90,135 66,009 Operating income (loss) 6,469 (8,799) 7,103 Other income (loss): Investment income, net 1,097 851 390 Interest expense (152) — — Foreign exchange gain (loss) 134 239 (504)Gains on strategic investments and other 10 177 44 Other income (loss) 1,089 1,267 (70)Income (loss) before income taxes 7,558 (7,532) 7,033 Income tax benefit (provision) 34 3,075 (3,107)Net income (loss) $7,592 $(4,457) $3,926 Basic net income (loss) per share: $0.57 $(0.34) $0.30 Diluted net income (loss) per share: $0.55 $(0.34) $0.29 Weighted average number of shares outstanding: Basic 13,389 13,157 13,153 Diluted 13,779 13,157 13,389 The accompanying notes are an integral part of these consolidated financial statements. F-3 Surmodics, Inc. and SubsidiariesConsolidated Statements of Comprehensive Income (Loss)For the Years Ended September 30 2019 2018 2017 (In thousands) Net income (loss) $7,592 $(4,457) $3,926 Other comprehensive (loss) income: Unrealized holding gains (losses) on available-for-sale securities, net of tax 64 (38) 49 Foreign currency translation adjustments (2,386) (661) 2,095 Other comprehensive (loss) income (2,322) (699) 2,144 Comprehensive income (loss) $5,270 $(5,156) $6,070The accompanying notes are an integral part of these consolidated financial statements. F-4 Surmodics, Inc. and SubsidiariesConsolidated Statements of Stockholders’ EquityFor the Years Ended September 30 Accumulated Additional Other Total Common Stock Paid-In Comprehensive Retained Stockholders’ Shares Amount Capital Income Earnings Equity (In thousands) Balance at September 30, 2016 13,208 $660 $6,754 $1,273 $98,146 $106,833 Net income — — — — 3,926 3,926 Other comprehensive income, net of tax — — — 2,144 — 2,144 Issuance of common stock 99 5 343 — — 348 Common stock options exercised, net 7 1 95 — — 96 Common stock repurchased (196) (10) (4,692) — — (4,702)Purchase of common stock to pay employee taxes (23) (1) (559) — — (560)Stock-based compensation — — 3,472 — — 3,472 Balance at September 30, 2017 13,095 655 5,413 3,417 102,072 111,557 Net loss — — — — (4,457) (4,457)Other comprehensive income, net of tax — — — (699) — (699)Issuance of common stock 137 7 333 — — 340 Common stock options exercised, net 440 22 1,727 — — 1,749 Purchase of common stock to pay employee taxes (274) (14) (4,673) — — (4,687)Stock-based compensation — — 4,807 — — 4,807 Balance at September 30, 2018 13,398 670 7,607 2,718 97,615 108,610 Net impact from adoption of ASC Topic 606 (Note 2) — — — — 5,498 5,498 Net income — — — — 7,592 7,592 Other comprehensive loss, net of tax — — — (2,322) — (2,322)Issuance of common stock 141 7 434 — — 441 Common stock options exercised, net 12 1 281 — — 282 Purchase of common stock to pay employee taxes (47) (3) (2,659) — — (2,662)Stock-based compensation — — 5,077 — — 5,077 Balance at September 30, 2019 13,504 $675 $10,740 $396 $110,705 $122,516 The accompanying notes are an integral part of these consolidated financial statements. F-5 Surmodics, Inc. and SubsidiariesConsolidated Statements of Cash FlowsFor the Years Ended September 30 2019 2018 2017 (In thousands) Operating Activities: Net income (loss) $7,592 $(4,457) $3,926 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,312 6,431 5,555 Stock-based compensation 5,077 4,807 3,472 Payment of contingent consideration obligations in excess of acquisition-date value (2,041) — — Contingent consideration (gain) expense (161) 675 (127)Acquired in-process research and development 890 7,888 — Deferred taxes (1) (1,088) (2,277) 1,000 Gains on strategic investments (7) (177) (43)Provision for bad debts 160 85 208 Impairment losses on intangible assets 259 — 427 Property and equipment disposal loss (10) — 6 Unrealized foreign exchange (gain) loss — (148) 474 Other, net 1 45 — Change in operating assets and liabilities Accounts receivable and contract asset (1) (1,630) (1,773) (528)Inventories (543) (513) 97 Prepaids and other (2,131) (1,584) (599)Accounts payable (765) 155 1,101 Accrued liabilities (2,187) 5,086 (733)Deferred revenue (1) (3,512) 20,651 (124)Income taxes (1) 822 (842) (59)Net cash provided by operating activities 8,038 34,052 14,053 Investing Activities: Purchases of property and equipment (5,998) (9,092) (6,432)Cash proceeds from sale of property and equipment 10 — — Purchases of available-for-sale securities (44,973) (81,536) (73,671)Sales and maturities of available-for-sale securities 61,458 71,951 63,871 Acquisition of in-process research and development (Note 10) (750) (5,000) — Cash received from strategic investments 7 177 43 Net cash used in investing activities 9,754 (23,500) (16,189)Financing Activities: Issuance of common stock 723 2,089 444 Payments for taxes related to net share settlement of equity awards (2,688) (4,557) (2,156)Payment of contingent consideration (9,064) (925) — Payment of deferred financing costs — — (96)Repurchase of common stock — — (4,702)Net cash used in financing activities (11,029) (3,393) (6,510)Effect of exchange rate changes on cash (70) (25) 193 Net change in cash and cash equivalents 6,693 7,134 (8,453)Cash and Cash Equivalents: Beginning of year 23,668 16,534 24,987 End of year $30,361 $23,668 $16,534(1)Amounts presented are net of impact from adoption of ASC Topic 606.The accompanying notes are an integral part of these consolidated financial statements.F-6 Surmodics, Inc. and SubsidiariesConsolidated Statements of Cash Flows - ContinuedFor the Years Ended September 30 2019 2018 2017 (In thousands) Supplemental Information: Cash paid for income taxes $193 $914 $2,114 Noncash financing and investing activities: Acquisition of property and equipment on account, net of refundable credits in other current assets $202 $632 $109 Acquisition of property and equipment in long-term deferred rent — 1,200 — Acquisition of in process research and development in other long-term liabilities 140 2,888 — Accrual of employee taxes on common stock exercises 104 130 —The accompanying notes are an integral part of these consolidated financial statements.F-7 Surmodics, Inc. and SubsidiariesNotes to Consolidated Financial Statements1. DescriptionSurmodics, Inc. and subsidiaries (“Surmodics” or the “Company”) is a leading provider of medical device and in vitro diagnos(cid:43)c technologies to thehealthcare industry. The Company derives its revenue from three primary sources: (1) royal(cid:43)es and license fees from licensing our proprietary surfacemodiﬁca(cid:43)on and device drug-delivery technologies to customers; (2) product revenue generated from reagent chemical sales to licensees; stabiliza(cid:43)onchemical, an(cid:43)gen, substrate and surface coa(cid:43)ng chemical sales to the diagnos(cid:43)c and biomedical research markets as well as sales of medical devices (such asballoons and catheters) and related products to original equipment manufacturer (“OEM”) suppliers and distributors; and (3) research and commercialdevelopment fees generated on customer projects.Basis of PresentationThe consolidated ﬁnancial statements include all accounts and wholly-owned subsidiaries, and have been prepared in accordance with accoun(cid:43)ngprinciples generally accepted in the United States of America (“U.S.”) (“GAAP”). All inter-company transactions have been eliminated. 2. Summary of Significant Accounting Policies and Select Balance Sheet InformationCash, Restricted Cash and Cash EquivalentsCash, restricted cash and cash equivalents consist of ﬁnancial instruments with maturi(cid:43)es of three months or less at the Company’s acquisi(cid:43)on date ofthe security and are stated at cost which approximates fair value and may include money market instruments, cer(cid:43)ﬁcates of deposit, repurchase agreementsand commercial paper instruments. Restricted cash represents cash balances restricted pursuant to the terms of a real estate lease.InvestmentsInvestments consisted principally of commercial paper and corporate bond securi(cid:43)es and are classiﬁed as available-for-sale as of September 30, 2019 and2018. Available-for-sale securi(cid:43)es are reported at fair value with unrealized gains and losses, net of tax, excluded from the consolidated statements ofopera(cid:43)ons and reported in the consolidated statements of comprehensive income (loss) as well as a separate component of stockholders’ equity in theconsolidated balance sheets, except for other-than-temporary impairments, which are reported as a charge to current earnings. A loss would be recognizedwhen there is an other-than-temporary impairment in the fair value of any individual security classiﬁed as available-for-sale, with the associated net unrealizedloss reclassiﬁed out of accumulated other comprehensive income (loss) with a corresponding adjustment to other income (loss). This adjustment would result ina new cost basis for the investment. No such adjustments occurred during the years ended September 30, 2019, 2018 or 2017. Interest earned on debtsecuri(cid:43)es, including amor(cid:43)za(cid:43)on of premiums and accre(cid:43)on of discounts, is included in other income (loss). Realized gains and losses from the sales ofavailable-for-sale debt securities, which are included in other income (loss), are determined using the specific identification method.The amor(cid:43)zed cost, unrealized holding gains and losses, and fair value of available-for-sale securi(cid:43)es as of September 30, 2019 and 2018 were as follows(in thousands): September 30, 2019 (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Commercial paper and corporate bonds $24,918 $13 $— $24,931 Total $24,918 $13 $— $24,931 September 30, 2018 (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Fair Value Commercial paper and corporate bonds $41,403 $— $(51) $41,352 Total $41,403 $— $(51) $41,352 There were no held-to-maturity debt securi(cid:43)es as of September 30, 2019 or 2018. There were no realized gains or losses on sales of available-for-salesecurities for the years ended September 30, 2019, 2018 or 2017.F-8 InventoriesInventories are principally stated at the lower of cost or market using the speciﬁc iden(cid:43)ﬁca(cid:43)on method and include direct labor, materials and overhead.Inventories consisted of the following components as of September 30 (in thousands): 2019 2018 Raw materials $2,034 $1,890 Work in-process 892 780 Finished products 1,575 1,346 Total $4,501 $4,016 Property and EquipmentProperty and equipment are stated at cost, less any impairment, and are depreciated using the straight-line method over the es(cid:43)mated useful lives ofthe assets. The Company recorded deprecia(cid:43)on expense of $4.7 million, $3.7 million and $3.0 million for the years ended September 30, 2019, 2018 or 2017,respectively.The September 30, 2019 and 2018 balances in construc(cid:43)on-in-progress include the cost of equipment and building improvements not yet placed inservice in the Company’s Ballinasloe, Ireland and Eden Prairie, Minnesota facili(cid:43)es. As assets are placed in service, construc(cid:43)on-in-progress is transferred to thespeciﬁc property and equipment categories and depreciated over the es(cid:43)mated useful lives of the assets. Leasehold improvements are amor(cid:43)zed over theshorter of the term of the lease or the es(cid:43)mated useful life of the asset. Expenditures for maintenance and repairs and minor renewals and be(cid:48)erments that donot extend or improve the life of the respective assets are expensed as incurred.Property and equipment consisted of the following components as of September 30 (in thousands): Useful Life 2019 2018 (In years) Land N/A $4,415 $4,420 Laboratory fixtures and equipment 3 to 10 25,467 22,024 Buildings and improvements 3 to 20 24,513 21,717 Leasehold improvements 10 4,836 4,836 Office furniture and equipment 3 to 10 6,476 5,824 Construction-in-progress 2,030 4,834 Less accumulated depreciation (37,989) (33,512)Property and equipment, net $29,748 $30,143 Other AssetsOther assets consist principally of the following as of September 30 (in thousands): 2019 2018 ViaCyte, Inc. $479 $479 Other noncurrent assets 1,645 967 Other assets, net $2,124 $1,446 The Company has invested a total of $5.3 million in ViaCyte, Inc. (“ViaCyte”), a privately-held California-based biotechnology ﬁrm that is developing atreatment for diabetes using coated islet cells, the cells that produce insulin in the human body. In ﬁscal 2006, the Company determined that its investment inViaCyte was impaired and that the impairment was other-than-temporary. Accordingly, the Company recorded an impairment loss of $4.7 million. In ﬁscal 2013,the Company recorded an addi(cid:43)onal other-than-temporary impairment loss on this investment totaling $0.1 million based on a ﬁnancing round and marketvalua(cid:43)ons. The $0.5 million balance of the investment, which is accounted for under the cost method, represents less than a 1% ownership interest. TheCompany does not exert significant influence over ViaCyte’s operating or financial activities.F-9 The total carrying value of cost method investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest theCompany’s investment may not be recoverable. The carrying value of cost method investments is not adjusted if there are no iden(cid:43)ﬁed events or changes incircumstances that may have a material adverse effect on the fair value of the investment.In the years ended September 30, 2019, 2018 or 2017, the Company recognized revenue of less than $0.1 million in each period from ac(cid:43)vity withcompanies in which it had a strategic investment. Other noncurrent assets include prepaid expenses related to our ongoing clinical trials and a receivable relatedto refundable Irish research and development tax credits.Intangible AssetsIntangible assets consist principally of acquired patents and technology, customer lists and rela(cid:43)onships, licenses and trademarks. The Companyrecorded amortization expense of $2.6 million, $2.7 million and $2.6 million for the years ended September 30, 2019, 2018 or 2017, respectively.Intangible assets consisted of the following as of September 30 (in thousands): 2019 Weighted AverageOriginal Life (Years) Gross CarryingAmount AccumulatedAmortization Net Definite-lived intangible assets: Customer lists and relationships 8.9 $17,374 $(10,661) $6,713 Developed technology 11.5 9,490 (3,196) 6,294 Non-compete 5.0 230 (196) 34 Patents and other 16.5 2,321 (1,716) 605 Subtotal 29,415 (15,769) 13,646 Unamortized intangible assets: Trademarks and trade names 580 — 580 Total $29,995 $(15,769) $14,226 2018 Weighted AverageOriginal Life (Years) Gross CarryingAmount AccumulatedAmortization Net Definite-lived intangible assets: Customer lists and relationships 8.9 $18,086 $(9,377) $8,709 Developed technology 11.5 9,656 (2,361) 7,295 Non-compete 5.0 230 (150) 80 Patents and other 16.5 2,321 (1,569) 752 Subtotal 30,293 (13,457) 16,836 Unamortized intangible assets: In-process research and development 267 — 267 Trademarks and trade names 580 — 580 Total $31,140 $(13,457) $17,683 Based on the intangible assets in service as of September 30, 2019, es(cid:43)mated amor(cid:43)za(cid:43)on expense for each of the next ﬁve ﬁscal years is as follows (inthousands): 2020 $2,414 2021 2,275 2022 2,235 2023 1,629 2024 1,584 F-10 Future amor(cid:43)za(cid:43)on amounts presented above are es(cid:43)mates. Actual future amor(cid:43)za(cid:43)on expense may be diﬀerent as a result of future acquisi(cid:43)ons,impairments, changes in amortization periods, foreign currency exchange rates or other factors.The Company deﬁnes IPR&D as the value of technology acquired for which the related projects have substance and are incomplete. IPR&D acquired in abusiness acquisi(cid:43)on is recognized at fair value and is capitalized as an indeﬁnite-lived intangible asset un(cid:43)l comple(cid:43)on or abandonment of the IPR&D project.Upon comple(cid:43)on of the development project (generally when regulatory approval to market the product is obtained), an impairment assessment is performedprior to amor(cid:43)zing the asset over its es(cid:43)mated useful life. If the IPR&D projects were abandoned, the related IPR&D assets would be wri(cid:48)en oﬀ. The Companyassesses indeﬁnite-lived assets for impairment annually in the fourth quarter and whenever an event occurs or circumstances change that would indicate thatthe carrying amount may be impaired. Similar to the goodwill impairment test, the indeﬁnite-lived assets impairment test requires the Company to make severalestimates about fair value, most of which are based on projected future cash flows.The Company performs its annual impairment analysis as of August 31 each ﬁscal year. A(cid:80)er comple(cid:43)ng the ﬁscal 2019 and 2017 impairment analyses,the fair value of certain IPR&D and trade name assets were deemed to be less than their carrying value, due to decreases in es(cid:43)mated future revenue associatedwith the assets. Accordingly, impairment losses on indeﬁnite-lived intangible assets totaling $0.3 million were recorded in research and development in theconsolidated statements of opera(cid:43)ons for both ﬁscal 2019 and 2017 and impairment losses totaling $0.1 million were recorded in and selling, general andadministra(cid:43)ve expenses in ﬁscal 2017. No impairment charges were recorded in ﬁscal 2018 as there were no indicators of impairment associated with theindeﬁnite-lived intangible assets. No other impairment losses were iden(cid:43)ﬁed during the annual impairment analyses in ﬁscal 2019 or 2017. The valua(cid:43)onmethodology for determining the decline in value of the indeﬁnite-lived intangible assets was based on inputs that require management judgment and are Level3 inputs, as discussed in Note 5 to the consolidated financial statements.GoodwillGoodwill represents the excess of the purchase price of an acquired business over the fair value assigned to the assets purchased and liabili(cid:43)es assumed.Goodwill is not amor(cid:43)zed but is subject, at a minimum, to annual tests for impairment in accordance with accoun(cid:43)ng guidance for goodwill. The carryingamount of goodwill is evaluated annually, and between annual evalua(cid:43)ons if events occur or circumstances change indica(cid:43)ng that it is more likely than not thatthe fair value of a reporting unit is less than its carrying amount.The Company’s repor(cid:43)ng units are the In Vitro Diagnos(cid:43)cs and Medical Device opera(cid:43)ng segments. Inherent in the determina(cid:43)on of fair value of therepor(cid:43)ng units are certain es(cid:43)mates and judgments, including the interpreta(cid:43)on of current economic indicators and market valua(cid:43)ons as well as the Company’sstrategic plans with regard to its operations.The Company performs its annual assessment of goodwill for impairment as of August 31 each ﬁscal year and no goodwill impairment charges wererecorded in ﬁscal 2019, 2018 or 2017 as there were no indicators of impairment associated with either of the repor(cid:43)ng units. The impairment assessment isreliant on forecasted cash ﬂows, as well as the selected discount rate when a quan(cid:43)ta(cid:43)ve assessment is necessary, which are inherently subjec(cid:43)ve and requiresigniﬁcant management es(cid:43)mates. Diﬀerences in the repor(cid:43)ng units’ actual future opera(cid:43)ng results as compared with these forecasted es(cid:43)mates couldmaterially affect the estimation of the fair value of the reporting units.Goodwill as of September 30, 2019 and 2018 totaled $26.2 million and $27.0 million, respec(cid:43)vely. Goodwill related to the In Vitro Diagnos(cid:43)cs repor(cid:43)ng unitrepresents the gross value from the acquisi(cid:43)on of BioFX Laboratories, Inc. in 2007. Goodwill related to the Medical Device repor(cid:43)ng unit represents the grossvalue from the acquisi(cid:43)ons of Creagh Medical, Ltd. and NorMedix, Inc. which were completed in ﬁscal 2016. The Medical Device repor(cid:43)ng segment goodwillincludes $13.4 million of goodwill denominated in Euros and subject to revaluation due to fluctuations in exchange rates. F-11 The change in the carrying amount of goodwill by segment for the years ended September 30, 2019 and 2018 was as follows (in thousands): (Dollars in thousands) In VitroDiagnostics MedicalDevice Total Balance as of September 30, 2017 $8,010 $19,272 $27,282 Foreign currency translation adjustment — (250) (250)Balance as of September 30, 2018 8,010 19,022 27,032 Foreign currency translation adjustment — (861) (861)Balance as of September 30, 2019 $8,010 $18,161 $26,171 Valuation of Long-Lived AssetsAccoun(cid:43)ng guidance requires the Company to evaluate periodically whether events and circumstances have occurred that may aﬀect the es(cid:43)mateduseful life or the recoverability of the remaining balance of long-lived assets, such as property and equipment and intangibles with ﬁnite lives. If such events orcircumstances were to indicate that the carrying amount of these assets may not be recoverable, the Company would es(cid:43)mate the future cash ﬂows expected toresult from the use of the assets and their eventual disposi(cid:43)on. If the sum of the expected future cash ﬂows (undiscounted and without interest charges) wereless than the carrying amount of the assets, the Company would recognize an impairment charge to reduce such assets to their fair value. In ﬁscal 2019, 2018and 2017, there were no impairment charges rela(cid:43)ng to the Company’s long-lived assets as there were no events or circumstances that occurred that aﬀectedthe recoverability of such assets.Accrued LiabilitiesOther accrued liabilities consisted of the following as of September 30 (in thousands): 2019 2018 Accrued professional fees $434 $311 Accrued clinical study expense 2,163 2,839 Accrued purchases 679 533 Acquisition of in process research and development 989 — Deferred rent 130 121 Other 395 262 Customer claim — 1,000 Construction in progress — 1,199 Total $4,790 $6,265 Revenue RecognitionEﬀec(cid:43)ve October 1, 2018, the Company adopted ASC Topic 606 using the modiﬁed retrospec(cid:43)ve adop(cid:43)on method. Based on the requirements of ASCTopic 606, revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reﬂects the considera(cid:43)on weexpect to be en(cid:43)tled to receive in exchange for those goods or services. The Company primarily sells or licenses its products, technologies and services to othermedical device and diagnostics companies.Taxes collected from customers and remi(cid:48)ed to governmental authori(cid:43)es that are imposed on, and concurrent with, a speciﬁc revenue producingtransac(cid:43)on are excluded from revenue. For contracts that have an original dura(cid:43)on of one year or less, the Company uses the prac(cid:43)cal expedient applicable tosuch contracts and does not adjust the transaction price for the time value of money.Performance ObligationsThe Company derives its revenue from three primary sources: (1) product revenues from the sale of reagent chemicals to licensees, the sale ofstabiliza(cid:43)on products, an(cid:43)gens, substrates and surface coa(cid:43)ngs to the diagnos(cid:43)c and biomedical research markets as well as the sale of medical devices andrelated products (such as balloons and catheters) to original equipmentF-12 manufacturer (OEM) suppliers and distributors; (2) royal(cid:43)es and license fees from licensing our proprietary surface modiﬁca(cid:43)on and device drug deliverytechnologies to customers; and (3) research and commercial development fees generated on customer projects.The Company recognizes revenue when control is transferred to the customer. The transfer of control varies by revenue classiﬁca(cid:43)on and is describedbelow.Product sales – Revenue from product sales is recognized at the point in (cid:43)me control of the products is transferred, generally upon shipment based uponthe standard contract terms. Shipping and handling ac(cid:43)vi(cid:43)es are considered to be fulﬁllment ac(cid:43)vi(cid:43)es rather than promised services and are not, therefore,considered to be separate performance obliga(cid:43)ons. The Company’s sales terms provide no right of return outside of a standard warranty policy and returns aregenerally not significant. Payment terms for product sales are generally set at 30-45 days after the consideration becomes due and payable.Royal(cid:45)es – Royalty revenue consists of sales-based and recurring minimum royal(cid:43)es earned under licenses of our surface modiﬁca(cid:43)on technologies.Performance obliga(cid:43)ons under these licenses, which consist of the right to use the Company’s proprietary technology, are sa(cid:43)sﬁed at a point in (cid:43)mecorresponding with delivery of the underlying technology rights to the customer, which is generally upon transfer of the licensed technology to the customer.Sales-based royalty revenue represents variable considera(cid:43)on under the license agreements and is recognized in the period a customer sells productsincorpora(cid:43)ng the Company’s licensed technologies. The Company es(cid:43)mates sales-based royalty revenue earned but unpaid at each repor(cid:43)ng period using theexpected value method based on historical sales informa(cid:43)on, adjusted for known changes such as product launches and patent expira(cid:43)ons. The Company'slicense arrangements also o(cid:80)en provide for recurring fees (minimum royal(cid:43)es) which the Company recognizes at the later of the sa(cid:43)sfac(cid:43)on of the underlyingperformance obliga(cid:43)on or upon renewal of the contract, which is generally done on a quarterly basis. Sales-based and minimum royal(cid:43)es are generally duewithin 45 days of the end of each quarter.License fees – For dis(cid:43)nct license performance obliga(cid:43)ons, upfront license fees are recognized when the Company sa(cid:43)sﬁes the underlying performanceobliga(cid:43)on. This generally occurs upon transfer of the right to use the Company’s licensed technology to the customer, with the excep(cid:43)on of the license of theCompany’s SurVeil™ drug-coated balloon (the “SurVeil DCB”) disclosed below. Certain license arrangements include con(cid:43)ngent milestone payments, which aredue following achievement by our customers of speciﬁed sales or regulatory milestones. Con(cid:43)ngent milestone payment terms vary by contract. The Companyhas generally fulﬁlled its performance obliga(cid:43)on prior to achievement of these milestones. However, because of the uncertainty of the milestone achievement,and/or the dependence on sales of our customers, variable considera(cid:43)on for con(cid:43)ngent milestones is fully constrained and excluded from the contract priceuntil the milestone is achieved by our customer, to the extent collectability is reasonably certain.The Company has a collabora(cid:43)ve arrangement contract with Abbo(cid:48) Vascular, Inc. (“Abbo(cid:48)”) disclosed in Note 4 (the “Abbo(cid:48) Agreement”), pursuant towhich the Company received an upfront payment of $25 million in ﬁscal 2018 and a milestone payment a(cid:80)er comple(cid:43)on of enrollment in the TRANSCENDclinical trial of $10 million in ﬁscal 2019. To the extent the Company achieves certain agreed-upon clinical and regulatory milestones, the Company may receiveup to $57 million of addi(cid:43)onal con(cid:43)ngent milestone payments. The performance obliga(cid:43)on iden(cid:43)ﬁed in this arrangement includes delivery of our licensedtechnology and comple(cid:43)on of research and development ac(cid:43)vi(cid:43)es, primarily clinical trial ac(cid:43)vi(cid:43)es (together, “R&D and Clinical Ac(cid:43)vi(cid:43)es”). These promises arenot dis(cid:43)nct performance obliga(cid:43)ons because the product necessary for comple(cid:43)on of the R&D and Clinical Ac(cid:43)vi(cid:43)es is currently only able to be manufacturedby the Company due to the exclusive proprietary know-how and certain regulatory requirements associated with the manufacture of the product. The customer(Abbo(cid:48)) simultaneously receives and consumes the beneﬁts of the R&D and Clinical Ac(cid:43)vi(cid:43)es as study data are generated to support regulatory approvalsubmissions. Control is eﬀec(cid:43)vely transferred over (cid:43)me as we complete the TRANSCEND clinical study of our SurVeil DCB and related regulatory ac(cid:43)vi(cid:43)es.Revenue related to this contract is recognized using the cost-to-cost method which measures progress based on costs incurred to date rela(cid:43)ve to the expectedtotal cost of the services, as the Company believes this represents a faithful depic(cid:43)on of the sa(cid:43)sfac(cid:43)on of its performance obliga(cid:43)on. Use of the cost-to-costmethod requires signiﬁcant es(cid:43)mates including the total cost of the TRANSCEND study, which is expected to be completed over the next six years. Revenue isrecorded based on the cost-to-cost comple(cid:43)on es(cid:43)mate rela(cid:43)ve to the transac(cid:43)on price, which is equal to the total upfront fee plus the expected value of theclinical and regulatory milestones. As of September 30, 2019, considera(cid:43)on from the clinical and regulatory milestones, other than the $10 million full-enrollment milestone discussed above, has been fully constrained and excluded from the contract price, due to the high level of uncertainty as to theachievement of the underlying regulatory approval(s) and/or clinical milestones. Signiﬁcant judgment is used to es(cid:43)mate total revenue and cost at comple(cid:43)onfor this contract.F-13 Research and development – The Company performs third-party research and development ac(cid:43)vi(cid:43)es, which are typically charged to customers on a (cid:43)me-and-materials basis. Generally, revenue for research and development is recorded over (cid:43)me as the services are provided to the customer in the amount to which theCompany has the right to invoice. These services are generally charged to the customer as they are provided. Payment terms for R&D services are generally setat 30-45 days after the consideration becomes due and payable.If a contract contains more than one dis(cid:43)nct performance obliga(cid:43)on, the transac(cid:43)on price is allocated to each performance obliga(cid:43)on based on rela(cid:43)vestandalone selling price.Contract Assets, Deferred Revenue and Remaining Performance ObligationsContract assets are generally short in dura(cid:43)on given the nature of products produced and services provided by the Company. Contract assets consist ofsales-based and minimum royalty revenue earned for which uncondi(cid:43)onal right to payment does not exist as of the balance sheet date. These assets arecomprised of es(cid:43)mated sales-based royal(cid:43)es earned, but not yet reported by the Company’s customers, minimum royal(cid:43)es on non-cancellable contracts, andcon(cid:43)ngent milestones earned but not yet billable based on the terms of the contract. The increase in contract assets from October 1, 2018 to September 30,2019 resulted primarily from changes in sales-based and minimum royalties earned but not collected at each balance sheet date.The Company records a contract liability, or deferred revenue, when there is an obliga(cid:43)on to provide a product or service to the customer and payment isreceived or due in advance of performance, or when payment is received for a period outside the contract term. The Company’s deferred revenue at September30, 2019 and 2018 is primarily related to the upfront payment received pursuant to the Abbott Agreement (Note 4).Remaining performance obliga(cid:43)ons include deferred revenue and amounts the Company expects to receive for goods and services that have not yetbeen delivered or provided under exis(cid:43)ng, noncancellable contracts. For contracts that have an original dura(cid:43)on of one year or less, the Company has electedthe prac(cid:43)cal expedient applicable to such contracts and does not disclose the transac(cid:43)on price for remaining performance obliga(cid:43)ons at the end of eachrepor(cid:43)ng period and when the Company expects to recognize this revenue. As of September 30, 2019, the es(cid:43)mated revenue expected to be recognized infuture periods related to performance obliga(cid:43)ons that are unsa(cid:43)sﬁed for executed contracts with an original dura(cid:43)on of one year or more was approximately$17.1 million. This revenue is en(cid:43)rely related to the R&D and Clinical Ac(cid:43)vi(cid:43)es performance obliga(cid:43)on in the Abbo(cid:48) Agreement from the upfront payment andmilestone payments and does not include revenue from poten(cid:43)al con(cid:43)ngent milestone payments that may be received in the future. The Company expects torecognize the remaining revenue from this performance obliga(cid:43)on over the next six years as the services, which are primarily comprised of the TRANSCENDclinical study ac(cid:43)vi(cid:43)es, are completed. We expect the contract to be approximately 75% completed by the end of ﬁscal 2021, with the remaining 25% amor(cid:43)zedover the final four years of the TRANSCEND trial follow-up and clinical reporting period. ConcentrationsThe Company has licenses and supply agreements with a diverse base of customers and certain customers have mul(cid:43)ple products using the Company’stechnology. Abbo(cid:48) and its aﬃliates and Medtronic plc (“Medtronic”) are our largest customers, comprising 19% and 14%, respec(cid:43)vely, of our consolidatedrevenue for ﬁscal 2019. These same customers each comprised 11% and 16%, respec(cid:43)vely of our consolidated revenue for ﬁscal 2018. In ﬁscal 2017, revenuefrom Medtronic comprised 18% of our consolidated revenue. Abbo(cid:48) has several separately licensed products, including the SurVeil license, which generateroyalty and license fee revenue for Surmodics. Revenue from the SurVeil license represented 13%, 5% and 0% of total revenue for ﬁscal 2019, 2018 and 2017,respec(cid:43)vely. Medtronic has several separately licensed products that generate royalty revenue for Surmodics, none of which represented more than 3% of ourtotal revenue. No other individual customer cons(cid:43)tutes more than 10% of the Company’s total revenue. The loss of Abbo(cid:48), Medtronic or any of our largestcustomers, or reduc(cid:43)ons in business from them, could have a material adverse eﬀect on the Company’s business, ﬁnancial condi(cid:43)on, results of opera(cid:43)ons, andcash flows from operations.F-14 The Company’s licensing agreements with many of its customers, including most of its signiﬁcant customers, cover many licensed products that eachseparately generates royalty revenue. This structure reduces the poten(cid:43)al risk to the Company’s opera(cid:43)ons that may result from reduced sales (or thetermination of a license) of a single product for any specific customer.The Company believes that the credit risk related to marketable securi(cid:43)es is limited due to the adherence to an investment policy and that credit riskrelated to accounts receivable is limited due to a large customer base.Income TaxesThe Company accounts for income taxes under the asset and liability method prescribed in accoun(cid:43)ng guidance. Deferred tax assets and liabili(cid:43)es arerecognized for the future tax consequences a(cid:48)ributable to diﬀerences between the ﬁnancial statement carrying amounts of exis(cid:43)ng assets and liabili(cid:43)es andtheir respec(cid:43)ve tax bases. A valua(cid:43)on allowance is provided when it is more likely than not that some por(cid:43)on or all of a deferred tax asset will not be realized.The ul(cid:43)mate realiza(cid:43)on of deferred tax assets depends on the genera(cid:43)on of future taxable income during the period in which related temporary diﬀerencesbecome deduc(cid:43)ble. Management considers the scheduled reversal of deferred tax liabili(cid:43)es, projected future taxable income and tax planning strategies in thisassessment. Deferred tax assets and liabili(cid:43)es are measured using the enacted tax rates expected to apply to taxable income in the years in which thosetemporary diﬀerences are expected to be recovered or se(cid:48)led. The eﬀect on deferred tax assets and liabili(cid:43)es of a change in tax rates is recognized in earningsin the period that includes the enactment date of such change.Research and DevelopmentResearch and development (“R&D”) costs are expensed as incurred. Some R&D costs are related to customer contracts, and the related revenue isrecognized as described in “Revenue Recognition” above. Costs associated with customer-related R&D include specific project direct labor and material expensesas well as an alloca(cid:43)on of overhead costs based on direct labor dollars. Costs associated with research and development of the Company’s own products includedesign, engineering and tes(cid:43)ng ac(cid:43)vi(cid:43)es necessary to develop a new product or improve the manufacturing process of an exis(cid:43)ng product. Internal researchand development costs also include any necessary pre-commercialization regulatory and clinical trial costs.Clinical trial costs. The Company sponsors clinical trials intended to obtain the necessary clinical data required to obtain approval from various regulatoryagencies to market medical devices developed by the Company. Costs associated with clinical trials include trial design and management expenses, clinical sitereimbursements and third party fees, among other things. The Company’s clinical trials are administered by third-party clinical research organiza(cid:43)ons (“CROs”).These CROs generally bill monthly for certain services performed as well as upon achievement of certain milestones. The Company monitors pa(cid:43)ent enrollment,the progress of clinical studies and related ac(cid:43)vi(cid:43)es through internal reviews of data reported to the Company by the CROs and correspondence with the CROs.The Company periodically evaluates its es(cid:43)mates to determine if adjustments are necessary or appropriate based on informa(cid:43)on it receives. These es(cid:43)matesoften require significant judgement on the part of the Company’s management.Government funding. The Company is eligible to receive reimbursement for certain qualifying R&D expenditures under a grant from the IndustrialDevelopment Agency of Ireland (“IDA”). Reimbursements are recognized as a reduc(cid:43)on of R&D expense when there is reasonable assurance that the fundingwill be received and condi(cid:43)ons associated with the funding are met. The Company recorded reimbursements from IDA grants of $0.7 million, $0.8 million and$0.8 million during the years ended September 30, 2019, 2018 and 2017 as a reduction of R&D expense.Use of EstimatesThe prepara(cid:43)on of consolidated ﬁnancial statements in conformity with U.S. GAAP requires management to make es(cid:43)mates and assump(cid:43)ons that aﬀectthe reported amounts of assets and liabili(cid:43)es, the disclosure of con(cid:43)ngent assets and liabili(cid:43)es at the date of the consolidated ﬁnancial statements and thereported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates.Income Per Share DataBasic income (loss) per common share is calculated based on the weighted average number of common shares outstanding during the period. Dilutedincome per common share is computed by dividing income by the weighted average number of common and common equivalent shares outstanding during theperiod. The Company’s potentially dilutive common shares are those thatF-15 result from dilu(cid:43)ve common stock op(cid:43)ons and non-vested stock rela(cid:43)ng to restricted stock awards, restricted stock units and performance shares. However,these items have been excluded from the calcula(cid:43)on of diluted net loss per share for the year ended September 30, 2018, as their eﬀect was an(cid:43)dilu(cid:43)ve as aresult of the net loss incurred for that period. Therefore, diluted weighted average number of shares outstanding and diluted net loss per share were the sameas basic weighted average number of shares outstanding and net loss per share for the year ended September 30, 2018.The following table sets forth the denominator for the computa(cid:43)on of basic and diluted income per share for each of the years ended September 30 (inthousands): 2019 2018 2017 Net income (loss) available to common shareholders $7,592 $(4,457) $3,926 Basic weighted average shares outstanding 13,389 13,157 13,153 Dilutive effect of outstanding stock options, non-vested restricted stock, restricted stock units and performance shares 390 — 236 Diluted weighted average shares outstanding 13,779 13,157 13,389 The calcula(cid:43)on of weighted average diluted shares outstanding excludes outstanding common stock op(cid:43)ons associated with the right to purchase 0.2million, $1.0 million and 0.2 million shares for ﬁscal 2019, 2018 and 2017, respec(cid:43)vely, as their inclusion would have had an an(cid:43)dilu(cid:43)ve eﬀect on diluted incomeper share for those fiscal years.Currency TranslationThe Company’s repor(cid:43)ng currency is the U.S. Dollar. Assets and liabili(cid:43)es of non-U.S. dollar func(cid:43)onal currency subsidiaries are translated into U.S.dollars at the period-end exchange rates, and revenue and expenses are translated at the average quarterly exchange rates during the period. The net eﬀect ofthese transla(cid:43)on adjustments on the consolidated ﬁnancial statements is recorded as a foreign currency transla(cid:43)on adjustment, a component of accumulatedother comprehensive income on the consolidated balance sheets. Realized foreign currency transac(cid:43)on gains and losses are included in other, income (loss) netin the consolidated statements of operations.New Accounting PronouncementsAccounting Standards ImplementedIn May 2014, the Financial Accoun(cid:43)ng Standards Board (“FASB”) Accoun(cid:43)ng Standards Codiﬁca(cid:43)on (“ASC”) issued Update No. 2014-09, Revenue fromContracts with Customers (“ASC Topic 606”). The core principal of ASC Topic 606 is to recognize revenue in a manner that depicts the transfer of goods orservices to customers in amounts that reﬂect the considera(cid:43)on an en(cid:43)ty expects to be en(cid:43)tled to in exchange for those goods or services. The guidance alsorequires expanded disclosures rela(cid:43)ng to the nature, amount, (cid:43)ming, and uncertainty of revenue and cash ﬂows arising from contracts with customers, as wellas signiﬁcant judgements and changes in judgements. The Company adopted ASC Topic 606 in the ﬁrst quarter of ﬁscal year 2019 using the modiﬁedretrospec(cid:43)ve method and applied the new revenue standard to all new customer contracts ini(cid:43)ated on or a(cid:80)er the eﬀec(cid:43)ve date and contracts which hadremaining performance obliga(cid:43)ons as of the eﬀec(cid:43)ve date. The adop(cid:43)on of ASC Topic 606 resulted in an accelera(cid:43)on of minimum license fees and sales-basedroyalty revenue earned under the Company’s hydrophilic coa(cid:43)ng technology license agreements by approximately one quarter. Prior to the adop(cid:43)on of ASCTopic 606, sales-based royal(cid:43)es were recognized in the period the Company’s customers reported the underlying sales, which is generally one quarter a(cid:80)er thesales occur. Addi(cid:43)onally, minimum royal(cid:43)es were recognized in the period they were contractually owed to the Company. Upon adop(cid:43)on of ASC Topic 606,sales-based royal(cid:43)es are recognized in the period the underlying customer sale occurs, while the minimum royal(cid:43)es are recognized at each renewal of thelicense contract, which generally occurs on the last day of the quarter for minimum royalties contractually due in the following quarter. F-16 The adop(cid:43)on of ASC Topic 606 resulted in cumula(cid:43)ve-eﬀect adjustments to opening retained earnings, contract assets, deferred tax assets and incometax receivable. The impact of the adop(cid:43)on of ASC Topic 606 on the opening consolidated balance sheet as of October 1, 2018, as compared with theconsolidated balance sheet previously reported as of September 30, 2018, was as follows: (Dollars in thousands) September 30,2018, AsReported Adjustments forAdoption of Topic606 October 1, 2018Opening Balance Assets Contract assets - royalties and license fees $— $6,904 $6,904 Deferred income taxes 6,304 (1,215) 5,089 Income tax receivable 1,152 (390) 762 Liabilities and Stockholders' Equity Deferred revenue, current portion 9,646 (18) 9,628 Deferred revenue, less current portion 11,247 (181) 11,066 Retained earnings 97,615 5,498 103,113 The impact of adop(cid:43)on of ASC Topic 606 to the Company’s consolidated statements of opera(cid:43)ons for the year ended September 30, 2019 was an increase ofroyalty and license fee revenue of $1.3 million, as well as reduced income tax benefit of $0.3 million.Accounting Standards to be AdoptedIn February 2016, the FASB issued Accoun(cid:43)ng Standards Update ASU 2016-02, Leases (ASC Topic 842). The new guidance primarily aﬀects lesseeaccoun(cid:43)ng, while accoun(cid:43)ng by lessors will not be signiﬁcantly impacted by the update. The update maintains two classiﬁca(cid:43)ons of leases: ﬁnance leases, whichreplace capital leases, and opera(cid:43)ng leases. Lessees will need to recognize a right-of-use asset and a lease liability on the statement of ﬁnancial posi(cid:43)on forthose leases previously classiﬁed as opera(cid:43)ng leases under the old guidance. The liability will be equal to the present value of remaining contractual leasepayments. The asset will be based on the liability, subject to adjustment, such as for direct costs. The accoun(cid:43)ng standard will be eﬀec(cid:43)ve for the Companybeginning the ﬁrst quarter of ﬁscal year 2020 (October 1, 2019) and will be applied using a modiﬁed retrospec(cid:43)ve approach. The Company is currentlyevalua(cid:43)ng the impact that the adop(cid:43)on of this standard will have on the Company’s results of opera(cid:43)ons, cash ﬂows and ﬁnancial posi(cid:43)on and expects theimpact to be material due to the right of use assets and lease obliga(cid:43)ons that will be recorded as a result of the adop(cid:43)on, as well as several addi(cid:43)onal requiredﬁnancial statement footnote disclosures. The Company es(cid:43)mates that a right of use asset totaling approximately $1.7 million and a lease obliga(cid:43)on liabilitytotaling approximately $2.9 million will be recorded as a result of the adop(cid:43)on of the new lease accoun(cid:43)ng standard. Addi(cid:43)onally, the deferred rent liabilitytotaling approximately $1.2 million that is currently included in other current and long-term liabili(cid:43)es will be eliminated as it will reduce the amount of the right-of-use asset recorded upon adop(cid:43)on. The Company expects the adop(cid:43)on of the lease standard will not have a signiﬁcant impact on stockholders’ equity, theconsolidated statements of operations, or the consolidated statements of cash flows.In June 2016, the FASB issued ASU No 2016-13, Financial Instruments – Credit Losses (ASC Topic 326), Measurement of Credit Losses on FinancialStatements. This ASU requires a ﬁnancial asset (or a group of ﬁnancial assets) measured at an amor(cid:43)zed cost basis to be presented at the net amount expectedto be collected. The allowance for credit losses is a valua(cid:43)on account that is deducted from the amor(cid:43)zed cost basis of the ﬁnancial asset(s) to present the netcarrying value at the amount expected to be collected on the ﬁnancial asset. The accoun(cid:43)ng standard will be eﬀec(cid:43)ve for the Company beginning in the ﬁrstquarter of ﬁscal 2021 (October 1, 2020). The Company is currently evalua(cid:43)ng the impact that the adop(cid:43)on of this standard will have on the Company’s resultsof operations, cash flows and financial position.No other new accoun(cid:43)ng pronouncement issued or eﬀec(cid:43)ve has had, or is expected to have, a material impact on the Company’s consolidated ﬁnancialstatements.F-17 3. RevenueThe following table presents our revenues disaggregated by product classification and by operating segment (in thousands): 2019 2018 2017 Medical Device Product sales $18,617 $17,200 $13,735 Royalties 34,781 30,606 30,264 Research, development and other 11,277 7,889 8,528 License fees 13,678 4,818 1,456 Total Revenue - Medical Device 78,353 60,513 53,983 IVD Product sales 21,390 20,789 19,055 Other 334 34 74 Total Revenue - IVD 21,724 20,823 19,129 Total Revenue $100,077 $81,336 $73,112 4. Collaborative ArrangementOn February 26, 2018, the Company entered into an agreement with Abbo(cid:48) whereby Abbo(cid:48) will have exclusive worldwide commercializa(cid:43)on rights forSurmodics' SurVeil DCB to treat the superﬁcial femoral artery, which is currently being evaluated in a U.S. pivotal clinical trial. Separately, Abbo(cid:48) also receivedop(cid:43)ons to nego(cid:43)ate agreements for Surmodics' below-the-knee and arteriovenous (AV) ﬁstula DCB products, which are currently in pre-clinical development.Surmodics is responsible for conduc(cid:43)ng all necessary clinical trials and other ac(cid:43)vi(cid:43)es required to achieve U.S. and European Union regulatory clearances for theSurVeil DCB, including comple(cid:43)on of the ongoing TRANSCEND clinical trial. Abbo(cid:48) and Surmodics will par(cid:43)cipate on a joint development commi(cid:48)ee chargedwith providing guidance on the Company’s clinical and regulatory activities with regard to the SurVeil DCB.The Company has received a $25 million upfront fee as well as a $10 million milestone payment. The Company may receive up to $57 million ofaddi(cid:43)onal payments upon achievement of various clinical and regulatory milestones. Revenue from the upfront fee and con(cid:43)ngent clinical and regulatorymilestone payments, once the underlying con(cid:43)ngencies are achieved, is recognized within royal(cid:43)es and license fees in the consolidated statements ofopera(cid:43)ons as the clinical and regulatory ac(cid:43)vi(cid:43)es are performed on a propor(cid:43)onal performance basis. Performance is measured based on actual costs incurredrela(cid:43)ve to the expected total cost of the underlying ac(cid:43)vi(cid:43)es, most notably the comple(cid:43)on of the TRANSCEND clinical trial. A signiﬁcant component of the costof this trial is the cost of the Company’s outsourced clinical trial clinical research organiza(cid:43)on (“CRO”) consultants, which are es(cid:43)mated based on executedstatements of work, project budgets, and pa(cid:43)ent enrollment (cid:43)ming, among other things. A signiﬁcant change to the Company’s es(cid:43)mate of the costs tocomplete the TRANSCEND clinical trial could have a material eﬀect on the Company’s results of opera(cid:43)ons. The total expected cost of the trial is a signiﬁcantmanagement estimate and is reviewed and assessed each reporting period.For the years ended September 30, 2019 and 2018, the Company recognized revenue totaling $13.5 million and $4.4 million, respec(cid:43)vely, from theAbbo(cid:48) arrangement. In ﬁscal 2019, the Company received a $10 million milestone payment as a result of comple(cid:43)ng enrollment in the TRANSCEND clinical trial.As of September 30, 2019, the Company had received $35 million under this contract. Revenue recognized from this milestone totaled $5.1 million in ﬁscal 2019,$1.7 million of which related to the propor(cid:43)onal performance completed prior to ﬁscal 2019. The remaining, unrecognized por(cid:43)on of the $35 million is includedin deferred revenue in current and long-term deferred revenue as of September 30, 2019, totaling $5.5 million and $11.6 million, respec(cid:43)vely. Upon receipt ofregulatory approval for the SurVeil DCB, Abbo(cid:48) will have the right to purchase commercial units from the Company and Surmodics will realize revenue fromproduct sales to Abbott at an agreed-upon transfer price, as well as a share of net profits resulting from third-party product sales by Abbott. F-18 5. Fair Value MeasurementsThe accoun(cid:43)ng guidance on fair value measurements deﬁnes fair value, establishes a framework for measuring fair value under U.S. GAAP, and expandsdisclosures about fair value measurements. The guidance is applicable for all ﬁnancial assets and ﬁnancial liabili(cid:43)es and for all nonﬁnancial assets andnonﬁnancial liabili(cid:43)es recognized or disclosed at fair value in the consolidated ﬁnancial statements on a recurring basis. Fair value is deﬁned as the exchangeprice that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transac(cid:43)on between market par(cid:43)cipants at themeasurement date. When determining the fair value measurements for assets and liabili(cid:43)es required or permi(cid:48)ed to be recorded at fair value, the Companyconsiders the principal or most advantageous market in which it would transact and also considers assump(cid:43)ons that market par(cid:43)cipants would use when pricingthe asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.Fair Value HierarchyAccoun(cid:43)ng guidance on fair value measurements requires that assets and liabili(cid:43)es carried at fair value be classiﬁed and disclosed in one of the followingthree categories:Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.The Company did not have any Level 1 assets as of September 30, 2019 or 2018. Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabili(cid:43)es in ac(cid:43)ve markets; quotedprices for iden(cid:43)cal or similar assets or liabili(cid:43)es in markets that are not ac(cid:43)ve; or other inputs that are observable or can be corroborated by observable marketdata for substantially the full term of the asset or liability.The Company’s Level 2 assets as of September 30, 2019 and 2018 consisted of money market funds, commercial paper instruments and corporate bondsecuri(cid:43)es. Fair market values for these assets are based on quoted vendor prices and broker pricing where all signiﬁcant inputs are observable. To ensure theaccuracy of quoted vendor prices and broker pricing, the Company performs regular reviews of investment returns to industry benchmarks and sample tests ofindividual securities to validate quoted vendor prices with other available market data.Level 3 — Unobservable inputs to the valua(cid:43)on methodology that are supported by li(cid:48)le or no market ac(cid:43)vity and that are signiﬁcant to themeasurement of the fair value of the assets or liabili(cid:43)es. Level 3 assets and liabili(cid:43)es include those whose fair value measurements are determined using pricingmodels, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.Included in Level 3 liabili(cid:43)es as of September 30, 2019 is a $3.2 million con(cid:43)ngent considera(cid:43)on liability, all of which is current. Included in Level 3liabili(cid:43)es as of September 30, 2018 is a $14.5 million con(cid:43)ngent considera(cid:43)on liability, of which $3.4 million is noncurrent. The current con(cid:43)ngent considera(cid:43)onliabili(cid:43)es represents the liabili(cid:43)es for revenue and strategic milestones achieved during a con(cid:43)ngency periods which ended September 30, 2019 and 2018,respec(cid:43)vely. The non-current con(cid:43)ngent considera(cid:43)on liabili(cid:43)es are subject to achievement of revenue and value-crea(cid:43)ng milestones in the period endingSeptember 30, 2019. There were no Level 3 assets as of September 30, 2019 and 2018.F-19 In valuing assets and liabili(cid:43)es, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. TheCompany did not signiﬁcantly change its valua(cid:43)on techniques from prior periods. The carrying value of cash, accounts receivable, accounts payable and accruedliabilities approximates fair value as of September 30, 2019 and 2018 due to the short maturity nature of these instruments.Assets and Liabilities Measured at Fair Value on a Recurring BasisIn instances where the inputs used to measure fair value fall into diﬀerent levels of the fair value hierarchy, the fair value measurement has beendetermined based on the lowest level input that is signiﬁcant to the fair value measurement in its en(cid:43)rety. The Company’s assessment of the signiﬁcance of aparticular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.The following table presents informa(cid:43)on about the Company’s assets and liabili(cid:43)es measured at fair value on a recurring basis as of September 30, 2019(in thousands): QuotedPricesin ActiveMarkets forIdenticalInstruments(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total FairValue as ofSeptember 30,2019 Assets Cash equivalents $— $24,375 $— $24,375 Available-for-sale securities — 24,931 — $24,931 Total assets $— $49,306 $— $49,306 Liabilities Contingent consideration $— $— $(3,200) $(3,200)Total liabilities $— $— $(3,200) $(3,200) The following table presents informa(cid:43)on about the Company’s assets and liabili(cid:43)es measured at fair value on a recurring basis as of September 30, 2018(in thousands): QuotedPricesin ActiveMarkets forIdenticalInstruments(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total FairValue as ofSeptember 30,2018 Assets Cash equivalents $— $13,999 $— $13,999 Available-for-sale securities — 41,352 — $41,352 Total assets $— $55,351 $— $55,351 Liabilities Contingent consideration $— $— $(14,466) $(14,466)Total liabilities $— $— $(14,466) $(14,466) F-20 The following table summarizes the changes in the contingent consideration liability for the years ended September 30, 2019 and 2018: (Dollars in thousands) Contingent consideration liability at September 30, 2017 $14,864 Additions — Fair value adjustments 288 Settlements (925)Interest accretion 387 Foreign currency translation (148)Contingent consideration liability at September 30, 2018 14,466 Additions — Fair value adjustments (415)Settlements (10,979)Interest accretion 254 Foreign currency translation (126)Contingent consideration liability at September 30, 2019 $3,200 There were no transfers of assets or liabilities to or from amounts measured using Level 3 fair value measurements during fiscal 2019 or 2018. Valuation TechniquesThe valuation techniques used to measure the fair value of assets are as follows:Cash equivalents — These assets are classiﬁed as Level 2 and are carried at historical cost which is a reasonable es(cid:43)mate of fair value because of therelatively short time between origination of the instrument and its expected realization.Available-for-sale securi(cid:43)es — These assets are classiﬁed as Level 2 and include commercial paper instruments and corporate bonds. These securi(cid:43)es arevalued based on quoted vendor prices in active markets underlying the securities.Con(cid:43)ngent considera(cid:43)on — The con(cid:43)ngent considera(cid:43)on liabili(cid:43)es were determined based on discounted cash ﬂow analyses that included revenuees(cid:43)mates, probability of strategic milestone achievement and a discount rate, which are considered signiﬁcant unobservable inputs as of the acquisi(cid:43)on datesand September 30, 2019 and 2018. The con(cid:43)ngency period for the NorMedix acquisi(cid:43)on ended September 30, 2019. Based on the milestones achieved duringthe con(cid:43)ngency period, the Company expects to pay the NorMedix shareholders $3.2 million in December 2019, based on the achievement of milestonesthroughout the con(cid:43)ngency period. The con(cid:43)ngency period for the Creagh Medical con(cid:43)ngent considera(cid:43)on obliga(cid:43)on ended September 30, 2018. Based onthe milestones achieved during the con(cid:43)ngency period, the Company paid Creagh Medical shareholders $11.0 million in December 2018. The Creagh Medicalobliga(cid:43)on was discounted using the Company’s annualized cost of debt for the three-month period between September 30, 2019 and the expected se(cid:48)lementdate, or 2.3%. Probability of comple(cid:43)on for the redeﬁned milestones was reﬂected in the es(cid:43)mated fair value of the NorMedix con(cid:43)ngent considera(cid:43)onobliga(cid:43)on as of September 30, 2018. For the revenue-based milestones, the Company discounted forecasted revenue by 20.5%, which represents theCompany’s weighted average cost of capital for the transac(cid:43)on, adjusted for the short-term nature of the cash ﬂows. The resul(cid:43)ng present value of revenue wasused as an input into an op(cid:43)on pricing approach, which also considered the Company’s risk of non-payment of the revenue-based milestones. Outstandingstrategic milestones were projected to have a 5% to 95% probability of achievement as of September 30, 2018, and related payments were discounted using theCompany’s estimated cost of debt for the remaining contingency period, or 6.0%.F-21 The €9.6 million (approximately $11.0 million as of September 30, 2018) con(cid:43)ngent considera(cid:43)on related to the Creagh Medical acquisi(cid:43)on wasdenominated in Euros and was not hedged. The Company recorded foreign currency gains (losses) of $0.1 million, $0.1 million and ($0.5) million, respec(cid:43)vely, inthe years ended September 30, 2019, 2018 and 2017, respec(cid:43)vely, related to this con(cid:43)ngent considera(cid:43)on obliga(cid:43)on as it was marked to year-end exchangerates.Assets and Liabilities Measured at Fair Value on a Non-Recurring BasisThe Company’s investments in non-marketable securi(cid:43)es of private companies are accounted for using the cost method as the Company does not exertsigniﬁcant inﬂuence over the investees’ opera(cid:43)ng or ﬁnancial ac(cid:43)vi(cid:43)es. These investments are measured at fair value on a non-recurring basis when they aredeemed to be other-than-temporarily impaired. In determining whether a decline in value of non-marketable equity investments in private companies hasoccurred and is other-than-temporary, an assessment is made by considering available evidence, including the general market condi(cid:43)ons in the investee’sindustry, the investee’s product development status and subsequent rounds of ﬁnancing and the related valua(cid:43)on and/or the Company’s par(cid:43)cipa(cid:43)on in suchﬁnancings. The Company also assesses the investee’s ability to meet business milestones and the ﬁnancial condi(cid:43)on and near-term prospects of the individualinvestee, including the rate at which the investee is using its cash and the investee’s need for possible addi(cid:43)onal funding at a poten(cid:43)ally lower valua(cid:43)on. Thevalua(cid:43)on methodology for determining the decline in value of non-marketable equity securi(cid:43)es is based on inputs that require management judgment and areLevel 3 inputs. 6. Stockholders’ EquityRepurchase of Common StockShares are repurchased from (cid:43)me to (cid:43)me to support the Company’s stock-based compensa(cid:43)on programs and to return capital to stockholders. TheCompany accounts for repurchases of common stock using the par value method. On November 6, 2015 and November 5, 2014, the Company’s Board of Directors authorized the repurchase of up to $20.0 million and $30.0 million,respec(cid:43)vely, of the Company’s outstanding common stock in open-market purchases, privately nego(cid:43)ated transac(cid:43)ons, block trades, accelerated sharerepurchase transac(cid:43)ons, tender oﬀers or by any combina(cid:43)on of such methods. The authoriza(cid:43)ons have no ﬁxed expira(cid:43)on date. During ﬁscal 2017, we paid$4.7 million to repurchase 196,190 common shares in open market purchases at an average price of $23.97 per share. As of September 30, 2019, $25.3 millionremained available to the Company for the purchase of its common stock under outstanding authorizations. 7. Stock-Based Compensation PlansThe Company has stock-based compensa(cid:43)on plans under which it grants stock op(cid:43)ons, restricted stock awards, performance share awards, restrictedstock units and deferred stock units. Accoun(cid:43)ng guidance requires all share-based payments to be recognized as an expense, based on their fair values, over therequisite service period. The Company also es(cid:43)mates forfeitures of awards granted, which are based on historical experience and reduce the recognizedexpense. The Company’s stock-based compensa(cid:43)on expenses for the years ended September 30 were allocated to the following expense categories(in thousands): 2019 2018 2017 Product costs $135 $69 $90 Research and development 876 801 510 Selling, general and administrative 4,066 3,937 2,872 Total stock-based compensation expense $5,077 $4,807 $3,472 As of September 30, 2019, approximately $6.9 million of total unrecognized compensa(cid:43)on costs related to non-vested awards is expected to berecognized over a weighted average period of approximately 2.2 years.Under the 2019 Equity Incen(cid:43)ve Plan (“2019 Plan”), the Company is authorized to issue 1,100,000 shares, plus the number of shares pursuant to anyawards granted under the 2009 Equity Incen(cid:43)ve Plan (“2009 Plan”) that were outstanding on the eﬀec(cid:43)ve date of the 2019 Plan that expire, are cancelled orforfeited or are se(cid:48)led for cash.. As of September 30, 2019, there were 1,084,492 shares available for future equity awards, including stock op(cid:43)ons, restrictedstock awards, and restricted stock and deferred stock units, under the 2019 Plan.F-22 Stock Option AwardsThe Company uses the Black-Scholes op(cid:43)on pricing model to determine the weighted average grant date fair value of stock op(cid:43)ons. Weighted averageper share fair values of stock op(cid:43)ons granted during ﬁscal 2019, 2018 and 2017 were $17.89, $10.91 and $7.63, respec(cid:43)vely. The assump(cid:43)ons used as inputs inthe model for the years ended September 30 were as follows: 2019 2018 2017 Risk-free interest rates 2.75% 2.18% 1.74%Expected life 4.5 years 4.8 years 4.6 years Expected volatility 34% 33% 34%Dividend yield 0% 0% 0% The risk-free interest rate assump(cid:43)on was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturi(cid:43)es similar to those of theexpected term of the award. The expected life of op(cid:43)ons granted is determined based on the Company’s experience. Expected vola(cid:43)lity is based on theCompany’s stock price movement over a period approxima(cid:43)ng the expected term. Based on management’s judgment, dividend rates are expected to be 0.0%for the expected life of the options.Non-qualiﬁed stock op(cid:43)ons are granted at fair market value on the grant date. Non-qualiﬁed stock op(cid:43)ons expire in seven years or upon termina(cid:43)on ofemployment or service as a Board member. With respect to members of the Board, non-qualiﬁed stock op(cid:43)ons generally become exercisable on a pro-rata basisover the one-year period following the date of grant. With respect to employees, non-qualiﬁed stock op(cid:43)ons generally become exercisable with respect to 25%of the shares on each of the ﬁrst four anniversaries following the grant date. The stock-based compensa(cid:43)on table above includes stock op(cid:43)on expensesrecognized related to these awards, which totaled $2.2 million, $1.6 million and $1.3 million during fiscal 2019, 2018 and 2017, respectively. As of September 30, 2019, the aggregate intrinsic value of the op(cid:43)on shares outstanding and op(cid:43)on shares exercisable was $13.8 million and $9.0million, respec(cid:43)vely. As of September 30, 2019, the average remaining contractual life of op(cid:43)ons outstanding and op(cid:43)ons exercisable was 4.4 years and3.5 years, respec(cid:43)vely. The total pre-tax intrinsic value of op(cid:43)ons exercised during ﬁscal 2019, 2018 and 2017 was $0.3 million, $12.1 million and $0.1 million,respec(cid:43)vely. The intrinsic value represents the diﬀerence between the exercise price and the fair market value of the Company’s common stock on the last dayof the respective fiscal year end.The following table summarizes all stock op(cid:43)ons ac(cid:43)vity and stock op(cid:43)ons outstanding and exercisable under the stock op(cid:43)on plans during ﬁscal 2019,2018 and 2017: Number ofShares WeightedAverageExercise Price Outstanding at September 30, 2016 827,325 $21.30 Granted 229,039 24.08 Exercised (6,819) 13.89 Forfeited and expired (47,640) 30.65 Outstanding at September 30, 2017 1,001,905 21.54 Granted 269,961 34.08 Exercised (450,495) 19.46 Forfeited and expired (110,825) 30.18 Outstanding at September 30, 2018 710,546 26.28 Granted 179,669 55.09 Exercised (12,604) 22.03 Forfeited and expired (6,435) 42.28 Outstanding at September 30, 2019 871,176 32.18 Exercisable at September 30, 2019 418,873 $24.71F-23 Restricted Stock AwardsThe Company has entered into restricted stock agreements with certain key employees, covering the issuance of common stock (“Restricted Stock”).Under accoun(cid:43)ng guidance, these shares are considered to be non-vested shares. The Restricted Stock is released to the key employees if they are employed bythe Company at the end of the ves(cid:43)ng period. Restricted stock awards generally vest at a 33% rate on each of the ﬁrst three anniversaries following the grantdate. Compensa(cid:43)on expense is recognized on a straight-line basis over the ves(cid:43)ng term based on the fair value of the common shares on the date of grant. Thestock-based compensa(cid:43)on table above includes Restricted Stock expenses recognized related to these awards, which totaled $1.7 million, $1.0 million and$0.5 million during fiscal 2019, 2018 and 2017, respectively.The following table summarizes all restricted stock awards activity during fiscal 2019, 2018 and 2017: Number ofShares WeightedAverageGrant Price Balance at September 30, 2016 33,133 $20.96 Granted 51,559 25.12 Vested (14,497) 21.10 Forfeited (2,278) 25.12 Balance at September 30, 2017 67,917 23.98 Granted 56,244 34.38 Vested (28,717) 23.78 Forfeited (10,020) 29.10 Balance at September 30, 2018 85,424 30.30 Granted 45,049 56.05 Vested (39,195) 28.61 Forfeited (869) 47.86 Balance at September 30, 2019 90,409 $43.69 Performance Share AwardsThe Company has entered into performance share agreements with certain key employees, covering the issuance of common stock (“PerformanceShares”). The Performance Shares vest upon the achievement of all or a por(cid:43)on of certain performance objec(cid:43)ves, which must be achieved during theperformance period. The Performance Shares are not issued and outstanding un(cid:43)l the performance objec(cid:43)ves are met. The Organiza(cid:43)on and Compensa(cid:43)onCommi(cid:48)ee of the Board of Directors (the “Commi(cid:48)ee”) approves the performance objec(cid:43)ves used for execu(cid:43)ve compensa(cid:43)on programs, which objec(cid:43)ves werecumula(cid:43)ve earnings before interest, income taxes, deprecia(cid:43)on and amor(cid:43)za(cid:43)on (“EBITDA”) for ﬁscal 2015 awards (2015 – 2017), ﬁscal 2016 awards (2016-2018) and ﬁscal 2017 awards (2016-2018). The Commi(cid:48)ee did not approve Performance Share awards in ﬁscal 2018 or ﬁscal 2019. Assuming that the minimumperformance level is a(cid:48)ained, the number of shares that may actually vest will vary based on performance from 20% (minimum) to 200% (maximum) of thetarget number of shares. Shares will be issued to par(cid:43)cipants as soon as prac(cid:43)cable following the end of the performance periods, subject to Commi(cid:48)eeapproval and veriﬁca(cid:43)on of results. The per-unit compensa(cid:43)on cost related to the shares to be granted under each performance period is ﬁxed on the grantdate, which is the date the performance period begins. Compensa(cid:43)on expense is recognized in each period based on management’s best es(cid:43)mate of theachievement level of the speciﬁed performance objec(cid:43)ves for Performance Shares for each open performance period. In ﬁscal 2019, the Company recognizedexpense of $0.4 million related to probable achievement of performance objec(cid:43)ves for three-year Performance Shares granted in ﬁscal 2017. In ﬁscal 2018, theCompany recognized expense of $1.5 million related to probable achievement of performance objec(cid:43)ves for three-year Performance Shares granted in ﬁscal2017 and 2016. In ﬁscal 2017, the Company recognized expense of $1.2 million related to probable achievement of performance objec(cid:43)ves for three-yearPerformance Shares granted in fiscal 2017, 2016 and 2015. The stock-based compensation table above includes the Performance Shares expenses.The fair values of the Performance Shares, at target, were $1.2 million for the grant awarded in ﬁscal 2017. During the year ended September 30, 2018,the resignation of an executive resulted in the forfeiture of 12,217 Performance Shares at their respective original performance targets.F-24 The aggregate number of shares that could be awarded to key employees if the minimum, target and maximum performance goals are met, based uponthe fair value at the date of grant is as follows: Performance Period Minimum Shares Target Shares Maximum Shares Fiscal 2017 - 2019 9,352 46,758 93,516 The Fiscal 2017 – 2019 awards are expected to be finalized in December 2019 at an estimated 47,000 shares based on performance objective results.1999 Employee Stock Purchase PlanUnder the amended 1999 Employee Stock Purchase Plan (“Stock Purchase Plan”), the Company is authorized to issue up to 600,000 shares of commonstock. All full-(cid:43)me and part-(cid:43)me U.S. employees can choose to have up to 10% of their annual compensa(cid:43)on withheld, with a limit of $25,000, to purchase theCompany’s common stock at purchase prices deﬁned within the provisions of the Stock Purchase Plan. As of September 30, 2019 and 2018, there were less than$0.1 million of employee contribu(cid:43)ons in accrued liabili(cid:43)es in the consolidated balance sheets. Stock compensa(cid:43)on expense recognized related to the StockPurchase Plan for ﬁscal 2019, 2018 and 2017 totaled $0.1 million or less for each year. The stock-based compensa(cid:43)on table above includes the Employee StockPurchase Plan expenses.Restricted Stock and Deferred Stock UnitsThe Company awarded 11,871 and 21,535 restricted stock units (“RSU”) in ﬁscal 2019 and 2018, respec(cid:43)vely, under the 2019 Plan and the 2009 Plan tonon-employee directors and certain key employees in foreign jurisdic(cid:43)ons with forfeitures of 88 and 528 in ﬁscal 2019 and 2018, respec(cid:43)vely. RSU awards arenot considered issued or outstanding common stock of the Company un(cid:43)l they vest. The es(cid:43)mated fair value of the RSU awards was calculated based on theclosing market price of Surmodics’ common stock on the date of grant. As of September 30, 2019 and 2018, outstanding, unvested RSU’s totaled 62,242 and60,182, respec(cid:43)vely, with an es(cid:43)mated fair value of $2.8 million and $4.5 million, respec(cid:43)vely. Compensa(cid:43)on expense is recognized over the ves(cid:43)ng term basedon the fair value of the common shares on the date of grant. The stock-based compensa(cid:43)on table above includes RSU expenses recognized related to theseawards, which totaled $0.6 million, $0.5 million and $0.3 million in fiscal 2019, 2018 and 2017, respectively.Directors may elect to receive their annual fees for services to the Board in deferred stock units (“DSUs”). As of September 30, 2019 and 2018,outstanding DSUs totaled 29,729 and 26,991, respec(cid:43)vely, with an es(cid:43)mated fair value of $1.4 million and $2.0 million, respec(cid:43)vely. These DSUs are fully vestedwhen granted. Stock-based compensation expense related to DSU awards, totaled $0.1 million per year in fiscal 2019, 2018 and 2017.8. Income TaxesIncome taxes from con(cid:43)nuing opera(cid:43)ons in the accompanying consolidated statements of opera(cid:43)ons for the years ended September 30 are as follows(in thousands): 2019 2018 2017 Current provision (benefit): U.S. Federal $1,355 $(890) $2,125 U.S. State 192 51 (72)International 41 41 54 Total current provision (benefit) 1,588 (798) 2,107 Deferred provision (benefit): U.S. Federal (1,505) (2,006) 1,085 U.S. State (117) (271) (85)International — — — Total deferred (benefit) provision (1) (1,622) (2,277) 1,000 Total (benefit) provision $(34) $(3,075) $3,107 F-25 Both the current and deferred benefit include the impact of the adoption of ASC Topic 606 in fiscal 2019, which reduced deferred income taxes and incometaxes receivable by $1.2 million and $0.4 million, respectively.In December 2017, the Tax Cuts and Jobs Act (“TCJA”) tax legisla(cid:43)on was signed into law, which reduced the U.S. Federal statutory tax rate from 35% to21%, among other changes. As of September 30, 2019, the Company has fully completed its accoun(cid:43)ng for the tax eﬀects of the enactment of the TCJA. Theﬁscal 2018 tax provision includes discrete tax expense of $1.6 million from the revalua(cid:43)on of the Company’s net deferred tax assets based on the enacted taxrate of 21%, as compared with the previous rate of 35%. U.S. tax law requires that taxpayers with a ﬁscal year beginning before and ending a(cid:80)er the eﬀec(cid:43)vedate of a rate change calculate a blended tax rate for the year based on the pro rata number of days in the year before and a(cid:80)er such eﬀec(cid:43)ve date. As a result,for the ﬁscal year ended September 30, 2018, our U.S. federal statutory income tax rate was 24.5%. The reconcilia(cid:43)on of the diﬀerence between amountscalculated at the statutory U.S. federal tax rate of 21%, 24.5% and 35% for ﬁscal 2019, 2018 and 2017, respec(cid:43)vely, and the Company’s eﬀec(cid:43)ve tax rate fromcontinuing operations is as follows (in thousands): 2019 2018 2017 Amount at statutory U.S. federal income tax rate $1,587 $(1,845) $2,461 Change because of the following items: State income taxes, net of federal benefit (452) (724) (13)U.S. Federal and foreign research and development credits (2,464) (1,710) (706)Foreign and state rate differential 156 371 948 Valuation allowance change 671 960 665 Stock-based compensation (1) (163) (2,063) 330 Contingent consideration (gain) expense and related foreigncurrency revaluation (61) 142 125 U.S. Federal and state rate change 44 1,582 — Tax reserve change 770 158 (52)Foreign-derived income deduction (150) — — Federal manufacturing deduction — — (313)Other 28 54 (338)Income tax provision $(34) $(3,075) $3,107 (1)Includes non-deductible stock-based compensation.Excess tax beneﬁts (shor(cid:83)alls) related to stock based compensa(cid:43)on expense are recorded within income tax beneﬁt (expense) in the consolidatedstatements of operations and totaled $0.5 million, 2.0 million and $($0.2) million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.The components of deferred income taxes consisted of the following as of September 30 and result from diﬀerences in the recogni(cid:43)on of transac(cid:43)onsfor income tax and financial reporting purposes (in thousands): 2019 2018 Depreciable assets $(905) $(1,019)Deferred revenue 1,554 — Accruals and reserves 585 1,308 Stock-based compensation 2,213 1,798 Impaired strategic investments 1,666 1,687 NOL carryforwards 3,308 4,637 U.S. Federal and state R&D credits 2,394 1,896 Other 689 538 Valuation allowance (5,328) (4,541)Total deferred tax assets $6,176 $6,304 As of September 30, 2019 and 2018, the Company recorded deferred tax asset valua(cid:43)on allowances of $5.3 million and $4.5 million, respec(cid:43)vely. Thevaluation allowances are primarily related to other-than-temporary impairment losses on strategicF-26 investments, state R&D credit carryforwards, and net opera(cid:43)ng loss carryforwards of Creagh Medical. As of September 30, 2019, the Company had federal andstate R&D credit carryforwards of $2.4 million that will begin expiring in 2029 and federal and state net opera(cid:43)ng loss carryforwards of $0.2 million and $0.2million that will begin expiring in 2034 and 2022, respectively. Ireland net operating loss carryforward assets totaling $3.0 million, much of which was acquired aspart of the Creagh Medical acquisi(cid:43)on in ﬁscal 2016, have an unlimited carryforward period. The U.S. federal and Minnesota net opera(cid:43)ng losses acquired aspart of the NorMedix acquisi(cid:43)on are subject to the IRC Sec(cid:43)on 382 limita(cid:43)on rules. The Company has projected that these loss carryforwards will be utilizedwith over the nine years remaining in the carryforward period.Unrecognized tax beneﬁts are the diﬀerences between a tax posi(cid:43)on taken, or expected to be taken in a tax return, and the beneﬁt recognized foraccoun(cid:43)ng purposes pursuant to accoun(cid:43)ng guidance. A reconcilia(cid:43)on of the beginning and ending amount of unrecognized tax beneﬁts, excluding interest andpenalties, is as follows (in thousands): 2019 2018 2017 Beginning of fiscal year $1,559 $1,481 $1,508 Increases in tax positions for prior years 278 61 8 Decreases in tax positions for prior years (2) — (35)Increases in tax positions for current year 735 735 216 Settlements with taxing authorities — (613) — Lapse of the statute of limitations (247) (105) (216)End of fiscal year $2,323 $1,559 $1,481 The total amount of unrecognized tax beneﬁts excluding interest and penal(cid:43)es that, if recognized, would aﬀect the eﬀec(cid:43)ve tax rate as of September 30,2019, 2018 and 2017, respec(cid:43)vely, are $2.1 million, $1.4 million and $1.2 million. Currently, the Company does not expect the liability for unrecognized taxbeneﬁts to change signiﬁcantly in the next 12 months and has classiﬁed the above balances on the consolidated balance sheets in other long-term liabili(cid:43)es.Interest and penal(cid:43)es related to unrecognized tax beneﬁts are recorded in income tax expense. As of September 30, 2019, 2018 and 2017, a gross balance of$0.5 million, $0.4 million and $0.5 million, respectively, has been accrued related to the unrecognized tax benefits balance for interest and penalties.The Company ﬁles income tax returns, including returns for its subsidiaries, in the U.S. federal jurisdic(cid:43)on and in various state jurisdic(cid:43)ons as well asseveral non-U.S. jurisdic(cid:43)ons. Uncertain tax posi(cid:43)ons are related to tax years that remain subject to examina(cid:43)on. The Internal Revenue Service (“IRS”)completed an examina(cid:43)on of our ﬁscal 2016 U.S. federal income tax return in the third quarter of ﬁscal 2018, with a payment made associated primarily with(cid:43)ming adjustments. U.S. federal income tax returns for years prior to ﬁscal 2015 are no longer subject to examina(cid:43)on by federal tax authori(cid:43)es. For tax returnsfor state and local jurisdic(cid:43)ons, the Company is no longer subject to examina(cid:43)on for tax years generally before ﬁscal 2007. For tax returns for non-U.S.jurisdic(cid:43)ons, the Company is no longer subject to income tax examina(cid:43)on for years prior to 2012. Addi(cid:43)onally, the Company has been indemniﬁed of liability forany taxes rela(cid:43)ng to Creagh Medical and NorMedix for periods prior to the respec(cid:43)ve acquisi(cid:43)on dates, pursuant to the terms of the related share purchaseagreements. As of September 30, 2019 and 2018, there were no undistributed earnings in foreign subsidiaries. 9. Defined Contribution PlanThe Company has a 401(k) re(cid:43)rement and savings plan for the beneﬁt of qualifying U.S. employees, and a deﬁned contribu(cid:43)on PRSA plan for the beneﬁtof qualifying Ireland employees. For U.S. employees, the Company matches 50% of employee contribu(cid:43)ons on the ﬁrst 6% of eligible compensa(cid:43)on. For Irelandemployees, the Company makes contribu(cid:43)ons of up to 8% of eligible compensa(cid:43)on on employee contribu(cid:43)ons of up to 6% of eligible compensa(cid:43)on. Companycontributions totaling $0.9 million, $0.7 million and $0.7 million have been expensed in the years ended September 30, 2019, 2018 and 2017, respectively. 10. Commitments and ContingenciesLitigation. From (cid:43)me to (cid:43)me, the Company has been, and may become, involved in various legal ac(cid:43)ons involving its opera(cid:43)ons, products andtechnologies, including intellectual property and employment disputes. The outcomes of these legal ac(cid:43)ons are not within the Company’s complete control andmay not be known for prolonged periods of (cid:43)me. In some ac(cid:43)ons, the claimants seek damages as well as other relief, including injunc(cid:43)ons barring the sale ofproducts that are the subject of the lawsuit, which if granted, could require signiﬁcant expenditures or result in lost revenue. The Company records a liability inthe consolidatedF-27 ﬁnancial statements for these ac(cid:43)ons when a loss is known or considered probable and the amount can be reasonably es(cid:43)mated. If the reasonable es(cid:43)mate of aknown or probable loss is a range, and no amount within the range is a be(cid:48)er es(cid:43)mate, the minimum amount of the range is accrued. If a loss is possible but notknown or probable, and can be reasonably es(cid:43)mated, the es(cid:43)mated loss or range of loss is disclosed. In most cases, signiﬁcant judgment is required to es(cid:43)matethe amount and timing of a loss to be recorded.On January 17, 2018, the Company entered into a se(cid:48)lement agreement fully resolving the previously disclosed li(cid:43)ga(cid:43)on involving Merit MedicalSystems, Inc. (“Merit”) and NorMedix.In April 2018, a customer no(cid:43)ﬁed the Company that it believed it had overpaid hydrophilic coa(cid:43)ng royal(cid:43)es to the Company from January 2009 throughDecember 2017. During the year ended September 30, 2018, the Company recorded $1.0 million in selling, general and administra(cid:43)ve expenses related to thisclaim. During ﬁscal 2019, the Company se(cid:48)led this claim and made a payment to the customer totaling $0.4 million, resul(cid:43)ng in a reduc(cid:43)on of selling, generaland administrative expenses of $0.6 million for the year ended September 30, 2019.InnoRx, Inc. In January 2005, the Company entered into a merger agreement whereby the Company acquired all of the assets of InnoRx, Inc. (“InnoRx”),an early stage company developing drug-delivery devices and therapies for the ophthalmology market. The Company will be required to issue up toapproximately 480,059 addi(cid:43)onal shares of its common stock to the stockholders of InnoRx upon the successful comple(cid:43)on of the remaining development andcommercial milestones involving InnoRx technology acquired in the transac(cid:43)on. The Company has not recorded any accrual for this con(cid:43)ngency as of September30, 2019 as the milestones have not been achieved and the probability of achievement is remote.InnoCore Technologies BV. In March 2006, the Company entered into a license agreement whereby Surmodics obtained an exclusive license to a drug-delivery coa(cid:43)ng for licensed products within the vascular ﬁeld which included peripheral, coronary and neurovascular biodurable stent product. The licenserequires an annual minimum payment of 200,000 euros (equivalent to $218,000 using a euro to US $ exchange rate of 1.0916 as of September 30, 2019) un(cid:43)lthe last patent expires which is currently es(cid:43)mated to be September 2027. The total minimum future payments associated with this license are approximately$1.7 million. The license is currently utilized with one of Surmodics’ drug-delivery technology customers.Operating Leases. The Company leases certain facili(cid:43)es under noncancelable opera(cid:43)ng lease agreements. Rent expense for the years ended September30, 2019, 2018 and 2017 was $0.5 million, $0.5 million and $0.1 million, respec(cid:43)vely. In November 2017, the Company executed a lease for a 36,000 square feetof oﬃce and R&D facility in Eden Prairie, Minnesota. In September 2019, we amended this lease to add 13,000 square feet of addi(cid:43)onal oﬃce space, eﬀec(cid:43)veDecember 1, 2019 through the end of the lease term. Contractual obliga(cid:43)ons under the lease agreement, including the amendment total $5.2 million over theten-year lease term, which commenced in May 2018. Annual commitments pursuant to opera(cid:43)ng lease agreements in place as of September 30, 2019 are asfollows (in thousands): 2019 $493 2020 538 2021 536 2022 547 2023 558 Thereafter 2,092 Total minimum lease payments $4,765 Clinical Trials. The Company has engaged CRO consultants to assist with the administra(cid:43)on of its ongoing clinical trials. The Company has executedseparate contracts with two CROs for services rendered in connec(cid:43)on with the TRANSCEND pivotal clinical trial for the SurVeil DCB, including pass-throughexpenses paid by the CROs, of up to $26 million in the aggregate. As of September 30, 2019, an es(cid:43)mated $11.8 million remains to be paid on these contracts,which may vary depending on actual pass-through expenses incurred to execute the trial. The Company es(cid:43)mates that the total cost of the TRANSCEND clinicaltrial will be in the range of $35 million to $40 million from incep(cid:43)on to comple(cid:43)on. In the event the Company were to terminate any trial, it may incur certainfinancial penalties which would become payable to the CRO for costs to wind down the terminated trial.F-28 Asset Acquisi(cid:45)ons. In July 2019, the Company acquired certain intellectual property assets suppor(cid:43)ng ongoing development of the Company’s medicaldevice pipeline. As a result of this acquisi(cid:43)on, the Company made an upfront, nonrefundable payment of $0.8 million. In addi(cid:43)on, the Company is obligated topay up to $1.3 million of addi(cid:43)onal considera(cid:43)on upon achievement of certain strategic milestones within a con(cid:43)ngency period ending in 2022, of which $0.2million is guaranteed to be paid by December 2020. In the fourth quarter of ﬁscal 2019, the Company recorded a charge totaling $0.9 million related to thisacquisition in acquired in-process research and development expense on the consolidated statement of operations for the year ended September 30, 2019.In May 2018, the Company entered into an asset purchase agreement with Embolitech, LLC (“Embolitech”) to acquire certain intellectual property assets.As part of the Embolitech Transac(cid:43)on, the Company paid the sellers $5.0 million in ﬁscal 2018. Addi(cid:43)onally, the Company is obligated to pay $3.5 million inseveral installments beginning January 2020 and ending December 2023. These payments may be accelerated upon the occurrence of certain sales andregulatory milestones. An addi(cid:43)onal $2.0 million payment is con(cid:43)ngent upon the achievement of certain regulatory milestones within a con(cid:43)ngency periodending in 2033. The present value of the probable payments totaling $7.9 million was recorded in acquired in-process research and development expense onthe consolidated statement of operations for the year ended September 30, 2018.As of September 30, 2019, $1.0 million and $2.1 million is included in other accrued liabili(cid:43)es and other long-term liabili(cid:43)es, respec(cid:43)vely, on theconsolidated balance sheets related to the guaranteed installment payments for these asset acquisitions.11. Reportable Segment InformationThe accoun(cid:43)ng standards for repor(cid:43)ng informa(cid:43)on about opera(cid:43)ng segments deﬁne opera(cid:43)ng segments as components of an enterprise about whichseparate ﬁnancial informa(cid:43)on is available that is evaluated regularly by the chief opera(cid:43)ng decision maker, who is the Company’s Chief Execu(cid:43)ve Oﬃcer, indeciding how to allocate resources and in assessing performance. For ﬁnancial accoun(cid:43)ng and repor(cid:43)ng purposes, the Company reports its results for the tworeportable segments as follows: (1) the Medical Device unit, which designs, develops and manufactures interven(cid:43)onal medical devices, primarily for theperipheral vascular market; surface modiﬁca(cid:43)on coa(cid:43)ng technologies to improve access, deliverability, and predictable deployment of medical devices; as wellas drug-delivery coa(cid:43)ng technologies to provide site-speciﬁc drug-delivery from the surface of a medical device, with end markets that include coronary,peripheral, neuro-vascular and urology, among others, and (2) the In Vitro Diagnos(cid:43)cs unit, which consists of component products and technologies fordiagnostic test kits and biomedical research applications, with products that include protein stabilization reagents, substrates, antigens and surface coatings.The tables below present segment revenue, opera(cid:43)ng income from con(cid:43)nuing opera(cid:43)ons and deprecia(cid:43)on and amor(cid:43)za(cid:43)on, for the years endedSeptember 30, as follows (in thousands): 2019 2018 2017 Revenue: Medical Device $78,353 $60,513 $53,983 In Vitro Diagnostics 21,724 20,823 19,129 Total revenue $100,077 $81,336 $73,112 Operating income (loss): Medical Device $4,794 $(8,478) $6,902 In Vitro Diagnostics 10,620 8,619 8,293 Total segment operating income 15,414 141 15,195 Corporate (8,945) (8,940) (8,092)Total operating income (loss) $6,469 $(8,799) $7,103 Depreciation and amortization: Medical Device $5,811 $5,376 $4,453 In Vitro Diagnostics 464 394 412 Corporate 1,037 661 690 Total depreciation and amortization $7,312 $6,431 $5,555 The Corporate category includes expenses that are not fully allocated to Medical Device and In Vitro Diagnos(cid:43)cs segments. These Corporate costs arerelated to functions, such as executive management, corporate accounting, legal, human resources andF-29 Board of Directors. Corporate may also include expenses, such as litigation, which are not specific to a segment and thus not allocated to the operating segments. Asset informa(cid:43)on by segment is not presented because the Company does not provide its chief opera(cid:43)ng decision maker assets by segment, as the datais not readily available.Major CustomersRevenue from customers that equaled or exceeded 10% of total revenue was as follows for the years ended September 30: 2019 2018 2017 Abbott 19% 11% N/A Medtronic 14% 16% 18% The revenue from the customers listed is derived from two primary sources: licensing and product sales (primarily in the Medical Device segment).Geographic Revenue and Long-lived AssetsGeographic revenue was as follows for the years ended September 30: 2019 2018 2017 Domestic 81% 79% 77%Foreign 19% 21% 23% Long-lived assets, including property and equipment and intangible assets net of accumulated deprecia(cid:43)on and amor(cid:43)za(cid:43)on, respec(cid:43)vely, by countrywere as follows as of September 30: 2019 2018 U.S. $24,450 $26,652 Ireland 19,524 21,174 12. Quarterly Financial Data (Unaudited)The following is a summary of the unaudited quarterly results for the years ended September 30, 2019 and 2018 (in thousands, except per share data). FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Fiscal 2019 Total revenue $22,241 $22,676 $24,344 $30,816 Operating income 712 865 1,017 3,875 Net income 1,310 1,262 1,466 3,554 Basic net income per share (1): 0.10 0.09 0.11 0.27 Diluted net income per share (1): 0.09 0.09 0.11 0.26 Fiscal 2018 Total revenue $17,013 $19,058 $22,227 $23,038 Operating (loss) income (633) 525 (6,250) (2,441)Net (loss) income (1,556) 1,534 (2,682) (1,753)Basic net (loss) income per share (1): (0.12) 0.12 (0.20) (0.13)Diluted net (loss) income per share (1): (0.12) 0.11 (0.20) (0.13) (1)The sum of the quarterly net income (loss) per share amounts may not equal the annual income per share total because of changes in the weightedaverage number of shares outstanding that occurred during the year.F-30 In the third quarter of fiscal 2019, the Company recorded royalty revenue from the extension of a customer license agreement totaling $1.0 million.In July 2019, the Company acquired certain technology assets resulting in a $0.9 million charge in the fourth quarter of fiscal 2019.In the August 2019, the Company achieved a clinical milestone related to its agreement with Abbo(cid:48), which resulted in the receipt of a $10 millionpayment, of which $5.1 million was recognized as revenue for the quarter.In the ﬁrst quarter of ﬁscal 2018, the Company recorded a $1.2 million charge related to the revalua(cid:43)on of deferred tax assets to reﬂect the change inthe U.S. Federal tax rate from 35% to 21% in conjunction with the Tax Cuts and Jobs Act tax legislation.In the second quarter of ﬁscal 2018, the Company entered into a collabora(cid:43)ve arrangement with Abbo(cid:48), which resulted in license fee revenue totaling$4.4 million in the final nine months of the fiscal year.In May 2018, the Company acquired certain technology assets from Embolitech resulting in a $7.9 million charge in the third quarter of fiscal 2018. F-31Exhibit 4.1DESCRIPTION OF SECURITIESThe summary of the general terms and provisions of the capital stock of Surmodics, Inc. (the “Company”) set forth below does not purport to be complete andis subject to and qualiﬁed by reference to the Company’s Restated Ar(cid:40)cles of Incorpora(cid:40)on, as amended (the “Ar(cid:40)cles”) and Restated Bylaws, as amended (the“Bylaws” and together with the Ar(cid:40)cles, the “Charter Documents”), each of which is incorporated herein by reference and a(cid:43)ached as an exhibit to theCompany’s most recent Annual Report on Form 10-K ﬁled with the Securi(cid:40)es and Exchange Commission. For addi(cid:40)onal informa(cid:40)on, please read the Company’sCharter Documents and the applicable provisions of the Minnesota Business Corporation Act (the “MBCA”).Capital Stock The Company is authorized to issue up to 50,000,000 shares, of which 45,000,000 have been designated vo(cid:40)ng common stock, $.05 par value, 450,000 havebeen designated as Series A preferred stock, $0.05 par value, and 4,550,00 are currently undesignated shares. The Company’s board of directors (the “Board”)has the power and authority to ﬁx by resolu(cid:40)on any designa(cid:40)on, class, series, vo(cid:40)ng power, preference, right, qualiﬁca(cid:40)on, limita(cid:40)on, restric(cid:40)on, dividend,(cid:40)me and price of redemp(cid:40)on and conversion right with respect to the capital stock. As of September 30, 2019, 13,504,102 shares of the Company’s commonstock, par value $0.05 per share (the “Common Stock”), were issued and outstanding and no shares of preferred stock were issued and outstanding.Voting RightsHolders of Common Stock have the exclusive power to vote on all ma(cid:43)ers presented to the Company’s shareholders. Each holder of Common Stock is en(cid:40)tled toone vote per share. Holders of Common Stock may not cumulate their votes when vo(cid:40)ng for directors, which means that a holder cannot cast more than onevote per share for each director nominee.Dividend RightsHolders of Common Stock may receive dividends when declared by the Board out of the Company’s funds that it can legally use to pay dividends. The Companymay pay dividends in cash, stock or other property. To date, the Company has not paid or declared any cash dividends on the Common Stock. The declara(cid:40)onand payment of future dividends, if any, on the Common Stock will be at the sole discre(cid:40)on of the Board and will depend on the Company’s con(cid:40)nued earnings,ﬁnancial condi(cid:40)on, capital requirements and other factors that the Board deems relevant. In addi(cid:40)on, contractual restric(cid:40)ons from (cid:40)me to (cid:40)me may imposelimitations on the Company’s ability to declare or pay future dividends. All of the issued and outstanding common shares are nonassessable.Liquidation RightsCommon shares are en(cid:40)tled to share ratably in all of the Company’s assets available for distribu(cid:40)on upon liquida(cid:40)on, dissolu(cid:40)on or winding up of the aﬀairs ofthe Company.No Preemptive RightsNo shareholder of the Company has any preferen(cid:40)al, preemp(cid:40)ve or other rights of subscrip(cid:40)on to any shares of the Company allo(cid:43)ed or sold or to be allo(cid:43)edor sold, or to any obligations or securities convertible into any class or series of shares of the Company, nor any right of subscription to any part thereof.Listing The Common Stock is currently traded on the Nasdaq Global Select Market under the symbol “SRDX.” Anti-Takeover ProvisionsThe Charter Documents and the MBCA contain certain provisions that may discourage an unsolicited takeover of the Company or make an unsolicited takeoverof the Company more difficult. The following are some of the more significant anti-takeover provisions that are applicable to the Company:Authorized but Unissued Capital StockMinnesota law does not require shareholder approval for any issuance of authorized shares. However, the lis(cid:40)ng requirements of the Nasdaq Global SelectMarket, which would apply so long as the Common Stock remains listed on the Nasdaq Global Select Market, require shareholder approval of certain issuancesequal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of Common Stock.One of the eﬀects of the existence of unissued and unreserved capital stock may be to enable the Board to issue shares to persons friendly to currentmanagement, which issuance could render more diﬃcult or discourage an a(cid:43)empt to obtain control of the Company by means of a merger, tender oﬀer, proxycontest or otherwise, and thereby protect the con(cid:40)nuity of the Company’s management and possibly deprive the shareholders of opportuni(cid:40)es to sell theirshares of Common Stock at prices higher than prevailing market prices.Advance Notice Requirements for Director Nominations and Shareholder ProposalsThe Bylaws provide that shareholders seeking to nominate candidates for elec(cid:40)on as directors or to bring business before an annual mee(cid:40)ng of shareholdersmust provide timely notice of their proposal in writing to the Company’s corporate secretary.Generally, to be (cid:40)mely, a shareholder’s no(cid:40)ce must be received at the Company’s principal execu(cid:40)ve oﬃces not less than 90 days prior to the ﬁrst anniversaryof the previous year’s annual meeting. The Bylaws also specify requirements as to the form and content of a shareholder’s notice.These provisions may impede shareholders’ ability to bring ma(cid:43)ers before an annual mee(cid:40)ng of shareholders or make nomina(cid:40)ons for directors at an annualmee(cid:40)ng of shareholders and may delay, deter or prevent tender oﬀers or takeover a(cid:43)empts that shareholders may believe are in their best interests, includingtender offers or attempts that might allow shareholders to receive premiums over the market price of their common stock.Anti-Takeover Provisions of the Minnesota Business Corporation ActSec(cid:40)on 302A.671 of the MBCA applies, with certain excep(cid:40)ons, to any acquisi(cid:40)ons of the Common Stock from a person other than us, and other than inconnec(cid:40)on with certain mergers and exchanges to which we are a party and certain tender oﬀers or exchange oﬀers approved in advance by a disinterestedBoard commi(cid:43)ee, resul(cid:40)ng in the beneﬁcial ownership of 20% or more of the vo(cid:40)ng power of the Company’s then outstanding stock. Sec(cid:40)on 302A.671 requiresapproval of the gran(cid:40)ng of vo(cid:40)ng rights for the shares received pursuant to any such acquisi(cid:40)ons by a vote of the Company’s shareholders holding a majority ofthe vo(cid:40)ng power of the Company’s outstanding shares and a majority of the vo(cid:40)ng power of the Company’s outstanding shares that are not held by theacquiring person, the Company’s oﬃcers or those non-oﬃcer employees, if any, who are also Company directors. Similar vo(cid:40)ng requirements are imposed foracquisi(cid:40)ons resul(cid:40)ng in beneﬁcial ownership of 33 1⁄3% or more or a majority of the vo(cid:40)ng power of the Company’s then outstanding stock. In general, sharesacquired without this approval are denied vo(cid:40)ng rights in excess of the 20%, 33 1⁄3% or 50% thresholds and, to that extent, can be called for redemp(cid:40)on at theirthen fair market value by us within 30 days a(cid:71)er the acquiring person has failed to deliver a (cid:40)mely informa(cid:40)on statement to the Company or the date theCompany’s shareholders voted not to grant voting rights to the acquiring person’s shares.Sec(cid:40)on 302A.673 of the MBCA generally prohibits any business combina(cid:40)on by the Company, or any subsidiary of the Company, with any shareholder thatbeneficially owns 10% or more of the voting power of the Company’s2 outstanding shares (an “interested shareholder”) within four years following the (cid:40)me the interested shareholder crosses the 10% stock ownership threshold,unless the business combina(cid:40)on is approved by a commi(cid:43)ee of disinterested members of the Board before the (cid:40)me the interested shareholder crosses the 10%stock ownership threshold.Sec(cid:40)on 302A.675 of the MBCA generally prohibits an oﬀeror from acquiring the Company’s shares within two years following the oﬀeror’s last purchase of theCompany’s shares pursuant to a takeover oﬀer with respect to that class, unless the Company’s shareholders are able to sell their shares to the oﬀeror uponsubstan(cid:40)ally equivalent terms as those provided in the earlier takeover oﬀer. This statute will not apply if the acquisi(cid:40)on of shares is approved by a commi(cid:43)eeof disinterested members of the Board before the purchase of any shares by the offeror pursuant to the earlier takeover offer. Sec(cid:40)on 302A.553 of the MBCA prohibits a corpora(cid:40)on from buying shares at an above-market price from a greater than 5% shareholder who has held theshares for less than two years unless (i) the purchase is approved by holders of a majority of the outstanding shares en(cid:40)tled to vote or (ii) the corpora(cid:40)on makesan equal or better offer to all shareholders for all other shares of that class or series and any other class or series into which they may be converted. 3Exhibit 21 SUBSIDIARIES Name State of Incorporation Surmodics IVD, Inc. Maryland NorMedix, Inc. Minnesota Creagh Medical Limited Ireland USCI Ireland Limited Ireland SurModics MD, LLC Minnesota Surmodics MD Operations, LLC Minnesota Surmodics Coatings, LLC Minnesota Surmodics Coatings Mfg, LLC Minnesota Surmodics Holdings, LLC Minnesota Surmodics Shared Services, LLC Minnesota Exhibit 23CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-104258, 333-123521, 333-165098, 333-165101, 333-54266, and 333-231199on Form S-8 of our reports dated December 3, 2019, relating to the consolidated financial statements and financial statement schedule of Surmodics, Inc. andsubsidiaries and the effectiveness of Surmodics, Inc.’s and subsidiaries internal control over financial reporting appearing in this Annual Report on Form 10-K forthe year ended September 30, 2019. /s/ DELOITTE & TOUCHE LLP Minneapolis, MinnesotaDecember 3, 2019 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Gary R. Maharaj, certify that: 1.I have reviewed this annual report on Form 10-K of Surmodics, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the ﬁnancial statements, and other ﬁnancial informa(cid:43)on included in this report, fairly present in all material respects the ﬁnancialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other cer(cid:43)fying oﬃcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial repor(cid:43)ng (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andwe have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material informa(cid:43)on rela(cid:43)ng to the registrant, including its consolidated subsidiaries, is made known to us by others within those en(cid:43)(cid:43)es, par(cid:43)cularlyduring the period in which this report is being prepared;(b) Designed such internal control over ﬁnancial repor(cid:43)ng, or caused such internal control over ﬁnancial repor(cid:43)ng to be designed under our supervision, toprovide reasonable assurance regarding the reliability of ﬁnancial repor(cid:43)ng and the prepara(cid:43)on of ﬁnancial statements for external purposes in accordancewith generally accepted accounting principles;(c) Evaluated the eﬀec(cid:43)veness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the eﬀec(cid:43)veness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial repor(cid:43)ng that occurred during the registrant’s most recent ﬁscalquarter (the registrant’s fourth ﬁscal quarter in the case of an annual report) that has materially aﬀected, or is reasonably likely to materially aﬀect, theregistrant’s internal control over financial reporting; and5.The registrant’s other cer(cid:43)fying oﬃcer and I have disclosed, based on our most recent evalua(cid:43)on of internal control over ﬁnancial repor(cid:43)ng, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All signiﬁcant deﬁciencies and material weaknesses in the design or opera(cid:43)on of internal control over ﬁnancial repor(cid:43)ng which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal control overfinancial reporting. Dated: December 3, 2019Signature:/s/ Gary R. Maharaj Gary R. Maharaj President and Chief Executive Officer EXHIBIT 31.2CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 I, Timothy J. Arens, certify that:1.I have reviewed this annual report on Form 10-K of Surmodics, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the ﬁnancial statements, and other ﬁnancial informa(cid:42)on included in this report, fairly present in all material respects the ﬁnancialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other cer(cid:42)fying oﬃcer and I are responsible for establishing and maintaining disclosure controls and procedures (as deﬁned in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over ﬁnancial repor(cid:42)ng (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andwe have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material informa(cid:42)on rela(cid:42)ng to the registrant, including its consolidated subsidiaries, is made known to us by others within those en(cid:42)(cid:42)es, par(cid:42)cularlyduring the period in which this report is being prepared;(b) Designed such internal control over ﬁnancial repor(cid:42)ng, or caused such internal control over ﬁnancial repor(cid:42)ng to be designed under our supervision, toprovide reasonable assurance regarding the reliability of ﬁnancial repor(cid:42)ng and the prepara(cid:42)on of ﬁnancial statements for external purposes in accordancewith generally accepted accounting principles;(c) Evaluated the eﬀec(cid:42)veness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the eﬀec(cid:42)veness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over ﬁnancial repor(cid:42)ng that occurred during the registrant’s most recent ﬁscalquarter (the registrant’s fourth ﬁscal quarter in the case of an annual report) that has materially aﬀected, or is reasonably likely to materially aﬀect, theregistrant’s internal control over financial reporting; and5.The registrant’s other cer(cid:42)fying oﬃcer and I have disclosed, based on our most recent evalua(cid:42)on of internal control over ﬁnancial repor(cid:42)ng, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All signiﬁcant deﬁciencies and material weaknesses in the design or opera(cid:42)on of internal control over ﬁnancial repor(cid:42)ng which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a signiﬁcant role in the registrant’s internal control overfinancial reporting. Dated: December 3, 2019Signature:/s/ Timothy J. Arens Timothy J. Arens Vice President of Finance and Chief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connec(cid:7)on with the Annual Report of Surmodics, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2019, as ﬁled with the Securi(cid:7)esand Exchange Commission (the “Report”), I, Gary R. Maharaj, cer(cid:7)fy, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 3, 2019Signature:/s/ Gary R. Maharaj Gary R. Maharaj President and Chief Executive Officer EXHIBIT 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connec(cid:7)on with the Annual Report of Surmodics, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2019, as ﬁled with the Securi(cid:7)esand Exchange Commission (the “Report”), I, Timothy J. Arens, cer(cid:7)fy, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 3, 2019Signature:/s/ Timothy J. Arens Timothy J. Arens Vice President of Finance and Chief Financial Officer

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