Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Unilife (NASDAQ:UNIS)

Q4 2013 Earnings Call

September 10, 2013 4:30 pm ET

Executives

Todd Fromer - Managing Partner

Alan D. Shortall - Chief Executive Officer, Executive Director, Member of Strategic Partnerships Committee and Chief Executive Officer of UMSL

Analysts

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

Keith Albert Markey - Griffin Securities, Inc., Research Division

Danielle Antalffy - Leerink Swann LLC, Research Division

Anthony Petrone - Jefferies LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to Unilife Corporation's Fourth Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mr. Todd Fromer, managing partner at KCSA. Sir, you may begin.

Todd Fromer

Thank you. Good afternoon, everyone. Good morning to our Australian supporters. Thank you for joining us for the Unilife Corporation Fiscal 2013 Fourth Quarter and Year-end Conference Call.

Before we begin today, I would like to remind everyone that this conference call contains forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate to occur in the future are forward-looking statements. These forward-looking statements are based on management’s beliefs and assumptions and not on the information currently available to management.

Our management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors, and elsewhere in our annual report on Form 10-K and those described from time to time in other reports which we filed with the Securities and Exchange Commission.

With nothing further, I would now like to turn the call over to Mr. Alan Shortall, Chief Executive Officer of Unilife Corporation. Alan, the floor is yours.

Alan D. Shortall

Thank you, Todd. Good afternoon, and good morning, to those joining us from Australia. This is a momentous week in the history of Unilife. Yesterday, we announced a major supply contract with Sanofi for our flagship platform of Unifill syringes. I expect this supply contract, which I touched on during the last earnings call, will establish Unilife as one of the leading suppliers of prefilled syringes in our industry. I've stated previously that we expect to sign up to a dozen agreements and revenue-generating programs by the end of this calendar year. I see no reason to alter those expectations. So with 4 months left, that should give you some perspective as to what we believe our deep flow can look like between now and the end of December. This momentum will continue on through fiscal 2014 and beyond.

Several of these upcoming agreements, some of which are now being finalized, include additional upfront cash payments, some significantly exceeding the value of the Sanofi payments. In fact, we are already receiving payments from some major customers as we finalize customization of supply contracts. We expect that these current and upcoming contracts will generate cash that will substantially, or in fact totally, offset our cash burn rate for fiscal year 2014.

As many of these agreements have terms between 5 and 15 years, I believe they will not only address the short-term cash requirements, but also underpin our long-term cash flow and profitability. We are in the process of finalizing the terms we received for a large non-equity-based debt financing. I expect this debt financing can be completed shortly, if we consider it to be in the best interest of our shareholders. Together with upfront payments from our new customers and ongoing payments from current and upcoming contracts, I expect that such a debt financing would allow us to sustain the company through to cash flow positive. So it goes without saying that we expect that this can eliminate or, at the very least, minimize the need for any significant equity offering before reaching cash flow breakeven.

The supply contract announced this week is with Sanofi, one of the world's largest pharmaceutical companies and a global leader in therapeutic areas, including diabetes, vaccines and anti-thrombotics. We understand Sanofi to be the world's largest purchaser of prefilled syringes. I am delighted to advise that Sanofi has signed on with Unilife for the long term. Under this global supply contract that extends out to 2024, Sanofi will use our game-changing syringes to deliver Lovenox, which we understand is the largest-selling prefilled drug in the world.

We will supply Sanofi with Unifill Finesse, a customized device from the Unifill platform of prefilled syringes, that addresses some specific customer requirements. Like other Unifill syringes, it has automatic integrated needle retraction. It uses USP-compliant materials and it fits into standard filling and packaging lines.

During the first 4 years of the rollout period, immediately following market entry, Sanofi will be required to purchase agreed minimum high volumes of Unifill Finesse. Those minimum high volumes cannot, at this stage, be disclosed. However, they are part of our contractual agreement. After the completion of the 4-year ramp-up period, Sanofi would be required to purchase a minimum of 150 million units per year from Unilife to maintain their exclusivity. We anticipate there may be significant potential upside beyond these minimum volume numbers.

We have granted Sanofi the exclusive use of the Unifill Finesse with anti-thrombotic drugs during the contract period. We have also agreed to supply Sanofi with Unifill Finesse for use with biologic drugs on a nonexclusive basis. Furthermore, we can supply any Unifill syringe configuration, including the Unifill Finesse, to any additional customers in any other therapeutic class.

In addition to future revenue from the sale of the Unifill Finesse syringes, Sanofi will pay us an upfront sign-on fee of $5 million, which we expect to receive within approximately 60 days. We expect a second payment of $5 million will occur early in calendar 2014. An additional $5 million is expected to occur later in the contract period. These additional payments, totaling $15 million, represent a vote of confidence in our company, our products, our quality systems and our management team.

Other terms of the contract are to remain confidential between both parties for commercial purposes and due to confidentiality clause. Importantly, this contract replaces and supersedes all previously signed agreements. This means that we are no longer obligated to pay Sanofi a royalty on sales revenue or exclusivity fees received from other pharmaceutical companies on Unifill products. This represents a significant future saving, as we would have otherwise had to pay Sanofi a share of revenue from Unifill sales or exclusivity payments received from additional pharmaceutical companies. I know that you all have a lot of questions about the contract and what it means to Unilife. We intend to take all of your questions and to do our best to answer them fully. But first, we need to cover the financial results for the quarter.

Speaking quickly on the financials, to which there are not any surprises, revenues for the fiscal fourth quarter ended June 30, 2013, were $700,000 versus $1.2 million for the same period last year. This decrease in revenue is primarily due to the recognition last year of $600,000 related to the clinical development and supply of a novel device for targeted organ delivery. Total net loss for the fourth quarter of fiscal 2013 was $22 million versus $14.9 million for the same period last year. This increase is primarily attributed to an increase in depreciation expense of $4.2 million and an increase in noncash share-based compensation costs of $4 million, partially offset by lower expenses in other areas of R&D and G&A.

Regarding the increase in depreciation, $4.1 million was due to fully depreciating equipment to manufacture the Unitract product line.

Adjusted net loss for the quarter ended 30th of June 2013, was $9.9 million compared to an adjusted net loss of $11 million for the same period of 2012, which excludes noncash share-based compensation expense, depreciation and amortization, loss on disposal of equipment and interest expense.

Revenues for the fiscal year ended 30th of June 2013, were $2.7 million versus $5.5 million in the prior year. Net loss for the fiscal year ended June 30, 2013 was $63.2 million versus $52.3 million in the prior year. And adjusted net loss for fiscal 2013 was $38 million compared to $37.7 million for fiscal 2012, which excludes noncash share-based compensation expense, depreciation and amortization, loss on disposal of equipment and interest expense. Unilife had $8.1 million of total cash and cash equivalents, including $2.4 million in restricted cash as of June 30, 2013.

I'd like to quickly note than the majority of our expenses for this quarter and the year relates to R&D. R&D is an investment. It's our lifeblood. Virtually all of our work in R&D has prospective customers and target drugs aligned with it. It's this type of R&D investment upfront that allows us to sign long-term supply contracts that will generate substantial and recurring revenue moving forward. Our continued investment in R&D has also resulted in a significant expansion of our intellectual property portfolio. As of July 2013, we had almost 100 granted patents worldwide, representing a 60% increase from the previous fiscal year. New patent applications also doubled during the 2013 fiscal year and are expected to do so again in fiscal year 2014. The value of this investment in R&D and our IP portfolio is not yet recognized by the market. However, I expect it will become manifested as future deals are announced and revenues begin to grow.

As I've said before, a multitude of pharmaceutical and biotech companies are pursuing devices from across every area of our portfolio. So as significant as this week's announcement regarding the supply contract for Lovenox is, we are equally as enthusiastic about other large-scale contracts that are now being finalized.

I said on the last call that we have passed the inflection point, and I reiterate that we actually have. We are now in a long-term period of hyper growth. In short, we are fully on track to deliver upon our business milestones. On behalf of Unilife, I would like to thank everyone for their patience and support. And with that, I'd like to open the call up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jeremy Feffer from Cantor Fitzgerald.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

I have a few here on the deal. I'll try and keep them brief and please forgive me if some of my questions fall into the umbrella of non-disclosable at this point. I guess, first, on the language in terms of the length of the contract. I think in the press release it said this can extend up to 2024. Is there -- is that either your or Sanofi's option? Maybe explain that language a little bit, please.

Alan D. Shortall

Well, that will basically depend on the go-to market strategy and the product launch, as to how long it wounds at that stage. So that's a reasonable estimate as a guide.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

So -- but it could theoretically end sooner? And if so, how much sooner?

Alan D. Shortall

Well, it could, technically. If that's the case, then it will mean a faster go-to market strategy, which is I don't think very likely. And it could extend past that because there are rollover provisions within the contract.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Okay. Again, if this falls into non-disclosable -- but what approximately, as you think about the ramp, what percentage of the total Lovenox units would this cover? I mean, I assume they have supply agreements with others as well, so what -- any indications of how they plan to use this or -- keeping in mind the minimum of $150 million? Or is that going to sort of depend on how things progress?

Alan D. Shortall

Look, I suppose the best way to answer that is that we've now been in contractual relationships from the first contract we signed with Sanofi in 2008. We have -- they have paid us on that first contract $40 million. And most of that $40 million was paid in milestone payments, to which we actually hit every milestone on time and we completed a project and industrialization of a product that many thought was impossible to do, and we finished it approximately 9 months ahead of schedule. I see that this contract that we've now signed a supply agreement is the culmination and recognition of our ability to execute as a company and also the recognition of Sanofi identifying the differentiation that Unifill can provide for them in the marketplace. I expect they would take full advantage of that. And the $10 million and the up to $50 million that they're basically paying us as a sign-on fee is a clear indication of their belief in the product and our ability. Having said that, the IMS data for Lovenox for 2012 shows the sale of over 450 million prefilled syringes with Lovenox in it. The minimum quantities on the contract of $150 million are exactly that $150 million minimum.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Okay, okay. That's fair. The debt financing that you referenced, to what extent -- as you sort of come to the end of negotiations, to what extent does now that depend on either this contract or some of the other contracts you referenced? I mean, is it the case that if a couple of these deals that you're working on get finalized, that the debt financing may not be necessary? Or will you still execute it just to have that safety net?

Alan D. Shortall

Look, it has certainly been indicated with the lenders that we've negotiated with that there's any condition of the transaction being a requirement. Obviously, now having the supply agreement, strengthens our position to negotiate the terms, if we decide to renegotiate those terms. With that as a lever, one of the best advantages I can have as a CEO is to have multiple range of levers that I can pull to the best interest of our shareholders going forward. I've said it categorically, in the last 6 or 7 months, that my intention is to minimize dilution. I know the deals that are coming through, and I know the kind of funding and cash that's attached to those deals. What I want to do is minimize dilution, and that debt funding that the -- financing that's available to us at any time we wish to partake in it is another lever to which we may pull. And it, therefore, is available if we wish.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Okay. And sorry, one more quick and I'll jump back in queue. Can you give any color as to the product categories, product segments, that you're closest in negotiations on? Or does that have to wait?

Alan D. Shortall

I would say it's across the whole range. We've got multiple programs now for multiple devices.

Operator

Our next question comes from Jeffrey Cohen from Ladenburg.

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

So is it possible to provide a little bit of color as far as the types of volumes expected over the 4-year ramp-up period for the Sanofi deal?

Alan D. Shortall

I'm sorry, did I hear you right, in terms of the volumes over the ramp-up period?

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

Yes.

Alan D. Shortall

Yes. Unfortunately, that's confidential, and the reason for that is because this will be a -- this is a global rollout. And obviously, from that perspective, that's confidential to Sanofi. But the contract does include high-volume supply in that roll-off and ramp-out which is to say our minimum volumes to which we fully expect Sanofi will be taking.

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

Okay. Is a portion of that during year 1?

Alan D. Shortall

Again, I can't say that because this is a global rollout. And one of the things in relation to these types of contracts, and not just this one in particular, where I'd like to fully kind of reiterate is what it takes to actually get one of these contracts in place. This is a 10-year contract commitment from one of the biggest pharmaceutical companies in the world. That's very unusual because these supply contracts are generally a 2-year contract for commodity-type medical devices. Now from that perspective, that rollout program and when that will start, again, is confidential because the commitment that these pharmaceutical companies make is the amount of resources that they have to apply in the assessment of actually committing to this type of agreement in terms of our marketing strategies, the global rollout, what countries they are going to enter first, what the volumes of those will be, the actual -- the qualification of our lines for filling the devices and everything else, this is an enormous commitment of 10 years with very, very large numbers attached to it. That's why it's taken so long. But the great thing is that having locked a contract like this in for 10 years, the great thing is no [indiscernible] come along in either [ph] launch. And as we actually start to accumulate these contracts over contracts, it's actually going to give us a sustainable, really robust financial growth in the next, as I say, in the period of hyper growth, the numbers from here as I've said before.

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

Got it. Can you talk about pricing as it relates to the contract and how that might look over the first 4 years versus after the first 4 years?

Alan D. Shortall

Well, look, there's no variation from that perspective in the terms of the contract. I can't speak to specifics in terms of the pricing. Obviously, either that's confidential for both ourselves and Sanofi and I certainly wouldn't want to be lifting my skirt for my competition in particular. But what I can say to you in general terms is -- I have said publicly that we're expecting an average selling price for Unifill of approximately $0.90. I mean, we have one deal done already for $1.50 and so I'm saying, across-the-board, $0.90. I've seen nothing to believe that we can't hit that kind of target approximately. And also I'd point out that very clearly that we're anticipating targeting 3, 4 years out from here with all our products, operating margins north of 40%. So that's the real perspective to look at it. This is a high-volume, high-valued contract that's going to contribute to those revenues to which we're going to be generating net profit, our operating margins north of 40%.

Jeffrey S. Cohen - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And just one more, as far as how the pipeline looks for the balance of the calendar year 2013. How does that look versus previous commentary as far as the number of deals, this would be the second?

Alan D. Shortall

Yes. Well, look, I know I've been questioned recently as to whether I should be enthusiastic or not as a CEO. My understanding is my shareholders pay me to be enthusiastic because sit in my chair to see what we have. It's very difficult not to be excited. I have said at my AGM last year in November, I said we expect -- we would probably close around 12 deals this year. And categorically, I can say to you, we've got 2 in the bag now. I still believe we're going to hit very close, as I've said, up to 12. And we're going to be -- I believe we're going to be real close to that. I'm talking about transactions that are in process and in the pipeline. And I wouldn't say that if I didn't have a very high level of confidence.

Operator

Our next question comes from Keith Markey from Griffin Securities.

Keith Albert Markey - Griffin Securities, Inc., Research Division

Just wondering if you could comment on the recent Forbes articles. We've certainly seen their effect on your stock price, and I'd like to hear it from you.

Alan D. Shortall

Yes. Keith, thank you. Obviously, very disappointing. And I hate to dignify what I believe is a malicious piece of journalism from a reporter with little life experience due to his youth or business experience, with any comment at all. However, I perceive both articles as a vindictive attack on me personally as well as the company and all of its followers and supporters. I'm amazed by the arrogance of this young reporter, in fact. The articles as written are a slap in the face to you and some of Wall Street's top analysts and I'm including you in that, Keith, obviously, and some of the world's savviest portfolio managers, many of which are on this call. Both articles contain numerous misrepresentations of fact, misleading statements and serious inaccuracies regarding Unilife and myself as CEO. We sought to correct these errors and the statements with Forbes in advance of publication of the first article, but they chose to print the original, inaccurate and misleading content regardless. The second article, which appears to have been rushed to publication, just as the market began to digest the significance of our contract with Sanofi, it's -- that's of greater concern to Unilife and to me, notwithstanding the malicious personal attack on myself and Ramin's character or the fact that we were given virtually no opportunity for fact checking, we must question why Forbes was in such a rush to publish an article riddled with typos and grammatical errors within hours of us making the biggest announcement in our history. The article takes allegations from a former employee that was fired for cause and spins them as if they are facts. Given the content and timing of this second article, the Board of Directors and I feel that this was a calculated attack on Unilife, and we are investigating this matter and the motivations and factors behind it. But let me say this just to finish on that piece. If the Forbes article raised even a shred of a doubt about Unilife, its operations or mine or Ramin's business ethics, we are more than happy to host you and any other analysts or any of our investors to Pennsylvania at our facilities where we'll answer any questions. We are very transparent and an open book. As a matter of fact, we are planning to host an event for analysts, which we had to cancel earlier this year at our York facility in the coming months. And we're very proud of what we've come accomplished. And we have nothing to hide from our shareholders, customers or constituents. And these allegations from Smith that was -- had to stood down originally and asked to take 7 days leave while he stood down from his position to see if we could actually find a position for him within the organization, it's not a coincidence that 4 days later we received an anonymous complaint, an anonymous complaint, to which we actually thought came from somebody else. And then when we did terminate him 4 or 5 weeks later, we were then approached on the basis that we've fired him because he was a whistleblower. Now, the interesting thing is of the 4 or 5 weeks before that anonymous complaint with these allegations -- unfounded allegations come in, 4 or 5 weeks beforehand, as part of our corporate governance, which is very stringent, we got our executives to sign off before we do our earnings release, to sign off that as far as their judgment, they certify that there's no fraud or no issues in the company to which they believe that we should have informed the market. And he certified 4 to 5 weeks before that anonymous complaint saying that there was nothing to his [indiscernible]. So either it was a -- and my opinion, personally, he was actually fully misleading us when he signed that, that he believes it, or else on the alternative, when he actually put in the anonymous complaint. And we refused -- there was a -- we refused to what I believe was an extortion of money and we refused to pay it, to the extend with the threat of this public release of this information and that will give you how strongly I feel about it and how -- the fact is I have no concern because we've got containers load of documents to prove that what he says is actually malicious lies. So from that point of view, I could have settled for probably $120,000, $130,000, got him to sign a confidentiality agreement and got him to go away. I wouldn't do it. I won't have somebody extort money from us, I'd rather have it in the public arena and show just how robust our corporate governance is. And the FDA came in, in May with 4 days, with 2 auditors and they went through all our quality systems, to which most of the allegations relate to our quality and regulatory issues, and the FDA had no findings. In fact, in the final sign-off, they said to me that our quality system was exemplary for a medical device company. So that's it. You asked a simple question, Keith, I'm sorry.

Keith Albert Markey - Griffin Securities, Inc., Research Division

Yes. I do have another question. Let's make it a little bit more interesting. I was just wondering if you have been shipping yet to that generic drug company.

Alan D. Shortall

I'm sorry, if I've been which?

Keith Albert Markey - Griffin Securities, Inc., Research Division

If you have been shipping to the generic drug company that's going to be launching this summer?

Alan D. Shortall

Yes. Yes we have.

Keith Albert Markey - Griffin Securities, Inc., Research Division

You have, okay. And I don't know if you can tell us exactly when sales for Sanofi will commence, but it sounds like it would be in the early part of first quarter of 2014, assuming that the $5 million payment at that point is for initiation of sales?

Alan D. Shortall

No, it's actually not related to that. The first $5 million payment we expect will come within the next 60 days, as I said earlier. Second, will come in approximately early just supporting this, not related to the first launch. I can't speak specifically to the market launch for Sanofi. Again, that's confidential because this is a global rollout for them. What I can say, we have expectations, very high expectations, that Unifill will go to the market with therapeutic drugs in it in probably the second half of 2014 and ramp up from there going forward, and I'm not talking specifically about Sanofi.

Operator

Our next question comes from Danielle Antalffy from Leerink Swann.

Danielle Antalffy - Leerink Swann LLC, Research Division

I had a question regarding the minimum purchase requirements that are not disclosed and also the minimum exclusivity requirements. What -- how do we think about what happens if Sanofi does not meet the minimum requirements? Can you walk us through this potential consequences?

Alan D. Shortall

Okay. Thank you, Danielle. Look, first of all, let me reiterate something. And I know -- I don't want to sound -- this to sound all fluffy, but we -- what separates us a lot from our competition, and that's one of the reason why we get such significant traction from pharmaceutical companies now, is -- our belief is that we're here to serve our customers, that's our belief. Now no matter what customer we signed a supply agreement with minimal volumes on it, I don't believe that I personally will ever insist that a pharmaceutical company have to buy product from us that they won't use, that they'd have to either discard or put them in the warehouse. We will find a way to actually facilitate it if there's a change. These minimum supplies are reasonable expectations. But I'm not going to bully anybody into generating revenue income into the -- for us and damage a relationship. So the minimum quantities here is, you -- bear this in mind, Sanofi have paid us $40 million so far for that exclusivity. That seems to indicate that they put a price -- a very high value on that exclusivity. And now they're paying us a further $10 million and up to $50 million, that's a big commitment. Now, it's not only at that dollar commitment that they're making in terms of wanting to maintain that exclusivity because I don't believe they're proceeding on this level if they didn't clearly see the benefits they're going to gain with the differentiation of our product and advantages that that's going to give over the competition. So these minimum volumes, I believe, is that we locked it in a very good way that if it only does minimum volumes, then they would lose that exclusivity. That is not something that I believe that they want to, so this is a really good way of finding without kind of bullying somebody -- a company that's a great partner, that we've been in relationship for 6, 7, 8 years to which we have every expectation that, that is a minimum volume. And as I said, according to IMS data, they use over 450 million units a year for Lovenox. And I believe, my intention is to perform so well as a partner. And for the product, I know it's going to perform so well in the market. I'm going after the whole lot.

Danielle Antalffy - Leerink Swann LLC, Research Division

Okay. Great. That's helpful. Is there any way you can give any color on the geographies on which this deal is based? I mean, is it broad, worldwide? Is it focused in certain European geographies? Obviously, there's a lot of generic competition in the U.S., so just trying to get a sense of where Sanofi is going to be selling.

Alan D. Shortall

So again, I can't speak for Sanofi. And again, as a good partner, I don't think that would be -- not very smart of me. My understanding this is a global rollout. And as I said, my intention is -- we're going to perform so well, my intention is to get the whole pie, and I believe it's a global rollout.

Danielle Antalffy - Leerink Swann LLC, Research Division

Got it, okay. And then just a question, Alan, on ability to supply. So obviously, you guys are going to have to ramp manufacturing. Of course, it's a 4-year ramp, but you've got other deals coming on, some that sound like they're going to require supply shipments sooner versus later. So can you help us think about the ramp in manufacturing over the next 12 to 18 months and what sort of CapEx requirements that will take on your part?

Alan D. Shortall

Okay. Danielle, let me kind of answer -- there's a couple of ways to answer. Because there's so many nuances to our business that are so attractive and I don't always get the full value of them across. I going to try this in terms of this manufacturing. We can put a -- we can have a high volume line that will produce about 180 million to 200 million units a year in place, in about 12 to 14 months is what our expectation. And the great thing with these ramp programs and the regulatory process, it gives us the time to be very be able to plan the capital requirements for that equipment, have the equipment in place, have it tuned and ready to go with that timing. And the other thing is, because our device is not a commodity device, that's why we get these long-term supply agreements. There's another benefit. So okay, this is laying it in the regulatory process and the release to market, but the benefit is it gives us full time to scale up and to plan our capital requirements and then we get it locked in for 10- and 15- supply -- year supply going forward. But the other benefit in this as well is this is where we have the advantage over our competitors with these high volume contracts is that a lot of our contracts have very old state equipment for manufacturing that, in many cases, they have spent billions of dollars on them and they're locked into them, they can't change. With these game-changer technology coming in, we have the ability now to pick the best, most modern, most efficient manufacturing equipment, the best software and hardware to run the quality programs. And our efficiency and economies of scale that we get are far better and far more efficient than those larger scale old-fashioned equipment from our -- that our competitors have. So this is where we got so many benefits in what we're doing and how we're actually changing the game.

Danielle Antalffy - Leerink Swann LLC, Research Division

Okay, great. And Alan, if I could, sorry, one more question. Just wanted to get a sense of how we think about margins on these contracts that are coming online. Obviously, you got to get to cash breakeven somewhat soon, given the current cash situation. So if you could give any color on the Sanofi contract, in particular, and how we think of contracts going forward from an operating margin perspective.

Alan D. Shortall

Thank you, Danielle. I won't answer that specifically related to Sanofi or any individual pharmaceutical company. And I do want to finish up one other piece in terms of the manufacturing equipment and everything else. One of the great things, one of -- what we are -- pharmaceutical companies that our competitors don't is this customization, where they can build a brand around the device, like the Unifill Finesse for Sanofi. And again, the efficiencies of these manufacturing equipment, it's -- these are modular equipment that we put in place so we can have main and modular -- module that is manufacturing the biggest part or a single element of a device. And then we have other modular elements which will actually do the customization for specific pharmaceutical companies. We can do it very cost efficiently and with high-volume production. That's another benefit as well. But in relation -- one of the misnomers in the market is this, we, believe it or not, with the investment we've made in R&D, we are not reliant at this stage on sales of devices to cover our cash burn. We have deals coming through, and I keep saying this, people are not -- they don't believe me, but I'm telling you the facts. We have we have deals coming through that are already in process that I have every reason to believe will cover our cash burn this financial year and more without selling a single device. Now so in terms of -- the cash flow from the devices are not that relevant from the point of view that -- because we're not dependent on the device sales to actually cover our burn rate. But the device sales, again, I'd go back to what I said earlier is, we're looking 3, 4 years out of operating margins north of 40%.

Operator

And our next question comes from Anthony Petrone, Jefferies.

Anthony Petrone - Jefferies LLC, Research Division

A couple on the contract itself and maybe a couple on manufacturing capacity. First is the deal with Sanofi, is that limited to just Unifill Finesse and anti-thrombotics? Or does Sanofi actually have access to the other prefilled products, Select and EZMix, et cetera?

Alan D. Shortall

Absolutely. I'm not going tell them they can't buy the other products from us. The initial contract, the Unifill Finesse, is one that we customized for Sanofi to meet specific requirements. But our full range is available to any pharmaceutical company unless, obviously, precluded by exclusivity. And also, within the contract, it actually gives Sanofi access to the Unifill Finesse for biologics on a nonexclusive basis.

Anthony Petrone - Jefferies LLC, Research Division

Okay, just a follow-up question on the particulars of the contract. The initial contract with Sanofi had certain monetary restrictions on it in the event that Unilife went ahead and granted another company a license in a market specifically occupied by Sanofi or other markets. And so, are there any similar monetary restrictions? Do you -- would have to pay Sanofi any access or royalty payments should you launch another deal in an applicable area, say, anti-thrombotics or biologics?

Alan D. Shortall

So in this -- under this agreement now, neither party has any further obligations under either the previously signed, either industrialization or the exclusivity gamut. So this means that Unilife is no longer obligated to pay Sanofi royalty or sales revenue, exclusivity fees or any other in relation to those contracts. So I was just going to say, I think that's an indication of how we can negotiate good deals for our customers and good deals for our shareholders as we go forward.

Anthony Petrone - Jefferies LLC, Research Division

And on manufacturing capacity, can you comment, Alan, maybe specifically, where you are today in terms of the capacity you have in terms of units? And do the other contracts in the pipeline have the potential to occupy capacity in the event that Sanofi does not move ahead with extending the exclusivity period to 2024?

Alan D. Shortall

Anthony, the current capacity is approximately 60 million to 70 million units on the Unifill line. Now again, just to cover any misunderstanding, as I've said publicly, I don't want anybody to believe that we're actually currently producing 60 million, 70 million units alone. It was important for Sanofi and other pharmaceutical companies that we can actually demonstrate that we have the capacity to do it, and that we are able to overcome any technical challenges to get that off. Expanding that production now is not a technical challenge, it's just one of replication going forward. So we're producing enough on that line to satisfy the requirements of the pharmaceutical companies for their testing, for trials, user studies, everything else. I'm not going to spend money and -- especially with our current cash position while I'm waiting out these deals come in and the money attached to them, I'm not going to spend money buying components just for the sake of it. So we've been efficient about how we do that. The scaleup, again, as I said is one of replication. The next line, we expect would have a capacity of probably -- the first time, 67 million, kind of allowed us to tune it, recognize our work and the next line, we'll probably have -- we expect maybe 180 million to 200 million unit line capacity. Now what I will say in terms of what's been in the pipeline at the moment in deals for the Unifill range, I said back in 2008 that we have an expectation by the end of 2014, now this was 5 years ago, I said -- well, we said we had an expectation that we would be possibly producing about 400 million units or selling 400 million units by the end of 2014. And I'm saying to you now, Anthony, with what we have in the pipeline, I still think we can actually hit that number.

Operator

I'm showing no questions at this time.

Alan D. Shortall

Thank you. Thank you, everybody, for your time. I appreciate it.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Unilife Management Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts