Unilife (NASDAQ:UNIS) is a novel drug delivery device developer and manufacturer with a large portfolio of products that it's trying to sell. On Monday, it announced that it signed an agreement with a major pharmaceutical company to use Unilife's Ocu-ject™ ocular drug delivery system to deliver a target injectable therapy into the eye.
Mr. Alan Shortall, Chairman and CEO of Unilife said: "In tune with our commitment to address unmet needs within the pharmaceutical industry, we have created a new, significant drug delivery device category.
As the late, great Chris Farely would say: "WELL, LA DEE FREAKIN DA!!"
Yet another piddly unmet need product by Unilife. As I explained in my last article on UNIS, there is a reason why certain needs remain unmet in the pharmaceutical industry, and, in general, any industry. Big drug delivery device firms like Becton Dickinson (NYSE:BDX) and Covidien (COV) don't want to spend time developing these products because there is zero or very little profit in selling them! Lots of unmet needs in biotech stay unmet because there isn't enough profit to try and go with it. What's currently being used is sufficient enough.
Unilife currently has never had a consistent commercial supply customer. It's revenues were under $3 million last year, yet its market cap is now over a whopping $400 million. It would take a significant amount of revenues and profits to support a $400 million market cap. The market is expecting Unilife to be a syringe supplying powerhouse with this valuation. As I explained in my article, drug delivery devices are sold for very cheap. They aren't like a biotech drug that can be sold for over 90% gross margins and up to hundreds of thousands of dollars per year for one patient. How did this marketcap get so big for a company with hardly any revenues? It's because investors think highly of the potential for Unilife's portfolio of products. However, many don't realize that most all of them will be unprofitable or very little profit. I explain why in my previous article.
On Monday, Seeking Alpha writer Investor MD came out with a Unilife article that rebutted my article. Since I already went over why Unilife's unmet needs products aren't worth much in my previous article, I won't go over them again. But I will mention that in Investor MD's article, he says that Roots Analysis put out a report claiming that auto-injectors will be an $8 billion market by 2022. Is Roots having a laugh? I'm not sure how they came up with that number. Right now, even Unilife says the market for auto-injectors is only $500 million and will double by 2016 to $1 billion. Auto-injectors have been around for a long time. It's extremely rare for a market to jump 20x in just 8 years. As I stated in my previous article, the drug device specialist I interviewed said that the auto-injector market is only about $300 million and is vastly dominated by Becton Dickinson. In regards to the wearable injector, or "patch", market he said:
"The business case for the patch is very, very low, it's almost not profitable. I have known many device makers who have tried to do it, but I don't know any who have succeeded in the last 15 years, because the business is not growing."
The Retractable Needle Is Unilife's Only Hope
In order to support Unilife's current market cap of over $400 million, it needs to succeed with its retractable needle technology on a large scale. This is confirmed by the stock market as UNIS went up considerably after the deal with Hikma was announced. It closed at $2.80 the day before the Hikma deal was announced to $4.03 the following day for a whopping 40% gain. This is because the Hikma deal shows that a big drug maker is interested in a commercial supply agreement for Unilife's retractable syringe technology.
All of Unilife's other products, even if they succeed, won't generate much revenue or profits.
So one has to wonder, if Unilife is sitting on a great product, that Unifollower on Seeking Alpha says: "The Unifill is a glass syringe that has full retractable safety syringe technology that is the only one of its type in the world, and has no competitors and therefore has no competition", then why is Unilife putting its energy into all these little unmet needs products that will give the company very little profit, if anything? Unilife has its factory in York, PA, sitting there, collecting dust, when it and its investors claim it has a blockbuster product on its hands. Shouldn't it just be focusing on getting that blockbuster product out there and gearing up its plant for that product, rather than shifting its energy to these "unmet needs products" that will amount to very little even if they do succeed? Or is Unilife spreading its bets around just in case one of them won't work, or even just to get more publicity? Unilife needs to decide if it's a company that just focuses on specific, unmet needs devices for specific illnesses, or if it wants to be a major supplier of syringes. If it's the former, then the market cap should be much lower than it currently is.
Unilife's Retractable Needle Technology Could Work
I think that the retractable needle seems like a good idea. It makes it so the safety clip isn't needed, so it saves the drug company money that way, and it also looks like a safer solution. Whether it actually is safer or not requires a clinical trial, which Unilife hasn't done yet. I personally like the idea and think it's possible that the pharmaceutical industry may go in this direction eventually. But for some reason, UNIS can't get its act together and keep a supply contract for it. The big syringe companies may be coming out with competing, similar products, even though they aren't notifying investors like Unilife does. It's also possible that Hikma is just making a deal with Unilife to gain leverage with its current syringe suppliers.
Some Unilife investors seem to be absolutely positive the Hikma contract will turn into a consistent supply deal. Investor MDs article quotes my article:
"Unilife's supply agreement with Hikma could also fall through, and my research suggests Sanofi will never have a commercial supply agreement with Unilife."
And says that my point is a "big claim", and that no specific research supports it. Ask and ye shall receive. The following is specific research that supports my claim. Let's take a look at the deals that have fallen through for Unilife's "game changing" retractable syringe technology.
In April, 2010, Unilife's CEO, Alan Shortall, went on Cramer and spoke about the company "having the rights to a needle that has a fully automatic refraction feature".
In the interview, CEO Alan Shortall noted that there are about 2.5 billion pre-filled syringes produced every year, and the company is in-line to produce about 800 - 900 million per year over the next five to six years.
That was three and a half years ago that you made that claim Mr. Shortall. If you don't get this product out soon, you're going to be living in a van down by the river.
Cramer said: " In addition, the company will need a lot of funding to open new plants and manufacture more products." Well, the company is almost broke now as it burns $40 million in cash per year. As true as it was in 2010, the company will have to raise money now.
In March, 2010, Unilife announced "that it has signed an exclusive five-year agreement with Stason Pharmaceuticals Inc ("Stason"), a U.S.-based pharmaceutical company, to market the Unitract(NYSE:TM) 1mL safety syringe ("Product") in Japan, China and Taiwan ("designated territories")."
On this deal, Stason CEO Harry Fan stated: "We believe strongly in the market for the Unitract(TM) safety syringe and its potential to help decrease needlestick injuries around the world."
How strongly do you feel about the Unitract market now, Harry?
In October, 2011, Unilife announced that Premier, the nations largest healthcare alliance, awarded a two year contract to Unilife for its Unitract 1mL safety syringes.
Alan said: "We are delighted to have signed our first Group Purchasing Organization (GPO) contract with Premier for the sale of our Unitract 1mL syringes to U.S. healthcare facilities. In addition to being one of the largest GPOs in the U.S., Premier is also a leading national advocate for injection safety."
Premier, Alan, what happened with that deal?
In July, 2011, Unilife announced a deal with another pharmaceutical customer for its Unifill syringes.
On this deal, Alan said: "The Unifill syringe is essentially a primary drug container, a safety device and a sharps disposal unit all rolled into one."
What happened to that deal?
In March, 2011, Unilife announced it is on schedule to fill initial orders of Unilife syringe.
On this deal, Dr. Ramin Mojdeh, Chief Operating Officer of Unilife, stated:
"This is a truly exciting time for everyone associated with Unilife. Having now established the operational capabilities and human expertise necessary to begin to meet projected demand, we are now preparing to enter into the next phase of our expansion."
What happened here?
In July 2011, Unilife announced it has commenced initial supply of its Unifill syringe to Sanofi.
Of this deal, Dr. Ramin Mojdeh, COO of Unilife, said, "The integration of safety features within the glass barrel of a prefilled syringe was a challenge that many within the device and pharmaceutical industries thought to be impossible. Yet, through our operational expertise, core technology platform and innovative spirit, we have successfully overcome a number of technical obstacles to commercialize a game-changing device that is now poised to revolutionize the $2.7 billion market for prefilled syringes."
How's that commercialization working out for ya, Dr. Mojdeh?
All the above announcements by Unilife of deals with different drug manufacturers haven't turned into a commercial supply deal. As I have shown above, Unilife has failed again and again to secure a commercialization agreement for its syringes.
So is it such a big claim to say that maybe the Hikma and Sanofi deals will fall through? Historical evidence says they will.
I, like most people, like to root for the little guy. I hope that Unilife can succeed with its products and take on the big medtech companies. Unilife has recruited many technicians and experts from Becton Dickinson, so it has some smart people on its staff. However the truth of the matter is it hasn't gotten its act together. The proof is in the pudding. If its retractable needle technology is so great, why hasn't it been picked up yet after all these years, and why have so many deals fallen through?
Unilife pays its people and experts a lot of money, probably a lot more than Becton Dickinson was paying them. For this reason they need to keep the stock price up to sell shares to the public and support the staff. Business is business, and I'm not supporting their salaries on my dollar. Good luck to those who are.
Disclosure: I am short UNIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.