Unilife (NASDAQ:UNIS) finally provided an update on the happenings at the company through a press release and multiple SEC filings. As part of the update, the following management changes were made:
- John Ryan was appointed President and CEO of the company, which removed the interim label. Mr. Ryan was also appointed to the Board.
- The company terminated its Consulting Agreement with former CEO Alan Shortall.
- Dennis Pyers was removed as the Senior Vice President, Controller, Treasurer, and Chief Accounting Officer, but was retained to be Senior Advisor, Special Projects.
- David Hastings was appointed Chief Accounting Officer and Treasurer, which is in addition to his current role as Senior Vice President and Chief Financial Officer.
- The company terminated its employment agreement with Mark Iampietro, who was the Vice President of Quality and Regulatory Affairs and Chief Compliance Officer.
- Ian Hanson was appointed the Chief Operating Officer, which is in addition to his current role as Senior Vice President.
Additionally, the company provided an update on its internal investigation and financial position.
On May 8, 2016, Unilife announced that it was starting an investigation of possible violations of law & regulation and company policies by former CEO Alan Shortall and former Chairman Jim Bosnjak. A special committee was formed, which included an independent counsel and an advisory firm with forensic accounting experience.
The investigation was recently completed, and maybe unsurprising to those who follow the company, found that Unilife will need to amend some of its previous SEC filings. To summarize the findings of the investigation, both Mr. Shortall and Mr. Bosnjak failed to disclose to either the Board or in SEC filings that they were participating in related party transactions. Additionally, the special committee found that there were material weaknesses in internal controls over financial reporting. Of importance, however, is that the committee determined that it has not discovered any financial loss to the company.
Although the company still has not filed its 10-Q for the quarter ending March 31, 2016, it did provide an update on its cash position. As of June 30, 2016, Unilife reported a cash balance of $21.2 million, including $2.4 million of restricted cash. With only $169,000 of cash receipts from customers coming in during the period ending June 30, 2016, the company burned through $22 million of its cash, including $13.9 million of negative operating cash flow. This leaves the company with little more than $21 million of cash, sufficient to last only through the current quarter.
To make matters worse, the company has basically been shut out of the capital markets, including its Controlled Equity Offering Sales Agreement with Cantor Fitzgerald and its equity purchase agreement with Lincoln Park Capital. As such, the company reports that there is substantial doubt about its ability to continue as a going concern.
All this begs the obvious question; is there any hope left for shareholders? After a 10:1 reverse stock split on May 13, 2016, Unilife has approximately 16.9 million shares outstanding. With a current stock price around $3.50, the market cap sits at about $60 million. Add in $113 million of debt, and the enterprise value is roughly $170 million. This still seems like a hefty valuation for a company that has never had a product make it through the pipeline.
Given that the company has not provided an operations update since February, investors are pretty much in the dark as to how to value what's left of the company. On one hand, Amgen (NASDAQ:AMGN) must have been impressed enough with Unilife's wearable injector technology to make a $55 million investment in convertible notes. Or, alternatively, they simply saw an opportunity to take ownership of the related IP in the case of default.
Any Hope For Equity Holders?
Ultimately, any investment in Unilife requires investors to speculate whether the company will finally be able to turn things around and fulfill on some of its past promises. Until a more comprehensive plan is outlined by Unilife's new management, however, the situation looks like a losing bet.
The new plan is for a "Targeted Growth Strategy", which according to its press release, means that it will focus primarily on "active and new customer programs in its portfolio of wearable injector systems." So does this mean that the company is no longer pursuing its programs for Auto-Injectors or Prefilled Syringes? If that's the case, given the length of development timelines for drug/device programs, I can't imagine how any of the other wearable partners are anywhere near commercial launch.
This means there will be no easy solution to the existing and future cash crunch the company finds itself in, and cost cutting will only help so much as a public company. Therefore, the only way I see any value would be through a sale of the company; but if the previous review of strategic alternates late last year didn't result in a sale, why would it be any different now?
I guess the case could be made that the new management team could look for a fresh slate and basically start over with a new focused approach that could entice new investors. Expenses could be cut to the bone by focusing purely on wearable injectors, which have a much better value proposition than re-invented syringes and injectors.
With the support of its largest creditor - the hedge fund Orbimed - the new team led by John Ryan could become more transparent about pipeline activities and the expected cash burn rate moving forward, which could lead to a new round of capital injection. Then, if the new management team ultimately wins the trust of investors, new avenues of growth could be explored for the longer term future of the company. But this would still completely hinge on one factor that the company has previously said is out of its control; speaking in more detail about the status of each pipeline product.
The company - at least under Alan Shortall's tenure - claimed that it is bound by confidentiality agreements that do not allow it to disclose anything. The need for confidentiality is understandable, but there are many other companies in the pharma industry that have similar partnerships that allow for investors to at least know when any major milestones have been hit (status of clinical trials, filing of NDA or ANDA applications, etc). So if there is any chance that Unilife can bounce back, transparency about the pipeline is an absolute requirement. Otherwise, it will be "business as usual" for the company, which means that equity investors will likely get wiped out.
Consequently, I view any investment in Unilife as pure speculation that the company will provide a full and transparent update on business activities when it files its 10-K by the end of the quarter; AND that the update will be accompanied by a fresh round of capital with a road map to profitability. This seems like an extremely tall task for Mr. Ryan, but it wouldn't be the first time that a small pharma company has been able to shock the world.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.
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