Unilife Poised For Short- And Long-Term Gains

Sep. 4.12 | About: Unilife Corporation (UNIS)

Unilife (NASDAQ:UNIS) is a proprietary medical device company that develops and commercializes advanced drug delivery systems through collaborations with bio-pharmaceutical companies to deliver injectable drugs and biological products such as vaccines and blood thinners.

The company's flagship product is the Unifill syringe, which is the only available prefilled syringe that includes fully integrated safety features, in addition to other proprietary technologies for drug reconstitution delivery systems, auto-injectors, auto-infusion pump systems and specialized devices for targeted organ delivery (i.e. drug/device combinations delivered directly into the eye for long-acting release of drugs for conditions such as macular degeneration).

More than two billion prefilled syringes are currently used each year on a global basis and pharmaceutical companies are making the switch to products such as Unilife's safety syringe which are compliant with needle-stick prevention laws (e.g. Federal Needlestick Prevention Act, 2000). Key differentiating features of Unilife's fully integrated (within the barrel of the syringe) safety syringes include the following:

  1. a passive needle retraction system that is activated inside the body
  2. healthcare providers / shot administrators control the speed of needle retraction
  3. auto-disabling prevents re-use or tampering with used syringes

The market opportunity for prefilled syringes includes 50 drugs (primary anti-coagulant / hematology medications, vaccines, and other biological agents) that are delivered by injection, including an estimated 3 billion prefilled syringes in use by 2012.

Unilife is currently making shipments for small batches of the Unifill prefilled syringe to several pharmaceutical companies, which are evaluating the device for potential use to delivery several marketed and late-stage pipeline products. Unilife expects to begin making shipments of Unifill to new global bio-pharmaceutical companies over the coming months.

In addition, Sanofi-Aventis (NYSE:SNY) paid Unilife approximately $40 million for the exclusive right to purchase Unifill for two key injected therapeutic classes, including blood thinners and vaccines. The deal is through 6/30/14 and includes a 10-year extension if SNY purchases commercial quantities of Unifill before 7/1/14 (reduced to a 5-year extension if SNY fails to meet the minimum threshold of 20M units).

Unilife reported a pro-forma cash balance of $32.6M at the end of FY12, including net proceeds of $18.8M received in July from the sale of 6.15 million shares of common stock @$3.25. Revenue for FY12 was $5.5M, resulting in an adjusted (excluding non-cash related and interest expenses) net loss of ($37.7M) compared to ($27.1M) in FY11 with the larger loss this year primarily reflecting increased R&D expenses.

The company's focus on R&D to develop proprietary drug delivery systems and fully integrated safety syringes has results in over 60 granted patents and over 200 patent applications either planned for filing or under review. Unilife plans to streamline operations with a goal of decreasing quarterly operating expenses from around the $12M per quarter level to $9-10M per quarter during FY13.

In mid-June, Unilife announced a long-term supply contract for the Unifill pre-filled syringe as part of a seven-year deal that is expected to reach up to 10M units and generate up to $15M in revenue per year. The deal is focused on distribution in Europe initially for an injected auto-immune treatment and at the time shares of Unilife were trading in the upper $4 range, providing a potential near-term (i.e. 3-6 month) target for shares as more deals are potentially announced throughout the remainder of this year.

Another major factor for more potential deals (especially in Europe) is a May 2013 deadline for EU countries to comply with laws to prevent needle sticks in addition to the general trend of global bio-pharmaceutical companies seeking to differentiate injected drug and biological treatments through the use of innovative drug delivery systems.

Unilife is developing several advanced drug delivery systems to meet this need, including AutoInfusor devices for delivery of 1-30mL volumes under the skin (subcutaneous) over minutes to hours; Rita Auto-Injectors for self-administration of injected drugs with fully integrated safety features; EZMix Multi-Chamber syringes (includes ability for patients to reconstitute drugs and self-administer at home) and targeted organ delivery devices (i.e. injected eye drugs for macular degeneration).

While Unilife is not a traditional FDA or clinical trial catalyst trade, the company has pending catalysts in the form of expected deals for its proprietary safety syringes (e.g. UNIFILL supply contracts) and other advanced drug delivery systems (e.g. Rita Auto-Injectors, AutoInfusor Devices and targeted organ delivery devices including delivery of macular degeneration drugs into the eye).

Since conducting the stock offering in late June; shares have continued to slide lower to near all-time lows since the company's relocation to the U.S. from Australia and early 2010 NASDAQ stock market debut. Given the oversold condition of the stock (200-day moving average of $3.71 and 50-day moving average of $3.24) and a high short interest of 9.6M shares as of mid-August; any deal(s) announced or other positive developments at the company could easily trigger a short covering rally in shares back to the $4-5 range over the near term.

Overall, shares of Unilife have excellent short (technical, oversold bounce and short squeeze) and long-term prospects given the potential for long-term commercial partnerships and supply agreements over the coming months. Since many of the company's potential customers are developing high-end drugs or biological treatments that will be approved as drug / device combinations; Unilife will receive revenue from these deals for the entire product life cycle (i.e. 10+ years) while the company continues to innovate and sign new deals as new delivery systems come on-line.

The downside risks for Unilife at current levels around upper $2 to low $3 range include failure to announce additional deals that would likely continue to weigh on the share price and cause further dilution for shareholders in the event of additional capital raises at depressed share prices.

However, I believe the company will deliver on expected deal(s) throughout the remainder of this year and into 2013 based on believing in the management team (CEO Alan Shortall is a major shareholder who owns about 5.5M shares and was buying on the open market earlier this year in the upper $3-low $4 range), which I first met in person at an investment conference in New York City in fall 2009 prior to the U.S. relocation and NASDAQ stock listing.

Disclosure: I am long 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.