Earnings Call Perspectives

I hear you, Foxie, LOL!

Not so much keeping powder dry as finding a few moments to get down some thoughts.

As always, I like to listen a couple of times to what was said. Reason being  - and from some of the comments here today it seems others find the same thing, you start to hear  a few things you've heard before and the old concentration wavers a bit and significant parts get missed - so it pays to take the time to listen carefully once or twice to what was  said, and how.

For me it also helps to write it down. So here are the key take-outs as I heard them.

First, yes, I was kind of disappointed there wasn't some big news. There was a lot of rumour around the traps suggesting news was going to be forthcoming. I was party to that with a recent post, so apologies. Nothing I heard today suggested it isn't coming - there was much - to suggest it is, and that it will be bigger than anything that has come before, but when?

For me the key take-outs came from the CFO, David Hastings.  I thought he provided insightful commentary on all aspects of the call.

First, manufacturing lines. There seems to be some confusion about what the current lines are for. This was in conjunction with the debate about when the Hikma/Sanofi Unfill agreements will become revenue-accretive in terms of commercial quantity production.  Both Alan and Ramin clearly stated that as regards "our Unifill family" there are currently  two lines installed, with a third and fourth line on order and anticipated to be delivered before the end of this calendar year. 50% of the CAPEX for these extra lines has already been spent and accounted for. That speaks to a lot of certainty as regards what they will be utilised for, and required capacity

Under questioning about the status of Hikma and Sanofi/Lovenox, Alan said: "Those relationships you are referring to are progressing very well. We already have two lines in place and two more will be delivered by the end of the year, and that should give you an indication of how well those relationships are progressing. Also 50% is already spent so those programs are running very well."

With regard to manufacturing infrastructure, "These upfront investments are either closely aligned to our many existing programs, or are intended to culminate in the expected signing of additional customer agreements. Multiple manufacturing lines are at various stages of development, ordering and installation...over multiple device platforms including prefills and wearable injectors. We continue to fit-out clean rooms in anticipation of these additional lines."

With regard to R&D spend, "All the R&D we are now doing is directly related to customer programs. The increase you see in this is related to materials for programs for delivery systems that have been provided to customers."

So there is no R&D spend for the sake of R&D.  It is all customer-centric based on existing and anticipated programs, as requested by clients.

David Hastings on CAPEX: "We are going to be very strategic about the way we invest. A good example is the relationship we have established with Flextronic which will reduce the amount invested in CAPEX while increasing capacity."

Questioned about when we can expect to see revenues flow more consistently through the company,  he discussed the ability of the company to generate significant cash in the interim. 'Over time I am confident the way this model is built, the cash-flows once commercial are quite attractive, particularly given it's a B2B model for us. So SGA is highly leveragable."

"What's important for me is that from a capital perspective we are well funded and can continue to invest in what is, over time, going to be a very interesting model."

Under questioning from Leerink on whether he had any concerns about the apparent decline in sales from a commercial perspective, he again emphasised the ability of the company to generate significant cash.

"No, and that's why I'm pointing out, at this time, the ability of the company to generate cash through the respective elements of the strategic relationships."

Upfronts, development fees, milestone payments, exclusivity fees.

Just in case nobody got it, he returned to it again under questioning about whether they would need to go to the market again for more capital.

Que: "What leverage can you pull to avoid doing that? Will the ramp to production happen fast enough given current burn?"

David Hastings: "We are responsible to run the company with adequate levels of capital. We are confident that the cash-generation capability of the company over time is significant. As Alan mentioned, efforts (in this regard) are moving quite favourably. That's all I really want to say on the matter."

Then Alan stepped in:

"I mentioned earlier about two of the new customer relationships that are being formalised and I believe will be formalised in the near future which are expected  to include a balance of exclusivity fees, upfront fees and milestone progress payments. We are very comfortable with where we are in relation to that. We obviously know more than we can share for commercial reasons, but we don't see that being an issue."

I'd suggest they are initially referring to AbbVie/Humira, plus something else that is very close. Either, or both, these new deals will generate significant upfront and ongoing cash payments,  and ameliorate any immediate concerns about cash flow going forward. David Hastings was clearly saying he had  no concerns whatsoever about the ability of the company to fund itself until commercial mfg/sales volumes are reached.

This was confirmed in the following comment he made re the $5 million upfront from AbbVie:

"The entire $5 million is all in deferred revenue. We will have more visibility on that once we finalise the strategic collaboration with them, and the exclusivity discussion."

So, it's very close.

There was also quite a bit of discussion about the time it takes, and is taking, to get these agreements to market. It came during Alan's segue into Therapy Compliance Informatics, and the digitisation of the medical information grid. "There are," he said, "several current or anticipated programmes where customers are seeking access to Unilife devices equipped with digital connectivity."

Specifically, wearable injectors and re-usable auto-injectors.

QUE: "Re smart technology, would you anticipate increased visibility on partnering, or some other activity along those lines, that we can look forward to over the next 12-18 months?"

ANS: "I think it would be very reasonable to say most definitely over the next 12 months."

Followed by: "We have over 20 active programs. Many of those relate to connectivity. Many of our customers realise we are ahead of the game and are now asking us retrospectively to add those features in."

Finally, "We have got a number of these in the pipeline....and our level of expertise...and our products lead to increased fees, pricing, and strengthens our ability at the negotiating table."

The strength of our position at the negotiating table was mentioned twice.

In other words, Unilife has products - especially SMART products - that nobody else has, our clients want them, they are not prepared to go to market without them - hence the delays - but they are prepared to wait and pay more to get them, thus Unilife deals from a position of strength resulting in bigger upfronts etc., and prices per unit upon commercial production..

Seems like a win-win to me, even if we shareholders have to wait just a little big longer

There was more, but that's t for now.

IMO, not as bad as some first thought. Can't say when we'll see $1.00 again, hopefully before Christmas....