unilife and the third place in healthcare

A very well written piece by Stock Writer on Seeking Alpha:



Unilife And The Third Place In Healthcare: Why Trends Matter And Why Success Is Inevitable
Feb. 18, 2014 9:00 AM ET | About: UNIS, Includes: AZN, HKMPF, NVS, SNY
Disclosure: I am long UNIS. (More...)
The fact is, trends matter. On this, Mckinsey Director Peter Bisson is emphatic.

In Global forces: An introduction, Bisson argues the importance to successful companies of identifying and acting on trends:

Systematically spotting and acting on emerging trends helps companies to capture market opportunities, test risk and spur innovation.

Today, when the biggest business challenge is responding to a world in which the frame and basis of competition are always changing, any effort to set corporate strategy must consider more than traditional performance measures, such as a company's core capabilities and the structure of the industry in which it competes.

Managers must also gain an understanding of deep external forces, and the narrower trends they can unleash. In our experience, if senior executives wait for the full impact of global forces to manifest themselves at an industry and company level, they will have waited too long.

Or as Dick Clark, host of American Bandstand and successful entrepreneur would have it,

I don't set trends. I just find out what they are and exploit them.

Of course, there are trends, and there are fashions. Fashions are short term vogues with no real lasting impact, here today gone tomorrow.

Business trends are long term in scope and influence, fundamentally changing the way business is conducted, and presenting significant opportunities to those companies that can harness them to their own advantage.

This article will discuss the major trends that are redefining the global healthcare industry, and why Unilife Corporation (UNIS) is better positioned than any other therapeutic drug delivery company to exploit and capitalise on them for the long term benefit of shareholders.

The First Trend: Personalized Medicine and Patient Self-Injection
To paraphrase the old saying, all roads in the new healthcare paradigm lead to the Third Place. The first of these roads is the trend to personalised medicine and patient self-injection.

Traditionally, injectable drug therapies have always been delivered at hospitals, doctor's surgeries or other private healthcare clinics. That is all changing with the rapid growth of complex biologics and user-friendly, patient-centric injectable delivery devices.

The trend is so pervasive it is predicted that within a decade over half of all healthcare will be delivered outside traditional healthcare facilities. Drug delivery platforms such as Unilife's wearable injectors and auto injectors, combined with emerging therapies for many chronic disease conditions - especially where patients may be challenged with strength or dexterity issues - including rheumatoid arthritis, multiple sclerosis and cancer, will empower patients to self-inject their personalized medicine at their own convenience, wherever they happen to be.

According to a report released last year by EyeforPharma,

Pharma firms are now looking to collaborate with the right delivery device partners as a number of rapidly changing factors across the pharmaceutical landscape converge and create the demand for alternate drug delivery technologies.

Says EY Global Pharmaceutical Leader, Carolyn Buck Luce:

Whether we are talking about home health, aging in place, self management, smart phone health apps, strip mall clinics, the consumerization of medical devices or the medicalization of consumer devices - health care consumers are taking more control and responsibility for the quality, timeliness and insights necessary to stay healthy or manage the implications of their illnesses.

Indeed, even the traditional view of the patient is changing, with the focus shifting from disempowered patients who need treatment, to sophisticated healthcare consumers who are increasingly informed - and empowered - by rapid advances in drug delivery technology and drug discovery to take control of, and responsibility for, their individual healthcare situation.

In terms of patient self-injection, the delivery device is now the critical element of the drug-device combination. Far from being yesterday's necessary, but often feared adjunct to the treatment process, today's drug delivery device - with its attractive personalised industrial design, functionality and ease of use - becomes the user interface between the pharmaceutical company and the patient.

So far as the self-injecting patient is concerned there is no best in class drug without a safe, convenient, easy to use - and disposable - best-in-class device.

This is the key point for investors to understand when benchmarking Unilife's platform technologies against others in the market.

As the patient user interface, the superior functionality and ergonomic design of Unilife's delivery systems - and the benefits they provide to the self-injecting patient in terms of safety, convenience and ease of use - are key differentiators that will drive both patient acceptance and physician preference in writing prescriptions, which in turn will drive market share and revenues for both Unilife and the pharmaceutical companies who choose to use Unilife delivery systems.

With its comprehensive range of patient-centric, intuitive to use technology platforms for self-injection including prefilled syringes, disposable and reusable auto-injectors, and wearable injectors, Unilife is at the vanguard of the global trend to personalized medicine and patient self-injection.

The Second Trend: The Shift to Complex Biologics
A biologic drug is comprised of living cells - molecules - that are created by biological processes, whereas traditional drugs are manufactured by chemical synthesis through the combination of specific chemicals in an ordered process. Biologics are extremely complex and often highly viscous meaning they need to be delivered in higher volumes due to the need to dilute them sufficiently to enable patient injection.

By way of example, water has just two molecules, yet a single biologic drug can have anywhere between 50,000 - 100,000 molecules.

In a recent report, Re-inventing the Hypodermic Syringe, A Market Ripe for Disruption, Casey Research state that in the past five years the drug market has been characterized by a strong shift away from small molecules and toward large molecules and biologics for development.

The reasoning is simple. Biological drugs offer greater target specificity, improved safety profiles, and open up new possibilities in disease treatment and prevention not addressable with conventional therapeutics. As such, they are an attractive addition to the pharma portfolio, commanding a premium price with reduced competitive pressure, especially from the generic threat that looms for small molecule drugs.

In 2000, just two of the Top 20 pharmaceutical products sold in the US were biologics.

By 2016, 10 of the 20 leading US drugs by sales, and seven of the top eight, are expected to be biologics, whose annual sales are forecast to top about $50 billion.

Industry sources indicate that there are over 1,000 biologic drugs currently coming through the R&D pipelines of US pharma companies alone - with over 3,000 in the global pipeline. Within five years, half of all marketed drugs are expected to be biologics.

So too Ernst and Young Life Sciences Division, stating:

Emerging technological developments, evolving patient needs and global demand for reduced healthcare costs are significant high-level trends that would see the continued emergence of biologics as a powerhouse in the pharmaceutical industry.

Dr Kenneth Kaitin, Director of the Tufts Center for the Study of Drug Development, agrees. The pharmaceutical industry, especially Big Pharma, has dramatically shifted its R&D focus from its historical concentration on small molecule drugs to include a rapidly increasing number of biotechnology products.

The transformation of big pharma has been driven as much by new technologies that have enabled development of new products that improve disease outcomes and command high prices, as by the expiring patents on many top-selling small molecule drugs.

One of the new technologies driving this change is wearable injectors which provide the mechanism for pharmaceutical companies to deliver increasingly complex high-volume biologics in a safe, convenient, patient-friendly manner that helps ensure patient compliance with accurate drug dosage administration.

Because biologics are highly viscous and delivered in higher volumes than traditional drugs, in most cases they require a sub-cutaneous injection. In turn, sub-cutaneous injections can only be safely and effectively delivered over a period of time - as opposed to a single quick jab - otherwise the drug will literally leak out from under the skin. This gives rise to the wearable injector, where the patient can safely self-administer the required drug dose over a period of time at their own convenience.

Under an agreement signed last year with MedImmune, the drug development arm of global giant Astra-Zeneca (AZN), Unilife became the first injectable drug delivery company in the world to sign a commercial Supply Agreement for wearable injectors with a Top 10 pharmaceutical company.

In recent shareholder presentations, Unilife CEO Alan Shortall confirmed that the agreement with MedImmune/Astra-Zeneca was the first of several that will be signed in coming months from Unilife's platform technology for wearable injectors.

The Third Trend: Product Differentiation and Life-Cycle Management
At its most basic level product differentiation is a strategy for strengthening product pipelines and life-cycle management, and hence profitability.

Traditionally, pharmaceutical companies could rely on established brand names and long term patent protection to achieve required product differentiation and profit outcomes. The most common strategies of product differentiation were new dosage forms, fixed drug combinations and new indications.

Today that is no longer the case.

Product differentiation is now an essential element of all pharmaceutical companies drug development, regulatory approval, sales and marketing and life-cycle management programs.

As the delivery system becomes the focal point of product differentiation, commodity-type delivery systems become dinosaurs - a dying breed.

Let's be clear about this - Unilife is no dinosaur, (as much as those holding a short position might wish it to be!), nor it is in competition with the commodity-type delivery devices.

Instead, Unilife is a new breed of drug delivery company carving out an increasingly influential and powerful position as market leader in the new world of injectable drug therapies.

Unilife's platform of wearable injectors is a classic example of innovative, disruptive technology enabling pharmaceutical companies with their product differentiation strategies.

With over 100 hundred issued patents - 200 pending - embracing multiple platform technologies covering all aspects of injectable therapies for existing and pipeline drugs, particularly complex biologics, Unilife is uniquely positioned to assist pharmaceutical companies with their Product Differentiation strategies.

This is a high-value proposition for Unilife investors.

Why?

Because when a pharmaceutical company wants to modify an existing device from Unilife's platform technologies for their own specific requirements, a new patent issues.

This is a critical competitive advantage for pharmaceutical companies wanting - and needing - to differentiate their products for the long term, and why Unilife is in the enviable position of being able to sign 10, 15, and even 20 twenty year commercial supply agreements.

As product differentiation becomes an increasingly important pillar in the long term success of pharmaceutical companies' injectable drug therapies in the global market, so too the inherent differentiation of Unilife's unique technology becomes an essential element in Unilife's long term success.

Product Life-Cycle Management
Abbott Laboratories strongly believe in life-cycle management, with one of the most important things being the ability to listen to the data and change gears when the opportunity arises. In a recent report, "Can a Drug Live Forever?", Dr John Leonard, CSO and SVP Pharmaceuticals Research and Development at Abbott Laboratories, had this to say about Life-Cycle Management:

Abbott (ABT) has a development plan and when we proceed down that road map, we are always thinking what our options are at every stage of the game. The program itself has the life-cycle notion fully integrated into it. There is not a step that says 'Now we do lifecycle management.' We look at what all the options are along the way to make the drug available for more patients, to make it better tolerated, and to make it better delivered. All that falls into lifecycle management.

Once upon a time product life cycle management was virtually unheard of as drug companies could rely on deep pipelines for the launch of the next blockbuster, continued revenue growth and profitability.

All that changed with the rise of generics and bio-similars, and the emergence of a more regulated and increasingly specialized market where increasingly sophisticated drug therapies are being developed to treat a wider range of specific disease conditions.

Combined with a dramatic increase in the cost of discovering and developing new compounds, and successfully bringing them through the regulatory process to market, this gave rise to the concept of Product Life-Cycle Management as a critical element of pharmaceutical companies sales and marketing strategies.

Best Practices LLC is a research company that conducts work based on the principle that organizations can chart a course to superior economic performance by studying the best business practices, operating tactics, and winning strategies.

Says CEO, Chris Bogan:

I believe that the pipeline deficits of some of the larger companies have gotten so big that it has forced them to begin to think more about how to handle life-cycle management well. Our emerging body of work is suggesting that life-cycle management is something that, ironically, should be done throughout the entire life cycle, not just at the end when they are three, four years out from patent expiration and they are panicked about a large successful product falling off.

It is no longer sufficient to bring a drug to market then sit back and watch the rivers of gold flow into the corporate coffers. Maintaining market profile, widespread user acceptance and user preference is equally, if not more, important.

Successful product life-cycle management strategies involve all aspects of a drug's 'life' - from discovery, clinical development, regulatory approval, through to eventual sales and marketing - that increase the value and extend the life of the drug.

For years drug delivery technology has been overlooked,says John Fraher, president, North America, Eurand. But pharmaceutical companies are getting better at using drug delivery companies. We're beginning to see a significant increase in the incorporation of drug delivery into research and development.

One of the main reasons for the growth in alternate drug delivery systems is that drug delivery is a versatile life-cycle management tool. The application of drug-delivery technologies can provide companies with technological barriers to generics, extended patent protection, market exclusivity of at least three-plus years, new indications and labelling advantages, pricing options, and franchise expansion.

Additionally, and more importantly, drug delivery technology offers significant patient benefits, such as reduction in dosing frequency and side effects and the development of optimal dosage forms for certain disease states and patient populations, such as the elderly and children.

What better examples of this than the recent Supply and Development Agreements Unilife signed with Sanofi-Aventis (SNY), MedImmune and Hikma Pharmaceuticals (OTC:HKMPF), the Clinical Supply Agreement with Novartis (NVS) for targeted organ delivery, or the agreement signed with an as-yet unnamed global pharma for Unilife's Ocu-Ject technology for delivery of a targeted injectable therapy into the eye?

As Unilife's unique platform technology becomes increasingly embedded into the drug development, regulatory approval process and product differentiation/life-cycle management strategies of pharmaceutical companies, so too pharmaceutical companies better understand and become more comfortable with the benefits of signing long term commercial Supply Agreements with Unilife.

What we are seeing now is the emergence of multiple symbiotic relationships between Unilife and its partners that are tailor-made for the biggest emerging trend of all in the global healthcare market - The Third Place in Healthcare.

The Fourth Trend: The Emergence of The Third Place in Healthcare
As Ernst &Young's Global Pharmaceutical Sector Leader, Carolyn Buck Luce is responsible for overseeing strategy, thought leadership, resourcing, learning and solutions for the firm's life science clients. With over two decades experience in the Life Sciences Industry, she has this to say about the importance of the emergence of the Third Place In Healthcare:

Life Sciences companies are at a critical juncture where they must move beyond simply experimenting with patient engagement around the margins and ratchet up their investment in innovative business models that build enduring relationships with their customers. Successful companies will marry their deep understanding of their medical science with their total commitment to health outcomes and individual consumer preferences to deliver on the promise of personalized medicine.

The healthcare system - how healthcare is produced, delivered, consumed and paid for - is moving from just the two pillars of the doctor's office and the hospital to the third place - anywhere the patient is, any time, any where.

Instead of organizing the business model around the pill, the future of healthcare for life sciences companies is to extend their business models to the ultimate customer, the patient, and be focused on increasing their health outcomes at an economic benefit to health systems.

In their annual report, Progressions 2012: The Third Place, HealthCare Everywhere", analysts with EY Life Sciences Health unit explained why:

Healthcare costs are becoming unsustainable, in large part due to a chronic disease epidemic fuelled by unhealthy lifestyles, aging populations and increasing standards of living. To bring costs under control and improve health outcomes, patients and other stakeholders of the health care system will need to change their behavior.

To enable these behavioral changes, the epicenter of the health care system is shifting from the two places in which health care has traditionally been produced, delivered, consumed and paid for - the hospital and the doctor's office - to a third place: the patient.

Patients have grown increasingly comfortable with empowering technologies and are taking a more active role in managing their health. They are demanding a different health care delivery model that will reach them wherever they happen to be."

Above all, the Third Place promises to change the game in health care by making costs more sustainable and providing new opportunities for growth and value creation."

Even more revealing, especially for Unilife, in the same report EY analysts state:

Although the trends are clear, it is very difficult for large, mature incumbents to disrupt their own business models. For companies to be successful they must:

Move quickly to out-innovate the competition.

Think different to find untapped surpluses in other sectors.

Follow the value not the money, and start by changing the. value proposition rather than focusing solely on the bottom line.

Remember that moon shots matter, and that a clear call to action can set strategic direction, engage talent and align resources and activities.

Moreover, companies need to significantly extend their business models to be experience-focused with personalization, mass customization - and an increased focus on industrial design.

This is exactly what Unilife is doing and what their competition - the large, mature incumbents - are not doing. It is also why CEO Alan Shortall is adamant that Unilife is eating the competition's lunch and will continue to do so for the foreseeable future.

Make no mistake - the Third Place in Healthcare is no passing fad. It is a mega-trend fundamentally changing the way the entire global healthcare industry operates, from the biggest pharmaceutical companies down to the individual patient having a coffee with friends at Starbucks while self-injecting their personalised drug therapy with a Unilife wearable injector.

Unilife has embraced this mega-trend like no other drug delivery company and is aggressively pursuing the significant financial rewards on offer.

Nowhere is this more evident than in Unilife's unique B2B model.

The Fifth Trend: Unilife's Business-to-Business Marketing Strategy.
In a word, Dr Ramin Mojdeh, Unilife's Chief Operating Officer, has pedigree.

Before joining Unilife he spent nearly two decades in the global healthcare industry with multi-nationals Becton Dickenson (BDX), GE Healthcare and Boston Scientific (BSX). In a succession of increasingly senior executive roles - including Vice President and GM at Becton Dickenson - Dr Mojdeh's responsibilities covered the entire spectrum of medical devices including design, development, manufacturing, business development, and sales and marketing of multiple therapeutic and diagnostic medical devices.

As BD's VP Research and Development, he led technology, innovation, product development, and commercialization across all 4 businesses in the BD Medical segment - Medical Surgical Systems, Diabetes Care, Pharmaceutical Systems, and Ophthalmic Systems - with combined annual revenue of over US$4 billion.

In terms of executive talent, Ramin Mojdeh is as blue chip as they come.

Yet he is not alone at Unilife. An adherent to the discipline of empowering employees to achieve their full potential, CEO Alan Shortall has brought together a team comprising many of the best and brightest in the medical devices world to spur innovation and drive the company forward.

If a company is defined by the calibre of its people, Unilife is top of the class, rapidly garnering a deserved reputation among its peers - competitors and clients alike - as a company par excellence, setting new standards in research innovation and product delivery in the world of injectable therapeutic drugs.

Arguably, Ramin Mojdeh's most significant achievement while at Becton Dickenson was to create a blueprint for a new, disruptive business model - one which focused on developing unique injectable drug delivery devices in response to the specific requirements of pharmaceutical companies, then selling them B2B on multi-year supply agreements.

Becton Dickenson - a large, mature incumbent perhaps struggling to disrupt their own business model - didn't understand the benefits of Dr Mojdeh's foresight, and weren't interested.

To say that joining Unilife was a coup for Unilife and a significant loss for Becton Dickenson is an understatement.

Happily for Unilife shareholders, Becton's loss is Unilife's gain. Not only is Unilife disrupting the drug delivery/medical devices industry with their creative thinking and ground-breaking design, but with their proven ability to sign long term 10, 15 and 20 year commercial agreements, they are also disrupting the traditional way pharmaceutical and injectable drug delivery companies do business.

For investors and potential investors it is worth noting that the recent long term agreements signed by Unilife are not once-off random events. They are significant commercial partnerships entered into with the future very much in mind, partnerships that were - until recently - unheard of in the traditional medical device-pharmaceutical business.

The commercial reality is that Unilife is creating a new way of doing business - the new normal.

Why is this possible?

Firstly, because Unilife is so embedded in the internal and external processes of their clients - from initial consultation through to inking of long term commercial contracts - it is in the interests of all stakeholders for Unilife to be a strong and effective partner.

Secondly, Unilife has proven across the entire organisation that they have all the necessary expertise - research, design, development and production - to satisfy the most stringent requirements from some of the biggest and most powerful organisations in the world - the pharmaceutical companies.

Thirdly, Unilife are unfailingly responsive to meeting and satisfying the unmet needs of their clients, and committed to delivering exactly what they want today, and in the years to come.

That is why global giants like Sanofi-Aventis, MedImmune/Astra Zeneca, Hikma and Novartis are increasingly comfortable choosing Unilife as their preferred partner for their injectable drug delivery therapies.

The most exciting - and intrinsically valuable - aspect of Unilife's B2B model is that it cuts out all the traditional stakeholders - hospitals, medical practitioners and private healthcare providers.

Accordingly, virtually none of the traditional go-to-market costs one normally associates with medical device and pharmaceutical companies, reside on Unilife's balance sheet.

Because Unilife deals directly with their clients - B2B - virtually ALL go-to-market costs - fill-finish, regulatory approval, packaging, advertising, sales and marketing, and distribution - are carried by the pharmaceutical client.

And if that's not enough to make investors - and potential investors - sit up and pay attention, so eager are pharmaceutical companies to work with Unilife and access their technology, they are willing to pay upfront license fees and a significant portion of the annual development costs to ensure their devices are brought to market in a timely and efficient manner.

This is why CEO Alan Shortall can talk about blended margins of 40% across Unilife's entire product range of platform technologies, and why Unilife is such an attractive investment proposition going forward.

Unlike Dick Clark, Unilife is not merely identifying a trend and exploiting it. They are creating the trend and owning it to their considerable competitive and financial advantage, and the benefit of all shareholders.

All these trends - patient self-injection, the development of complex biologics, reduction of healthcare costs, product differentiation, life-cycle management and the emergence of the Third Place in Healthcare - are fundamental and permanent changes in how the global healthcare industry is operating now, and will continue to operate in the future.

In this new paradigm - as a nimble, innovative organisation - Unilife has first-mover advantage. With its B2B business model it is redefining how the market operates. The long term supply and development agreements with global leaders Sanofi-Aventis, Medimmune/Astra-Zeneca, Hikma and Novartis are just the start - persuasive evidence that the B2B model works - and that a new commercial reality is in place.

For Unilife shareholders the force of these fundamental changes are converging at exactly the right time. Not only is Unilife at the epicenter of this convergence, they are actively partnering with the global pharmaceutical industry and driving it forward to create a new commercial reality.

In so doing, Unilife Corporation becomes a compelling long term value proposition for the astute investor.

Last - but not least - if anyone doubts what Unilife is doing, they should visit their HQ in Pennsylvania.

There they will not find an empty Chinese factory bereft of people and products.

Instead they will find a state of the art facility populated by what is arguably the finest, most concentrated pool of talent in the world of injectable drug delivery systems - industry leaders across all disciplines many of whom have come from Becton Dickenson, Medtronic, Boston Scientific, Johnson & Johnson, West Pharmaceutical, Sanofi, Stryker and St. Jude Medical - who are creating a world class company that is building an unassailable position in the injectable drug delivery market.


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