sydney presentation, page-61

Just got back from Sydney, so thought I'd add my two cents worth.

First though, VWBoy, just to clarify, when Alan talks about 40% margins he's talking blended operating margins, not product-specific gross profit margins. He has been at pains to point this out, especially in reference to what you rightly mentioned about the pharmas thinking we're getting too-big a clip at their expense, which might in turn effect our sales/earning potential.

Blended operating margins are across the entire product portfolio range, and are not specific to any one device or platform - say wearable injectors.

The reason the margins are so healthy is because we have virtually no Sales and Marketing costs, or other associated go-to-market costs that would normally apply to traditional medical devices.

Alan mentioned that pharmas typically spend 20-30% of annual budget on S&M. These are huge budgets. Unilife's S&M overhead is, and always will be "a fraction of one per cent."

This is a critical point which does not yet appear to be fully understood and factored in by the market. Unilife's business model is Business to Business - B2B.

We sell product to the pharma clients. They do everything else at their own cost - regulatory approvals, fill-finish, package, advertise, market, distribute, sell.

Alan talked about this, and how Unilife is not just re-defining the injectable delivery device prodcut space, but at the same time the way the business itself is transacted in the marketplace.

The traditional market has always been mass-produced, one size fits all commodity-type devices. Companies like BD make them and everyone uses them.

Not any more.

Unilife's platform technologies are individually conceived, designed and produced in response to specific customer requirements. I know we've heard it before, but it's a critical concept to understand when analysing Unilife's current position, and growth trajectory going forward. Our thirty-plus PHD designers are not sitting around dreaming up new products over lattes, and saying, hey, that's a good idea, let's go see if we can sell it to someone.

They develop new products because the pharma clients have come to them and said - this is what we want - and they are quite happy and willing to pay US$5 million per molecule per annum to get the device they want.

Because it is what they want, and because they can't get it anywhere else, and because the FDA approval is for the device-drug combination, Unilife is then in the enviable position of being able to lock in multi-year contracts.

When talking about Ramin, Alan mentioned that one US senior analyst has said the biggest mistake BD ever made was letting him go. Alan then elaborated on this further, saying that while at BD, Ramin wrote an entirely new business model for them and they weren't interested.

The business model? Develop unique, individual devices in response to specific pharma requirements and sell them B2B on multi-year contracts.

It's not as if Ramin wasn't qualified to do this. "Formerly Vice President and General Manager of Becton Dickinson Pharmaceutical Systems, North America, and Worldwide Vice President of Research and Development, BD Medical, Ramin also served as Vice President and General Manager of BD Medical, Pharmaceutical Systems, North America from 2008 to 2010.

"In this role, he directed all aspects of the North America operations including sales, marketing, business development, commercial development, finance, R&D, manufacturing, operations, quality assurance, regulatory affairs, legal affairs and human resources.

"During this time, he also served as a key board member of the Business Strategy Council that led the worldwide business growth strategy for BD Pharmaceutical Systems, whose annual revenues exceeded $1 billion. He also led the creation of an innovative new growth business for BD Pharmaceutical Systems in advanced drug delivery."

It's more than of passing interest to see how Ramin is now orchestrating and implementing this entirely new business model to Unilife's considerable advantage. Unilife's B2B model has been a long time coming. It is a significant, long term, intellectual and competitive advantage that will take years for anyone to compete effectively with.

It is not simply an individual business strategy for Unilife, it is redefining how the market will operate in the future - indeed even how it is operating now. The development and supply agreements Unilife has already signed are proof that the B2B model works, and that pharmaceutical companies are happy to be involved.

Not only does Unilife have first mover advantage, they are developing an entirely new way of doing business that will, in time, provide significant returns by way of capital growth for shareholders.

So when Alan talks about owning a given market, say vaccines, it's not just his Irish enthusiasm getting the better of him - he means it in a more literal sense.

I know it's been mentioned here earlier, but Alan also talked about how, in a desperate attempt to play catch-up, BD recently announced that they are entering the generic drug space with their own drugs and devices, in direct competition with their own pharma clients to whom they are supplying devices.

As Alan said, "That's a good business model - good luck with that!"

On the issue of shareholder returns, Alan mentioned that he was eyeing retirement in four or five years time, would stay on as Chairman "if shareholders want me," and that by that time he would like the company to be paying dividends.

There's more to talk about, and I'll get to it later - a bit of housekeeping to do round here.

All in all, I thought it was a very positive, upbeat meeting - two and half hours - with a wealth of information for old and new shareholders alike to think about - and some good questions from the floor.

One last thing - Alan spent six weeks before Christmas doing US institutional investor road shows. Following the Australian shareholder meetings he is off to Hong Kong for a series of broker/institutional meetings.

With significant near-term blue-chip debt funding as good as done, (Morgan Stanley, our bankers?), further capital raisings categorically ruled out in the near-medium term, all the remaining deals from last year still actively in play and soon to be delivered, more up-fronts, more milestones, Hikma production on the near-term horizon, the year is shaping up to be truly transformative.

Better start practising those cartwheels!

There was also a question about the quality and size of the deals to come vis-à-vis those already delivered. His reply?

"These are all significant, significant deals."

Now one last thing, truly, in response to another question about additional production facilities, Alan said that KPMG are our accountants and "we have been working with them for three years now to put in place the plans for expansion. This includes the possibility of a facility in Ireland where we can legitimately enjoy an effective corporate tax rate of 12%, versus 30-35% in the States, and take full advantage of our US$180 million tax credits."

It's also about further reducing the risk profile for both Unilife and our clients.

Just more evidence, in my opinion, of how meticulously Unilife's future growth is being planned and implemented for the benefit of all.