always look ahead, boys

Talking with a mate about the Industrialisation Agreement, the point was raised that the original Exclusive License Agreement provided for initial production volumes of 40 million units in 2011, whereas the Industrialisation Agreement appears to have varied this, as follows:

Because the industrialisation programme is running ahead of schedule, initial production of 40 million untis has been brought forward 12 months.

But at the same time, Unilife is not required to commit more than 30% of this production to SA, thus allowing adequate capacity for anticipated demand from Unilife's other major Pharma clients.

This appears to indicate a downgrading of demand from SA in the short term.

However, I don't believe this is the case. Because the initial production line has been brought forward 12 months, so too has the high volume line of 100 million units pa, completion by 2011. Thus, under the terms of the amended License Agreement, SA can take a minimum 30% of 100 million units. Combined with the minimum 30% of 40 million units in 2010, they are still taking a minimum 40 million units in year 2011, which was always their stated initial requirement.

The kicker is that they can take more capacity, but to do so they MUST place orders 24 months in advance. This results in locked-in advance contractual revenues for Unilife.

Moreover, although I am not certain of this, but if the 100 million unit line is in addition to the 40 million unit line, we are looking at annual capacity of 140 million year 2011, which is far greater tha originally envisaged 12 months ago. Still at 30% minimum, this has the potential to slightly increase SA's potential uptake in 2011.

I believe there are sound commercial reasons for this. Both Unilife and SA recognise the importance for Unilife to develop stable revenue streams sooner rather than later, in order to continue development of the company. I would imagine SA have no interest in paying for this indefinitely. In essence, it is vital that Unilife is able to stand on its own two feet as a financially robust independent sharps manufacturer, as soon as possible. Bringing forward the initial 40 million unit line helps achieve this.

Combined with the new amended terms of the Industrialisation Agreement whereby Unilife have retained/got back the right to sell to other major pharma, (versus SA sub-licensing and effectively holding the purse strings), Unilife is now able to immediately progress negotaitions on their terms with a view to developing multiple revenue streams across a much broader, more diverse client base, again far sooner than originally anticipated.

In order to be a strong, robust partner, it is very much in SA's interests that Unilife achieves its full potential as soon as practically possible. The IA achieves this while allowing SA to access as much volume as they need, while also sharing in profits from Unilife's commercial success from other clients in other markets.

Not only that, but, having multiple revenue streams across a broad range of the world's top Pharmaceutical market participants, combined with no longer being reliant on a single client and single source of revenue, Unilife thus becomes a far more stable rapidly growing organisation, and a far more attractive proposition for all classes of investors, both retail and wholesale, and dare I say it, any potential predator.

As I see it, the IA is therefore a strategically very impressive piece of negotiation from Alan Shortall.

Of course this is without taking into consideration revenue from the 1ml range of Unitract Safety Syringes from the production line at IBS, or any other revenue from the more specialised applications that Unilife/IBS have retained as part of their strategy moving forward.