KM: Unilife Corp. (UNIS:NASDAQ) is an interesting story that I started to follow about five years ago, when it was trading only in Australia. The company came to the U.S. to get closer to its primary customer, the pharmaceutical industry. It has developed a number of different drug delivery devices, all of which are patented. The company markets to pharmaceutical companies, which can utilize Unilife's delivery devices and have the drugs ready for use by the patients themselves or their caregivers, physicians or nurses.
Over these last five years, Unilife has done a number of capital raises, most recently securing a $60M debt financing through a rather well-respected asset management company called OrbiMed. The terms of the deal include a $40M initial payment and two additional $10M tranches that will be available at the end of this year and at the end of 2015, assuming Unilife chooses to take them.
TLSR: What will Unilife use this capital for?
KM: The company is setting up new clean rooms for four high-speed production lines for its syringes. It's completed deals with Sanofi SA (SNY:NYSE) and a generic drug company based in Jordan called Hikma Pharmaceuticals Plc (HIK:LSE), which sells most of its products in Europe. Unilife has also entered into supply agreements with Novartis AG (NVS:NYSE) for a targeted organ delivery system, and AstraZeneca Plc (AZN:NYSE) MedImmune subsidiary for a wearable drug pump for a variety of therapies.
TLSR: Keith, a $60M financing for a company with a $345M market cap makes me curious about how big these pharma deals are. Do you know the magnitude of these deals?
KM: Hikma will be using a minimum of 150M syringes/year by the time it's three to four years into its contract with Unilife. Sanofi is going to have a minimum purchase order of 175M syringes/year, again within three to four years after shipping commences. All this additional production capacity is going to be used primarily for those two customers.
When I spoke with the Unilife people, I was reminded that Sanofi's anticoagulant Lovenox (enoxaparin sodium injection) is already selling 400–450M doses/year in the U.S. alone, so four high-speed production lines producing about 200M syringes/year are actually indicative of the business volumes the company needs to be ready for in the next couple of years. The idea is to get them installed and running now in anticipation of that point in time. I don't think anybody else has picked up on this growth story yet.
TLSR: OrbiMed had to perform deep diligence on this deal for the 10.25% per year it will earn over six years. It makes Unilife look derisked. Is there a growth component to this deal for OrbiMed?
KM: I have to agree with you about Unilife being derisked. And yes, there is a small growth component to the terms of the deal. OrbiMed will get a royalty rate starting at 2.75%, which will then decline as sales of the syringes and devices ramp up. This caps the overall royalty payments. I think this deal is indicative of just how Orbimed sees the growth opportunity in Unilife.
TLSR: Thanks so much for your time, Keith. I've enjoyed this very much.
KM: Thank you very much. I've enjoyed it, too, and look forward to our next exchange.
UNS Price at posting:
62.5¢ Sentiment: LT Buy Disclosure: Held
