fosters morning report

From earlier this week.

Morning Report

Unilife Corporation (UNS.AX; $0.51/sh; Mkt Cap $258m) – Sentiment and share price can change on a whim

Today’s Top Pick.

Unilife Corporation (UNS.AX; $0.51/sh; Mkt Cap $258m) – Sentiment and share price can change on a whim.

· Unilife has underperformed the market over the past month as the stock price has drifted while the market continues to wait the signing of the material commercial supply agreement for the Unilife product which was eluded to in the conference call on 13.05.2013. It appears there has been delays to obtaining the final approvals which may have been compounded due to the European summer (that’s assuming the deal is with a European based pharmaceutical company).

· We recently spoke with management and despite the delays they remain confident that the target of up to 10 commercial agreements should be concluded this calendar year, (commercial agreements include both commercial supply agreements and development agreements).

· In our opinion if even half that number achieved would be a stand out result. We believe investor sentiment and believability of management achieving their stated goal should rapidly change (as should the share price) once the first deal is concluded, providing validation by a major pharma for the Unilife product platform, strategic positioning as a global supplier and vindication of the business model.

· While investors also may be cautious of the high burn rate and low cash on the balance sheet, its important to note that the deals being negotiated could include material ‘up-front’ cash components and should also open up availability to debt funding.

· We estimate US$30m is available through the ATM facility which has been progressive utilised over the past 6 months. The progressive utilisation of the ATM as opposed to a larger equity issue highlights that management’s commitment to minimise dilution.

· Unilife has developed one of the most expansive, diverse and differentiated portfolio of injectable devices specifically targeted at ‘un-met needs’ in the market place. Post our recent site visit we are of view Unilife’s products are indeed a ‘game-changer’ for the injectable devices segment with the company on the cusp of announcing the first of many commercial deals that will transform the market valuation considerably and establish credibility with the Australian equity market.

· We note that Unilife will be presenting at the Morgan Stanley global healthcare conference on September 13, with hopefully the conference used by management as a platform for marketing a concluded deal.

· We rate UNS a BUY with a 12 month PT of A$1.50/sh and recommend exposure leading in to the announcement of its first major supply contract.