huntleys report on uni (24/9/03)

UNI was reinstated to the stock exchange on November 1, 2002 after the purchase of the safety syringe company Unitract Pty Ltd, a name change, and the issue of 20m shares at 20c each. Since then the company has been focused solely on the development and commercialisation of its retractable safety syringe. UNI has yet to gain FDA and TGA approval, but expects to do so in Q2 2004. For this purpose UNI is in the process of producing around 10,000 syringes. The approval process for medical devices is generally straight forward in comparison to pharmaceutical drugs, as the effects of a device tend to be easier to predict than that of a drug on the human body.


With an estimated 30 billion syringes used each year creating a market size of US$5b, syringes are big business. The estimated market size in the United States (US) is $1.3b and forecasted to grow to $1.6bn by 2006. Australia in contrast represents 2% of the global market and uses syringes worth around A$180m each year. Besides the cost of syringes, the social and economic cost of unsafe injecting practices has become everyday knowledge following the rise of HIV/AIDS in the 1980's. It is estimated that 1.3m early deaths are the result of unsafe injecting practices creating an annual medical bill of US$535m. The increasing global population and the clear social need for safer syringes has given support to a mega market. It has also created an opportunity for a company that can develop a competitively superior syringe that will address both low cost and safety issues.

The concept of a safety syringe is not new, and in fact the market is extremely active with numerous products already in market. Although the presence of these products is encouraging, the market is wide open for a superior product to be developed and dominate the market.


UNI believe that there are four key features to a superior syringe:

1. Safety - should contain an automatic retraction mechanism, and hence protect the user against needle stick injuries.

2. Single use - should contain an automatic disabling mechanism that is independent of any retractable process.

3. Affordable - the syringe has to be competitively priced against existing products.

4. Simple universal operation - the operation of the syringe must conform to conventional practices.


UNI's product addresses all four features. However, two key features differentiate UNI from its competitors: the auto retraction and auto disabling mechanisms. No product in the market at present has these two features.


Patents over the syringe and the robotic manufacturing process have been taken out. While we are impressed by the technology and direction UNI is taking, UNI has a market capitalisation of $165m. Is it already overpriced?



Before we begin to value UNI we first need to look at its key market, the US. General Purchasing Organisations (GPOs) currently supply 95% of the country's medical facilities. Novation and Premier are two companies supplying both the public and private segments of the market and have effectively cornered the US market. Further compounding the market for safety syringes is the US government's push to have all medical facilities switch to safety syringes by 2005. Therefore, a contract with either or both of these companies is essential for UNI to establish itself in the US. Novation in the past has awarded contracts to companies prior to FDA approval. Given the goal of achieving FDA approval in Q2 2004, a deal with either company might not be far off.

The World Health Organisation (WHO) has also stressed the need for change by setting a milestone for the switch to single use syringes by 2005.



Should the safety syringe receive TGA and FDA approval, UNI should have two revenue streams. Firstly, UNI will generate revenues from the production and sale of units in Australia, parts of Asia and the initial set up in the US. The production of 65m units is expected in the first year and then a ramp up to full capacity of 650m units over the following 2-3 years. Based on a forecast retail price of A$0.40 and a wholesale price of A$0.30 per unit, we estimate sales could reach circa $200m by 2007-2008. The second revenue stream would come from licensing fees for the syringe and robotic manufacturing process.

To illustrate the potential upside for UNI we have valued the company based sales of 650m units and licensing revenues from the US market alone. Our scenario assumes a 10% royalty on sales from US manufacturers. We have conservatively assumed 10% (although this number could vary greatly) market share in the US for 15 years, including a ramp up and ramp down period either side. In addition we have applied a risk factor of 20% that the device will not get to market, and have discounted cashflows at 15%. This gives us a valuation of $3.49 per share and a market cap of $325m. Should the product receive regulatory approval and UNI signs a GPO contract the 20% risk factor would be removed and our valuation would be $4.36 per share. The upside to this stock is evident without factoring in sales from the rest of the world, which accounts for about 75% of total syringe use.



1. Single product risk. Should the syringe fail to pass regulatory approval the share price would fall as the company has no other earnings potential at this stage.
2. Competitors. We see the competitor risk as mixed in the short term. As far as the design of the syringe UNI appears to be well ahead of US competitors such as Becton Dickinson, Terumo, VanishPoint, Meditech and Kendell. These syringes fail to meet the auto retraction and auto disabling benchmark set by the UNI device. However, competitors will likely try and compete in price instead of design. Given the two GPO's have created a high barrier of entry into the US, we expect that pricing will be the greatest issue facing UNI.

3. Failure to gain international market share or sign a contract with GPO's in the US. Despite the attractiveness of UNI's syringe, the company may fail to gain international interest. Many technologies in the past have been far superior but have failed for one reason or another - just remember Beta vs. VHS video tapes.



With increasing momentum behind the switch to safety syringes we would be keen to invest in a company with a superior product at the right price. Based on our valuation we believe UNI to be undervalued and could have significant upside potential on positive news surrounding licensing deals, FDA approvals or negotiations with GPOs. A bid from a large overseas company is not out of the question.