Multiple Sources of Capital Available UNIS shares have taken a...

Multiple Sources of Capital Available

UNIS shares have taken a beating since last week’s conference call. Investors have been worried about the Company’s capitalization after learning that the balance sheet had cash of $14.7 million at the end of fiscal 2015 (on June 30th), while the quarterly cash utilization rate averaged $18 million in the past 12 months. The share price decline has obviously turned equity financing into an undesirable source of capital. We believe there are a number of other alternatives available:

Current customers have entered into NA development and commercial supply agreements with Unilife based on its innovative technologies. As such, they stand to benefit (potentially) handsomely since the Company’s devices improve the delivery of injectable drugs, reduce the cost of health care, and/or provide a competitive advantage over a biosimilar. Hence, it is in the best interest of the clients to see Unilife thrive.

The Imperium: Unilife’s latest product could generate capital via two avenues, in our view. One is an outright sale of the technology to a device company for an upfront fee that would satisfy its capital needs until operations turn cash flow positive and yield performance- based payments (i.e., milestones and royalties) after launch. The other is the signing of multiple supply agreements that give drug companies in different geographic areas exclusivity to the device. Those deals should come with an upfront fee and be a long- term source of business. The exclusivity fees would at least help fulfill the Company’s capital needs in fiscal 2016.

New Clients: Unilife is in the midst of discussions with several potential customers. Management has told us that the present circumstances warrant some flexibility in their negotiating position with large corporations to conclude deals in which there is a near- term gain. The Company may also expand its focus to include some smaller companies that have an immediate need for a drug delivery solution. We like any idea that might create new sources of revenue this year and generate positive business momentum.

Traditional Sources of Capital: OrbiMed has lent $60 million to Unilife thus far, and it might be possible for the Company to secure additional funds to help fill its immediate needs. Then, too, positive business momentum may provide an environment in which a private placement could be done at more attractive terms.

In sum, we think Unilife has ample financing options despite the latest weakness in its stock price. Favorable news may quickly change investors’ perception of these Neutrally ranked shares.