Moving to neutral - Uncle Keith

Stock Symbol NASDAQ: UNIS
Current Price $0.92
12 mos. Target Price NA
Market Cap $128.0 mln

Unilife Corporation NEUTRAL
Rating Changes : Medical Device
Moving to Neutral

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Unilife secured a bridge to another financing. The Company negotiated its agreement with OrbiMed to increase its borrowing capacity by another $10 million, to $70 million. The expansion was necessary because cash dropped to $2.3 million on October 15 before receiving the first tranche under the new agreement. Terms of the loan lower the minimum cash balance required from $5 million to $3 million and they give OrbiMed the right to have two observers attend all board of directors meeting and committee meetings. The interest rate on the loan remains unchanged at 9.25% plus 3-month LIBOR or 1.0%, whichever is greater. In addition, the Company is obligated to pay tiered royalties on product sales during the term of the loan, which comes due on March 12, 2020.

A second round of cost reductions has been implemented. After cutting 50 employees (17% of the workforce) in September, Unilife reduced its staff by another 20 positions (8%) and cut its officers’ pay. Alan Shortall has relinquished his salary from October 16th – December 31stand four other officers took 50% pay cuts over the same timeframe. The initiatives should reduce SG&A and R&D costs by $0.5 million and $0.2 million respectively in the current quarter.

The final days of 2015 will be telling. Unilife, which has turned to Morgan Stanley to secure new sources of capital, believes it has several interested parties. This may involve the sale of a product, such as the Imperium™, or it may be a strategic partnership that involves a stock issuance. We note that the proxy statement for the annual meeting scheduled for November 16th seeks authorization for up to 350 million shares. (The number authorized presently is 250 million, of which 136 million were outstanding as of September 4th.) In addition, the OrbiMed debt agreement calls for the Company to have cash receipts of $54.1 million this calendar year, and so far, only $16.7 million has been received. The Company will seek a waiver of this covenant, if it is unable to generate the remainder. We believe Unilife is seeking to raise sufficient capital to support operations until operations are generating positive cash flow, possibly in fiscal 2017.

We are taking a neutral stance to reflect the limited near-term visibility.