Significance of Sanofi-Unilife Partnership

Brain, thanks for the post - brilliant - though I was less knocked over by the deal than the initial 'market' reaction!

So, no lack of enthusiasm on my part for what is truly a ground-breaking deal. My opinion about what happened to the SP was even better informed when, lo and behold, we see that veritable publication, The Street, jump into the fray less than three hours after the announcement with a Sell recommendation. Quick work, indeed. Shame about the objective analysis....all suspicions confirmed by the extraordinary trading pattern on the day, followed up the next morning by a poorly disguised attempt to counter momentum, a paltry 21,000 shares 'traded' - between whom, one might ask - for a near 6% fall pre-open, only for the market to see through the blatant attempt at manipulation and make up its own mind. This opinion further reinforced by today's magnificent day's trading session. Bearing in mind that 5 million common stock is 30 m million CDIs.

To understand the significance of this deal you need to go back in history to the original Industrialisation Agreement in 2009 when Sanofi bankrolled Unilife's emergence as a key player, and preferred supplier, in the global drug delivery market. Even a year before that, when Sanofi signed the Exclusivity Agreement for the RTF. Prior to this, Sanofi had engaged in a two year world-wide search for best-in-class safety syringe technology. Their partner of choice after this extensive due diligence? Not BD. Not Medtronic. Not Covidien. And certainly not West.

Unilife.

Fast forward to today and we have Sanofi, the third largest pharmaceutical company in the world - depending on metrics used - signing a minimum 15 year Commercial Supply Agreement for Unilife's Wearable Injectors. In an industry where business planning and strategic commercial outcomes are measured in decades, this partnership, which has already been officially in place for six years, unofficially for eight or more, is unprecedented. Think about that for a moment - Sanofi is cementing what will be a twenty-plus year partnership. Two decades and growing. All this on the back of an already signed 10 year partnership for Finesse.

Unilife is the first and only drug delivery company in the world to enter into deals of this kind with such far-reaching financial outcomes for all stakeholders. Never before in the history of the pharma industry has a deal such magnitude been achieved. One of the biggest companies in the world, a risk-averse top 5 pharma commits exclusively to purchase an entire category of device from a single source supplier for 15 years and beyond. And also commits to that supplier for development of next generation technology that doesn't yet even exist.

What does that say about how Sanofi views Unilife's prospects, financial stability, management ability, and ultimate success?

Speaking of management ability, long-termers will recognise the clause in the agreement requiring Alan to stay at the helm as further reinforcement of the exact same clause in the Industrialisation Agreement. Again, what does that tell us about how Sanofi view Alan Shortall, and his importance to the company he leads? There are those who, for whatever reason, have diverse opinions about Alan. Mine, as everyone knows, have never wavered. Sanofi's insistence on Alan's continued leadership of Unilife by way of a material clause in such a strategically important agreement is further validation of his abilities and the esteem in which he is held by those who know.

In this respect, I will base my investment decisions on what executives at the very highest echelons of the global pharmaceutical industry - including but not limited to, Sanofi, Novartis, Medimmune, Hikma, and various other yet-to-be-named Top 10 pharmas - than anonymous posters on stock chat sites.

Last week I had a colonoscopy - an ongoing and prudent necessity due to a strong family history of colon cancer. It is my understanding that in the same process employed prior to signing of the IA, Unilife underwent its own colonoscopy as Sanofi conducted nearly three years of due diligence involving thirty potential partners for their wearable injector program. During this extended examination, every aspect of Unilife's business was evaluated. Not only did Unilife pass with flying colours, it won hands down.

This agreement is more than a significant commercial outcome for both Sanofi and Unilife. In a rapidly evolving market, it is a ground-breaking deal that changes the way pharmaceutical companies engage with their preferred suppliers of injectable drug delivery devices.

So, who do you trust?

Finally, I will leave the "this drug-that drug" debate to those better informed. My focus is on the macro picture. With regard to ongoing capital/cash-flow/revenue requirements, Alan has always been able to source finance as and when required. He has never let the company fall into a position where it is endangered, and never will. It is clear from everything we have seen by the commercial supply and development agreements signed to date, that the same companies who see fit to invest in Unilife's future - and let's be clear about this, not just Unilfe's future but their own - share every confidence that Unilife's financial future is not only secure, but set to out-perform.

I have my own thoughts about where future capital requirements may, in part, come from, and would not be at all surprised to see Sanofi take a strategic holding in Unilife. Since becoming CEO, Chris Viebacher's publicly stated preference has not been for the traditional multi-billion dollar mega-mergers, rather smaller strategic holdings - blocking stakes? - in partner companies, a la Regeneron. Seems logical to me that Sanofi might eventually employ the same reasoning to protect their long-term investment in Unilife,, and send a significant message to the 'broader' investment community.

Lastly, seriously, a quick word on Finesse. Following that deal there was some opinion around the traps suggesting it wasn't worth the paper it was written on, that Sanofi could just as easily can it, switch suppliers, the volume would never amount to anything, whatever. I'd suggest that this all-encompassing, extended supply agreement for wearable injectors lays all that speculation to rest. The relationship with Sanofi is stronger than it has ever been, and will only continue to grow from here.

So much more to come.

Going to be fun watching the market play catch up