Yesterday I spent an hour and a half under the knife having a sebaceous cyst removed from my back. Even though it was sitting on my spine, the procedure itself wasn't painful. Trying to sleep last night was. Í have a crater in my lower back the size of something you could see on the moon with the naked eye. Stitched up, yes, but a crater nonetheless. No amount of medication in liquid or pill form provided any relief. Sleep eluded me. The upside was that it gave me the opportunity, under cover of darkness, to think through the situation with Unilife.
It's funny how things appear different at night than during the day. More often than not our fears are magnified. Then daylight comes and our fears dissipate. Things aren't quite as bad as they seemed a few short hours ago.
That's not what happened last night. For the first time in a long time I was able to think about things clearly, without the clouds of emotion reading HotCopper often induces. That's not a criticism of HotCopper. I love this place, and those who inhabit it. So I got to thinking about accepted wisdoms such as, never try to catch a falling knife, and that averaging down is a dangerous game because who knows where the bottom is? Which in turn led me to the proverb that there is an exception to every rule.
Margaret Fuller said, "Nature provides an exception to every rule."
Carl Sagan is more succinct: "Extinction is the rule. Survival is the exception."
So to Unilife. I think the reason we find ourselves in this invidious position is simple. First, we defaulted on the initial Orbimed revenue covenants. Why? Largely because of things outside our control - client approval/production timelines. Second, going too hard at potential clients in terms of demanding the best financial terms possible for our products because, well, they are the best in the market. The company was under financial stress and clients in the pipeline backed off. Once this happened, Unilife was no longer dealing from a position of relative strength. And the shorts knew it.
That's not to sheet home responsibility for the situation on the shorts. Far from it. But last night I had something of an epiphany. Unbeknown to themselves, the shorts have done us a favour. Their entire thesis, if you can call it that, is predicated on Unilife having an unsustainable business model. That it is both technically and practically insolvent. That it will never achieve meaningful revenues, certainly not within any meaningful timeframe, and thus it will not survive.
In a word, extinction.
Yet as Carl Sagan knows, survival is the exception to the rule.
I have never been more certain than I am now that Unilife will survive. Not only survive, but prosper, as we have all dreamed and hoped.
It is no coincidence that in the last week or so we have seen a posse of new members arrive on HC posting negative drivel. It follows hard on the heels of the SA stuff. Not just HC but other forums as well. They hunt in packs. In fact, the commentary has become - if I can use the word - a tsunami of hysterical doomsday predictions. Ironic when you think about it.
But is it true? What has changed for Unilife in the way the company is set, up, the products it has ready to submit for approvals, and from there go into production? Nothing. We already have decades of cumulative commercial Supply Agreements in the bag with more to come. We have an incredibly valuable IP portfolio that extends out for twenty plus years. We have the people and the partnerships, in particular a CEO who is a fighter with a hell of a lot of skin in the game.
What we don't have, what we have never really had without constantly having to go cap in hand to the market - a proposition of limit value after a prolonged period of time - and what we need, is the final chunk of capital to complete the transition from R&D company to fully-fledged production house.
That's all. Sounds a lot, even a daunting prospect, but is it really?
The various options have been well-canvassed here. Sell one or more platforms. Cornerstone shareholder. Convertible Note. Private equity. A mix thereof. And that is why the shorts have done us a favour. Their problem now, and it is a big one, is that they have succumbed to another market wisdom, confirmation bias. They believe their own mutterings. The more it goes on, the more join the fray. They are blinded by their own success to the point that they cannot see - let alone entertain the possibility - that they may be wrong.
That against all the odds, Unilife will find an investor who sees the significant value in everything Unilife brings to the table. A partner willing to pay for a share in fifty years and more of Commercial Supply Agreements. The benefit for us shareholders is that, unwittingly, the shorts have forced the company into the situation where it is all on the line.
In turn, that has forced management to seek an alternative solution, a better way of doing things. To prove the exception to the rule. To find the required capital. From there, survive. And prosper.
When this happens - and I believe it will - it will be a game-changer for all concerned. I know, forgive me, couldn't help myself
I said yesterday that I thought 14 cents was the bottom. Today, IMO, the Naz confirmed it.
I'm backing my judgment on that, falling knives and all, will be in for more today.
Anyway, enough of my thoughts. Each to their own. Good luck.
PS Come back White Dingo
