Unilife Medical Poised for NASDAQ: UNIS Trading Debut

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Tuesday, 12 January 2010 10:22

During the second week of January, Unilife Medical Solutions (ASX: UNI.AX) (OTC: UNIFF.PK) shareholders overwhelmingly voted in favor of the Company's U.S. relocation. Unilife is now in the final stages of preparation for a NASDAQ: UNIS stock market trading debut, which is expected to occur by the end of February in conjunction with the Company's re-domiciliation to Central Pennsylvania.

Unilife is emerging as a leading innovator in the medical device manufacturing space with a focus on safety syringes and business segments that include pre-filled syringes for pharmaceutical companies to deliver injected medications, sharps safety devices for healthcare facilities, and contract manufacturing services.

Unilife USA will replace Unilife Australia as the entity which is listed on the ASX. Unilife Australia shareholders will receive common stock or CHESS Depositary Interests (CDIs) in Unilife USA. The CDIs will trade on the ASX and are analogous to American Depository Receipts (ADRs), which represent ownership stakes in foreign companies that trade on U.S. financial exchanges. Unilife USA will trade on the NASDAQ with ticker ‘UNIS' and six CDIs will be equivalent to one ordinary share in Unilife USA.

Last December, Unilife announced the construction of a 165,000 square foot development that will house the Company's new global headquarters and a commercial production facility at 250 Cross Farm Lane in York, PA. The new facility will also include a 54,000 square foot office space for administrative, marketing, research / development, and quality control. The first stage of the new manufacturing facility will include automated assembly lines with annual capacity of 360 million units per year for Unifill, in addition to other assembly lines for Unitract 1mL safety syringes and other medical device contract manufacturing systems. There is a built-in option and strategy to allow for future expansion, including an additional 100,000 square foot in connected production space that would provide Unifill manufacturing capacity of 1 billion syringes per year.

The new facility is expected to be operational by late 2010 and is being developed on a 38 acre parcel of land at a projected cost of $26 million, which included favorable terms for Unilife in terms of acquiring the land and the project development / contractor expense because of the overall economic conditions in the region which make this situation a buyer's market (construction costs are down an estimated 25-30% from two years ago). However, Unilife has contracted with Keystone Redevelopment Group and HSC Builders and Constructions Managers, which are top tier organizations that serve Fortune 500 companies for economic development projects and specialize in the construction of customized facilities for leading life science / healthcare companies, respectively. The projected timeline for construction of the new facility includes the following milestones:

1.) the completion of clean rooms for equipment installation and a temporary occupancy permit for manufacturing / warehouse by the end of October 2010;

2.) an unrestricted occupancy permits for manufacturing / warehouse and office space by the end of December 2010;

3.) transfer and consolidation of all US-based staff / manufacturing systems from Lewisberry facilities (approximately five miles apart) beginning in early 2011.

In addition, the centralization of production activities within Central PA will reduce the Company's operational costs, further optimize its supply chain activities, and place Unilife in a more favorable international location to supply its safety syringes to all of its anticipated customers while leveraging upon the Company's strong, mutually beneficial relationship with the PA government due to the generation of high quality jobs. In late October, Unilife announced the acceptance of a US$5.2 million offer of assistance from the Commonwealth of Pennsylvania to support the creation of 241 new jobs within York County as part of the Company's relocation of its global headquarters and manufacturing facilities to Central PA.

Unilife plans to finance development of the new facility from a combination of existing cash reserves ($9 million) and external financing ($17 million), which may include a commercial bank loan, government agencies, and / or other lending institutions. The Company estimates that it saved $2-3 million in upfront development costs and will save approximately $400,000 annually in estimated loan financing payments for the new facility compared to lease payments at the current facility. The following are some key milestones that Unilife expects to achieve during 2010:

1.) the commercial release of Unitract 1mL plastic safety syringes in early 2010;

2.) complete negotiations with Sanofi-Aventis (NYSE: SNY) by end of February for Unifill therapeutic class exclusivity;

3.) subject to the SEC declaring registration statement effective and NASDAQ approval for listing application, Unilife expects NASDAQ: UNIS trading to begin in mid-February

4.) complete the Unifill industrialization program by the end of 2010 (one year ahead of original plan) with initial production goal of 60 million units per year and a projected increases to approximately 150 million units annually by 2012; and

5.) agreement(s) are possible as early as mid-2010 with additional pharmaceutical companies for Unifill pre-filled syringes outside of the exclusive therapeutic categories that are pending final negotiations with SNY.

More than 2 billion prefilled syringes are currently used each year on a global basis and pharmaceutical companies are making the switch to products such as Unilife's safety syringe which are compliant with needle-stick prevention laws (e.g. Federal Needlestick Prevention Act, 2000) in the U.S. (enforced by OSHA) with Europe expected to follow with similar regulations by 2012 based on the model that is currently enforced in Germany. The Unitract product line-up includes plastic safety syringes as 1mL fixed-needle + 3mL and 5mL attachable needles while the Unifill product line-up includes a glass ready-to-fill solution with both fixed needle and attachable options for medications delivered by pre-filled syringes.

A strong resistance to change and high barrier to entry exists for competitors in the medical device / safety syringe market because once supply contracts are agreed upon and products receive marketing clearance; there is little incentive to change components (e.g. a pre-filled syringe) since this would require a new approval process to certify the new components being utilized.

The unique features of Unilife's fully-integrated (within the barrel of the syringe) safety syringes are outlined below and the Company has a major advantage and pending customer in the form of SNY along with a strategic plan that targets companies with new products in development that are designed for delivery through pre-filled syringes.

1.) a passive needle retraction system that is activated inside the body

2.) healthcare providers / shot administrators control the speed of needle retraction

3.) auto-disabling prevents the re-use or tampering of used syringes

The market opportunity for prefilled syringes includes over 50 medications (primary anti-coagulant / hematology medications, vaccines, and other biological agents) that are delivered by injection, including a projected 3 billion prefilled syringes in use by 2012. Unilife has a distinct advantage with a disruptive technology since there are currently no prefilled syringes to deliver medications with fully-integrated safety features so pharmaceutical companies must add these features, adding to the manufacturing and  shipping costs while significantly increasing the overall packaging size (i.e. Unifill reduces packaging volume for drug products by 60% without the need for ancillary safety instruments that must be attached / assembled as with standard prefilled syringes), resulting in both waste disposal and marketing issues.

The key strategic business partner for Unilife is Sanofi-Aventis, which is the largest buyer of pre-filled syringes in the world for injectable products such as the blood thinner Lovenox and influenza vaccines such as Fluzone marketed by the Company (Griffin Securities estimates that SNY purchases 40% of all pre-filled syringes on a global basis). This key partnership provides Unilife with the necessary capital to expand its U.S. manufacturing capacity and will provide a major source of initial commercial demand for Unifill in 2011 with an initial production target of 60 million units per year.

In July, Unilife and SNY agreed to a five-year exclusive licensing agreement for Unifill. SNY is paying A$46M for the right to negotiate purchase of the Unifill RTFS (ready-to-fill syringe), consisting of fees and milestone-based industrialization payments with ongoing negotiations for exclusivity agreements by therapeutic class. While the therapeutic exclusivity agreement (expected by February) will not be disclosed to the public to protect Sanofi's R&D pipeline; blood thinners and vaccines are two major product segments for SNY that are obvious inclusions and agreements that are announced with other companies will provide this information over time.

The industrialization program was originally intended to be completed by the end of 2011, but it is proceeding ahead of schedule so that both parties have agreed to bring its scheduled completion date forward to the end of 2010 (an entire year ahead of schedule). Unilife is scheduled to commence supply of Unifill RTFS by the end of 2010. Initial supply of the RTFS by Unilife will utilize a fully automated assembly system, and the design of this first line will also be used to develop a higher-volume automated assembly system scheduled to be completed by the end of 2011.

Given the current foreign exchange ratio for the Australian / U.S. dollar, a share price of $1 for the ASX stock listing ‘UNI' would correspond to roughly $5.50 per share for Unilife USA when it begins trading on the NASDAQ. The share price above $5 and NASDAQ listing will be key elements to increasing the Company's U.S. shareholder base and attracting institutional investors. In addition, the strong commitment to building a new facility in Central PA and over-delivering on strategic objectives adds to the bullish case for Unilife in 2010 and beyond.  

Click here for the ProActive News Room website for Unilife, which includes an updated compilation of digital media coverage links for the Company such as a recent CNBC video interview with CEO Alan Shortall, research reports (including an update report published yesterday by Crystal Research Associates), corporate presentations, news feeds, market data, and more.

Disclosure: No positions





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