While Unilife Corporation (NasdaqGM:UNIS) is flying, TheStreetSweeper lists the Top 10 reasons we’re bearish and short this over-hyped safety syringe company.
1. Novartis deal does not guarantee an ongoing revenue stream. The UNIS syringes will be used in a clinical trial, requiring few syringes. If Novartis enrolled 500 patients in the trial and injected each monthly using UNIS syringes, UNIS could look forward to only about $5,400 in revenue over a year. No wonder the UNIS press release doesn’t give financial details. It could easily take Novartis 3 to 5 years or more to complete clinical trials and get Food and Drug Administration approval before it would need to order any substantial number of syringes.
2. Even if the Novartis clinical trials pass with flying colors and get FDA approval, the company could easily decide to order syringes instead from safety syringe gorilla Becton Dickinson, controlling an estimated 70 percent of the syringe market. Besides, a whistle-blower lawsuit suggests UNIS lacks the protocol and safety procedures to pull off production of what sounds to be a more complicated syringe for Novartis.
3. Big announcements, bigger disappointments. Investors shouldn’t read into UNIS press releases that upcoming large revenue streams will necessarily occur. The press releases tend to list minimum volume purchases of UNIS syringes. These minimums are only to preserve exclusivity. No one is obligated to buy a certain volume.
4. UNIS CEO Alan Shortall has a goal of about a dozen contracts by year’s end. So far, five have been announced, including the Novartis deal and a Sanofi deal that are re-warmed old contracts. Is the company likely to average almost two contracts a week for the rest of the year? Highly unlikely.
5. Of the announced deals, three involve significant pharmaceutical companies – yet the press releases frequently mention contracts worth $5 million upfront initially plus milestone payments and “expected” revenue and other wishy-washy terms. Before investors hit the “buy” function, they should know what the company’s milestone payments are based on, what the volume production would be and when, plus the length of the ramp-up period. Investors need substance, not hype.
6. Mr. Shortall has a colorful background. We’re wondering who seed investor Roger Williamson really is and whether he actually exists. An Australian Supreme Court judge concluded the relationship contained “many unusual and unexplained features.” This figure emerged in a lawsuit – see the link here - brought by Mr. Shortall’s former girlfriend who claimed he failed to turn over UNIS shares he promised in return for loans she made to him. She was awarded $548,452 plus court costs.
7. Even with the announced deals, it’s not clear that UNIS has enough cash to last through the fiscal year ending in June, without raising more money in offerings. UNIS could use the recent spike to sell shares under their ATM (At the Market) agreement that allows shares to be sold at the drop of a hat. UNIS is burning through about $10 million per quarter and relied on selling stock or allowing employees to exercise options to the tune of $12.9 million last quarter – which gave UNIS $7.4 million cash on hand. Incidentally, independent auditors in October penned a going-down-in-flames note. The note warns investors that “the Company has incurred recurring losses from operations and has limited cash resources, which raise substantial doubt about its ability to continue as a going concern.”
8. Much to suggest Mr. Shortall tends to over-hype to make the company look better. He masterfully turned a recent poor financial report into a cheerleading session by saying, “I am pleased to have turned the corner. We are now entering a period of hyper-growth.” Given this history, can UNIS really produce hundreds of millions of prefilled safety syringes at a profit? The company has never done that.
9. Legal issues abound. Law firms are circling UNIS, filing or investigating class action complaints against the company and/or certain officers and directors. Misrepresentation, corporate waste and mismanagement are among the issues alleged or under investigation. Several are based primarily on accusations laid out in a securities fraud lawsuit filed by former supply chain vice president Talbot Smith, and the Forbes article “How is a $329 million syringe company still unprofitable after 11 years?”
10. Whistleblower Smith’s lawsuit alleges UNIS had employees pretend they were churning out syringes for investors and other visitors, when they were not. UNIS and Mr. Shortall deny such shenanigans occurred but we have spoken with employees who have dates and other details on these “Potemkin villages.”
Also, Mr. Smith charges that UNIS violated clean room and other FDA-related manufacturing procedural rules. UNIS denies the allegations. But we can’t help but wonder whether UNIS takes adequate safety precautions and why have they had such a massive turnover in their R&D staff.
Mr. Smith also filed a complaint with the UNIS board alleging Mr. Shortall directed employees to break into a terminated employee’s car and take his laptop. We have the police report – available here - showing this theft occurred.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in UNIS and stand to profit on any future declines in the stock price.
- Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].