UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2013
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-34540
UNILIFE CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | | 27-1049354 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| 250 Cross Farm Lane, York, Pennsylvania | | 17406 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code (717) 384-3400
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.01 per share | | The Nasdaq Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | | ¨ | | Accelerated filer | | x |
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| Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the common equity held by non-affiliates of the registrant as of December 31, 2012, the last business day of the registrant’s most recently completed second fiscal quarter was $170.7 million, computed by reference to the closing sale price of the Company’s common stock. For purposes of the foregoing calculation only, the registrant has assumed that all officers and directors of the registrant are affiliates.
As of September 6, 2013, there were 97,183,060 shares of registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement to be filed with the Commission pursuant to Regulation 14A in connection with the registrant’s 2013 Annual Meeting of Stockholders, to be filed subsequent to the date hereof, are incorporated by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant’s fiscal year ended June 30, 2013.
UNILIFE CORPORATION
FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2013
TABLE OF CONTENTS
Presentation of Information
Unilife Corporation was incorporated in the State of Delaware on July 2, 2009. On January 27, 2010, Unilife Medical Solutions Limited, an Australian corporation (“UMSL”), completed a redomiciliation from Australia to the State of Delaware pursuant to which stockholders and option holders of UMSL exchanged their interests in UMSL for equivalent interests in Unilife Corporation, a Delaware corporation (“Unilife”) and Unilife became the parent company of UMSL and its subsidiaries. The redomiciliation was conducted by way of schemes of arrangement under Australian law. The issuance of Unilife common stock and stock options under the schemes of arrangement was exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended. The redomiciliation was approved by the Australian Federal Court, and approved by the shareholders and option holders of UMSL.
In connection with the redomiciliation, holders of UMSL ordinary shares or share options received one share of Unilife common stock or an option to purchase one share of Unilife common stock, for every six UMSL ordinary shares or share options, respectively, held by such holders, unless the holder elected to receive in lieu of Unilife common stock, Chess Depositary Interests of Unilife, or CDIs (each representing one-sixth of one share of Unilife common stock), in which case such holder received one CDI for every UMSL ordinary share. All share and per share amounts in this Annual Report on Form 10-K have been restated to reflect the one for six share recapitalization effected in connection with the redomiciliation.
On February 16, 2010, Unilife’s common stock began trading on the Nasdaq Global Market under the symbol “UNIS.”
References to the “Company”, “we”, “our” or “us” include Unilife Corporation and its consolidated subsidiaries, including UMSL, unless the context otherwise requires. References to “Unilife” are references solely to Unilife Corporation.
Trademarks, Trade Names and Service Marks
Unilife®, Unitract® and Unifill® are registered trademarks of Unilife Corporation and its subsidiaries.
Cautionary Note Regarding Forward-Looking Information
This Annual Report on Form 10-K contains forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements.
These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to our management. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K and those described from time to time in our future reports which we will file with the Securities and Exchange Commission. You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely.
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Currencies
Unless indicated otherwise in this Annual Report on Form 10-K, all references to $ or dollars refer to U.S. dollars. References to A$ mean the lawful currency of the Commonwealth of Australia. References to € or euros are to the lawful currency of the European Union.
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PART I
Overview
We are a U.S. based developer; manufacturer and supplier of injectable drug delivery systems. Our customers are pharmaceutical and biotechnology companies who seek to leverage our innovative, differentiated and customizable devices to enable or enhance the clinical development, regulatory approval and commercial lifecycles of their injectable biologics, drugs and vaccines. We manufacture and supply our proprietary devices to pharmaceutical companies in a format where they can be filled and packaged with an injectable therapy prior to its shipment to the end-user for safe, simple and convenient administration.
Proprietary Technology Platforms and Products
We have an extensive, market-driven portfolio of injectable drug delivery systems for use with injectable therapies. Each of our proprietary product platforms has been developed in direct response to unmet market needs and emerging market trends for the safe, intuitive delivery and convenient disposal of injectable drugs and vaccines by healthcare workers and self-injecting patients. Our technology platforms cover the following device categories:
| | • | | Drug Reconstitution Delivery Systems |
| | • | | Ocular Delivery Systems |
Prefilled Syringes
A prefilled syringe is a primary drug container and delivery system for the administration of an injectable therapy by a healthcare worker or patient. Prefilled syringes are supplied to pharmaceutical customers in a ready-to-fill format for filling and packaging with a measured dose of an injectable drug or vaccine. The primary container is comprised of components that are compliant with industry standards and pharmacopeias to ensure optimum protection of the drug formulation over a prolonged duration.
Over 60 drugs and vaccines are now available in a prefilled syringe, with numerous additional pipeline drugs targeted for launch in a prefilled format. We estimate the prefilled syringe market is valued at approximately $2.5 billion. Based on industry surveys and internal estimates, we expect the market to double in size between 2012 and 2017.
To comply with needlestick prevention laws in the U.S., Europe and other regions, it is common for pharmaceutical companies to purchase ancillary safety devices that are attached on to a standard prefilled syringe by means of a secondary assembly operation after filling. In addition to the extra steps and costs associated with their secondary attachment, these devices lead to an increase in packaging, transport and storage costs by up to 60 to 70% due to the bulky size and weight of the final product. Prefilled syringes utilizing ancillary safety devices can also require additional non-intuitive steps for a user to activate the needlestick prevention mechanism after the non-sterile needle has been removed from the body. The visual and functional similarities between standard prefilled syringes and prefilled syringes with ancillary safety devices can restrict opportunities for a pharmaceutical company to differentiate their injectable product from that of generic, biosimilar or brand-name competition.
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Unilife has developed an extensive platform of prefilled syringes under its Unifill® brand. All Unifill syringes are designed with USP-compliant materials in the primary drug container and for integration with standard packaging and filling processes. They are designed for intuitive use and compact, convenient disposal by healthcare workers or patients. Audible, tactile indicators signal full dose delivery and the automatic activation of an integrated needle retraction mechanism. The user can control the speed of needle retraction directly from the body into the barrel to prevent exposure to a non-sterile needle. Automatic reuse prevention features eliminate device reuse or needle re-exposure for compact, convenient disposal. Unifill syringes are highly customizable to address specific customer, drug and patient requirements with a selection of product configurations including:
| | • | | Unifill Syringe: Featuring a staked (fixed) retracting needle and designed for use with liquid stable drugs. |
| | • | | Unifill Select:Allows the user to attach retracting needles of various sizes at the point of delivery. Designed for use with either a liquid stable drug or vaccine, or a diluent to reconstitute and deliver a lyophilized drug supplied in a vial. |
| | • | | Unifill Assure:Featuring an extended, easy-to-grip finger flange and a widened thumb press for the intuitive self-injection of biologics by patients with reduced dexterity. |
We have the current capacity to manufacture up to 60 to 70 million Unifill syringes per year at our production facilities in York, PA.
Auto-Injectors
Auto-injectors are utilized for the patient self-administration of injectable drugs outside of healthcare facilities. Various disposable and reusable auto-injectors are currently available on the market, or known to be in development. They are designed to allow operators to automatically deliver the contents of a prefilled syringe at the push of a button. The auto-injector market is expected to be one of the fastest-growing sectors of the device market.
Traditional auto-injector devices are relatively large in size, as they must accommodate various mechanisms to enable the depression of the prefilled syringe for needle insertion into the body, the injection of the dose, and either the withdrawal of the syringe back into the device or the extension of a sleeve to cover the needle. The large size of some auto-injectors can restrict their portability, obstruct intuitive use and handling with some patients, and increase disposal volumes. They also lack true end-of-dose indicators to alert patients when the full dose has been delivered, potentially causing dose wastage or reducing therapy compliance rates.
Unilife has developed a full platform of auto-injectors that are designed for use with the Unifill syringe. Our proprietary range of auto-injectors are compact in size, intuitive to use and can be customized to address specific customer, drug or patient needs. We believe that they are also the world’s first and only auto-injectors with true end-of-dose indicators. An audible, tactile click signals the delivery of the full dose and the retraction of the needle into the barrel of the Unifill syringe. The potential risk of a needlestick injury occurring after the use of the device is virtually eliminated. Products within this portfolio include:
| | • | | RITA™ Disposable Auto-Injector: A disposable auto-injector to inject the prefilled dose from a single Unifill syringe. RITA is more compact in size than many other marketed auto-injectors for improved patient portability, intuitive handling and convenient disposal. In addition to there being no visible springs or mechanisms, the needle is hidden from view until the completion of the injection when it can be viewed in its retracted state through a window on the side of the barrel. The true end-of-dose indicators (audible, tactile click) associated with the Unifill syringe can also help to minimize potential drug wastage and optimize therapy compliance. |
| | • | | LISA™ Reusable Auto-Injector: An electromechanical reusable auto-injector that completely automates the removal of the needle shield and the speed of needle insertion and retraction. In addition |
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| | to being able to select the speed and depth of dose delivery to help minimize pain and discomfort during an injection, the device features a single activation button, LED indicators and a push-on skin sensor. We believe LISA is the first and only reusable auto-injector that protects the patient from the risk of needlestick injury when removing a used syringe from the device. |
Drug Reconstitution Delivery Systems
The supply of an injectable drug in a lyophilized (freeze dried) state can help to enable or fast-track its commercialization and approval. Many biologic drugs are unable to be prefilled in a liquid stable format due to their molecular complexity. As a result, an increasing number of novel drugs and vaccines are now being approved by regulatory agencies in a lyophilized format for reconstitution at the point of delivery. Some pharmaceutical companies are also developing injectable therapies that require the mixing of two liquid drugs at the point of delivery.
Lyophilized drugs and vaccines have traditionally been supplied in a vial or ampoule for reconstitution at the point of delivery. Reconstitution from a vial or ampoule can require a dozen or more steps of use, with the level of complexity required for this procedure making lyophilized drugs largely unsuitable for patient self-administration. In recent years, some pharmaceutical companies have begun to develop or market certain drugs for use in a dual-chamber prefilled syringe format. A dual-chamber prefilled syringe can contain either a lyophilized or liquid stable drug in one USP compliant container, and another liquid stable drug or diluent in a second container. Operators are required to undertake several steps to mix or reconstitute the drug combination so that the injectable therapy is ready for administration. The process of reconstitution using traditional dual-chamber prefilled syringes may compromise drug sterility, require the use of secondary vent filters or for the operator to hold the device at a particular angle.
Unilife has developed the EZMix™ platform of dual or multi-chamber prefilled syringes to serve as a safe, simple and efficient system for the reconstitution and delivery of combination injectable therapies. An innovative and proprietary reconstitution technology allows healthcare workers or patients to intuitively mix together a combination of liquid or lyophilized drugs with minimal steps. The process of reconstitution is ventless and orientation-free to maintain sterility and minimize the risk of drug wastage. The EZMix syringe utilizes the Unifill platform of fully integrated and automatic safety features to virtually eliminate the risk of needlestick injuries, prevent device reuse and encourage convenient, safer disposal. Product configurations include the EZMix syringe with a staked retracting needle, and the EZMix Select with attachable retracting needles.
Wearable Injectors
A significant number of drugs within the clinical pipeline of pharmaceutical companies are biologics, such as monoclonal antibodies, that are being targeted for subcutaneous self-administration by patients. In many cases, the molecular complexity of these drugs makes them too viscous for formulation in dose volumes of 1mL or less that would typically be used for hand-held injection with a prefilled syringe or auto-injector. To accommodate the containment and delivery needs of these injectable therapies requiring large dose volumes of between 1mL and 30mL and extended duration times of minutes or hours, a new class of wearable injectors (also known as patch pumps) has been recently established. We consider this market to be poised for rapid growth.
Unilife has developed a scalable, flexible portfolio of wearable injectors to meet the delivery needs of these large dose volume or long duration therapies. The devices utilize standard materials in the primary drug container and are compatible with standard filling processes and equipment. They are programmable to deliver the measured dose over seconds, minutes or hours at a constant or variable rate based upon the specific requirements of the pharmaceutical customer, their drug and the target patient. Other proprietary features include no requirement for the terminal sterilization of an assembled device, an on-body safety lock to avoid premature activation, and the automatic insertion of a flexible catheter for patient comfort. Multiple customization options are available to pharmaceutical companies.
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Ocular Delivery Systems
Unilife has developed a number of innovative technologies to enable and enhance the localized or targeted delivery of drugs to the eye including:
| | • | | Ocu-ject™ is designed to deliver microliter sized doses of drugs between 10 uL and 500 uL to the eye at a level of precision not possible with conventional syringes. By minimizing over-dosing, the device has the potential to reduce the risk of increased intraocular pressure (IOP) and potentially minimize damage to the optic nerve. By further minimizing the risk of under-dosing, the device has the potential to help avoid delivery of a drug below its therapeutic window where its clinical efficacy may be compromised. |
| | • | | Depot-ject™ is designed to enable the precise placement of a drug depot into the vitreous of the eye using a standard technique. The product is supplied ready for use, with the drug depot contained within the lumen of the needle. The device is designed to mitigate potential damage to the depot during implantation and help maintain the kinetics profile of drug evolution. User-controlled withdrawal of the needle directly from the body following implantation further helps to prevent needlestick risk and enable convenient, safe disposal. |
Specialized Delivery Systems
There are many acute and chronic conditions with high prevalence but without effective treatment options. Many pharmaceutical companies have several early stage yet promising molecules in their clinical pipelines that have the potential to redefine treatment for these conditions. However in many cases, due to the novel nature of the therapy, application or procedure, these novel molecules can require a specialized delivery system to enable their commercialization and approval. There are also many approved drugs utilizing conventional device technologies that limit the drugs’ clinical efficacy and hence provide for sub-optimal clinical outcomes. Such therapies and drugs can significantly benefit from specialized delivery systems such as those that we anticipate being able to develop or customize.
We are developing a series of specialized device technology platforms that can help to enable or enhance administration of these novel therapies. The Micro-ject™ is specifically designed to optimize the delivery of drugs with microliter doses that are unsuited to conventional device technologies. Designed with ergonomic, customizable features, Micro-ject has the potential to enable accurate, precise delivery of microliter doses. Steps of use are equivalent to conventional devices to help minimize the need for additional training. By avoiding underdosing or overdosing, the delivered drug amount is within the desired, indicated therapeutic window. The delivery of the drug at levels of accuracy and precision that are consistent with the indicated volume on the drug label can further optimize compliance with regulatory requirements Micro-ject is designed for integration with standard drug containers, materials and pharmaceutical fill-finish systems, and requires minimal steps of use. Additional products where Unilife is collaborating with pharmaceutical companies include a specialized device to deliver a pipeline drug to a targeted organ of the human body.
Business Strategy
We develop and manufacture innovative, differentiated drug delivery systems that we supply to pharmaceutical customers under long-term partnerships; so they can enable and enhance their injectable therapies. Our strategy is based upon addressing a series of unmet and emerging market needs via a business model that encourages a diversified base of product platforms, pharmaceutical customers and revenue streams.
We participate in the global market for injectable drug delivery systems, which is valued at more than $10 billion with a compound annual growth rate of 11%. Our strategy is to penetrate many of the largest and fastest growing market sectors where pharmaceutical companies have significant unmet needs and where the conventional products supplied by incumbent device manufacturer’s offer little scope for differentiation. In the
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$2 billion prefilled syringe market, we have the world’s first and only range of products with automatic, integrated needle retraction. In the auto-injector market, which is expected to more than double in size over the next five years, we have the only selection of electromechanical, reusable and disposable systems with true end-of-dose indicators. We also have innovative proprietary technologies for other market sectors poised to experience strong growth this decade including wearable injectors, reconstitution and mixing systems (dual-chamber syringes), intraocular delivery systems and novel devices. There are few other companies operating across all of these sectors that comprise the injectable drug delivery market, with high barriers of entry and established competition being largely fragmented.
Pharmaceutical companies are rapidly shifting away from the use of inflexible commodity devices to innovative, differentiated technologies that can enable or enhance the delivery and commercial success of injectable drugs and vaccines. A number of unmet needs and emerging market trends are driving this shift. A large and growing share of pharmaceutical revenue is now generated by high-cost injectable biologics that are approved and marketed as drug-device combination products. The molecular complexity of biologics means many of these drugs are best suited to containment and delivery in devices that can address specific formulation and target patient requirements. With half of healthcare expected to occur outside of healthcare facilities within a decade, many biologics and other therapies are being targeted for self-injection by well-defined patient populations. Safe, simple, convenient and elegant devices can drive therapy compliance and build preference amongst patients, payors and prescribers for one drug against brand-name, generic or biosimilar competition. These device-driven benefits can be leveraged by pharmaceutical companies to build or protect market share and maximize revenues. Our business model is aligned around these and other market needs for injectable drug delivery.
As a market-driven company committed to addressing unmet customer and patient needs, we have developed what we consider to be one of the most extensive and differentiated portfolios for injectable drug delivery in our industry. Unlike incumbent device manufacturers, we only develop platform-based technologies with market-leading features that are highly proprietary to us. We can rapidly customize products from each of these established platforms to address specific customer, therapy, manufacturing and patient requirements. We believe the breadth, depth, flexibility and differentiation of our portfolio makes us attractive to pharmaceutical customers who are seeking a preferred partner for the supply of high-quality products that can optimize the clinical development and commercial lifecycles of their injectable therapies. With most pharmaceutical companies having a large portfolio of pipeline and approved injectable drugs and vaccines, each of these relationships has significant potential to expand over time as additional programs are added to the partnership.
We have a large and rapidly expanding patent portfolio that seeks to provide IP protection in the U.S. and other international territories. For every granted patent, we have many more filed and in various stages of examination. Our patent portfolio is evenly distributed among all our technology platforms. To protect both our commercial interests, as well as our customers, we aggressively defend our novel intellectual property including functional aspects of our technologies, components, processes and methods of use, as well as other aspects of the manufacturing or assembly process that may provide a market advantage. Independent third-party analyses and opinions have been performed for our products so Unilife and its customers can maintain freedom to operate.
Our modern state-of-the-art U.S. based production facilities, advanced operational capabilities and high-performance team are well-established and structured to support the continuous development, production and supply of our devices to a growing base of pharmaceutical customers. These broad business capabilities are driven by fully-integrated enterprise software and quality management systems that complement those of our pharmaceutical customers. We have established a world-class team with deep scientific expertise and broad technical capabilities that have been attracted to join Unilife, with most having held senior roles at other leading medical device and pharmaceutical companies. By aligning our operational strengths and human expertise around a business structure and quality systems that enable us to support customer needs with speed, agility and reliability, we seek to out-innovate and out-perform the competition.
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As a developer, manufacturer and supplier of an extensive portfolio of proprietary injectable drug delivery systems, we do much more than simply sell injectable drug delivery systems to pharmaceutical companies. Rather than competing against commodity products on the basis of price, our focus is to create value for our customers by offering a broad portfolio of best-in-class technologies that are user-preferred, customizable and visually distinctive to the competition. Furthermore, our business flexibility enables us to enter into contracts that give customers the opportunity to leverage the unique benefits we can offer to generate powerful differentiation for their injectable therapies. In some cases, Unilife may benefit from the unique value we can potentially generate for customers, via the receipt of upfront fees for the exclusive right to purchase a product within a particular therapeutic class, sub-class, indication or drug. In other instances, we may receive a royalty of commercial sales of the drug itself. We consider such symbiotic partnerships between drug and device manufacturers to be the way of the future.
The partnerships that we establish with pharmaceutical companies may originate during the early or late-stage clinical development of their injectable therapies and continue through the entire commercial lifecycle. With many injectable therapies classified by regulatory authorities as drug-device combination products, our delivery systems can play an important role in the successful clinical development and approval of a biologic, drug or vaccine. In some cases, novel features of our products, which are integral to generating successful clinical outcomes for an injectable therapy may obstruct the future entry of generic or biosimilar rivals that cannot attain equivalent claims. With the delivery systems we develop and sell being proprietary to us, many customers seek to secure continuity of supply by entering into long-term contracts that can generate a reliable stream of recurring revenue to Unilife over many years.
We supply our products to a well-defined base of pharmaceutical and biotechnology companies active in the market for injectable drugs and vaccines under a business-to-business (B2B) model that is designed for maximum efficiency. We do not manufacture our own components or materials, but instead source them from a network of established, reliable suppliers ready for assembly at our facilities. We then supply our products to pharmaceutical manufacturers in a sub-assembly format where they are filled and packaged with the injectable drug or vaccine. With the pharmaceutical customer being primarily responsible for final packaging, shipment, regulatory approval and commercial marketing of the drug-device combination product, we do not require extensive sales and customer support networks. This streamlined business model supports minimal SG&A compared to typical device manufacturers and provides Unilife with attractive target operating margins in the long-term.
The long-term partnerships we build with each pharmaceutical customer create multiple opportunities to generate attractive revenue streams. Potential sources of revenue from each drug program with a customer may include clinical development and customization programs, commercial supply contracts, exclusivity or licensing fees and royalties from net drug sales. The long-term nature of these partnerships may see us initially generate revenue via the customization of one of our products for use with a target drug to support clinical trials or as part of a lifecycle management strategy. Commercial supply contracts can follow which may extend for many years due to the proprietary nature of our devices. Where both parties consider it favorable, we may also receive revenue from exclusivity fees, licensing fees or drug royalties in exchange for the granting of some level of exclusive access to our device within a target area. With each incremental contract capable of generating recurring, accelerating revenue over multiple years, our business model creates the opportunity for sustained rates of business growth.
Commercial Relationships
We are actively seeking to build long-term partnerships with many pharmaceutical and biotechnology companies to address their injectable drug delivery needs and differentiate their products from the competition. We are at various stages in the development of commercial relationships with a number of current and prospective pharmaceutical customers. For the Unifill syringe, we have begun to secure, and seek to secure additional, commercial supply contracts with pharmaceutical and biotechnology companies. These relationships
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may include the signing of commercial agreements relating to the sale of the Unifill syringe, or the provision of exclusive access to the device within designated therapeutic sub-classes in exchange for upfront fees or royalty payments. These relationships may originate with a single device requirement, and progressively expand over time as we address additional areas of customer need.
During the past year we have signed a long-term supply contract with Biodel, Inc. for the EZ-Mix and a long-term supply contract with Sanofi for the Unifill Finesse. There are also active, ongoing discussions with pharmaceutical and biotechnology companies regarding the development and use of our other proprietary devices mentioned above. We expect to enter into customization or clinical development programs with some of these pharmaceutical companies to develop, customize and supply our proprietary devices for use with target pipeline and approved drugs.
Subject to the successful clinical development and regulatory approval of these drug-device combination products, we anticipate entering into long-term supply agreements for the production and sale of these devices to the pharmaceutical company. These partnerships may also include the payment of exclusivity or access fees to enable the pharmaceutical company to generate brand differentiation within a therapeutic drug class against other brand-name, generic or biosimilar competitors.
Manufacturing
Our center of operations is a state-of-the-art manufacturing facility located in York, Pennsylvania. This FDA-registered facility serves as an integrated center for device innovation, bringing together the people, production systems, design expertise and quality processes necessary to design and develop best-in-class drug delivery systems. Designed by architects who have substantial experience in designing facilities used to develop, produce and supply medical devices, the facility plays a key role in ensuring that we comply with stringent internal and industry standards for quality and reliability.
Our 165,000 square-foot site includes eleven Class 7 and Class 8 clean rooms totaling 40,000 square feet in size. Environmental factors, including temperature, moisture and particulates, are tightly controlled. Additional features include a ‘Water for Injection’ system, bio-analytical and quality laboratories, a product development center, a machine shop and a 20,000-square-foot warehouse. We believe the facility gives us the capacity to meet the immediate requirements of our pharmaceutical customers, and to progressively expand in line with the development and commercial launch of a series of drug-device combination products.
Activities undertaken at the site include device design, rapid prototyping, pilot and commercial production, bio-analytical testing, packaging, quality assurance and supply chain. All activities at Unilife are guided by advanced business systems, such as SAP ERP, that complement those of pharmaceutical companies. Our Quality Management System is fully certified to ISO 13485 and operates in compliance with 21 CRF 210/211 for pharmaceuticals and 21 CFR 820 for medical devices.
We source the production of components and other raw materials utilized in the production of our proprietary devices under written contracts with a variety of suppliers, all of which specialize in the medical device and pharmaceutical sectors. These components are shipped to our York, Pennsylvania facility for quality review, assembly, qualification and packaging. All of our proprietary devices are assembled by us at our York, PA facility utilizing pilot or commercial assembly systems.
Sales and Marketing
The majority of the pharmaceutical and biotechnology companies with whom we are in active discussions are multinational companies with headquarters located in the United States, Europe or Asia. In the majority of cases, these pharmaceutical and biotechnology companies are large multinational organizations which are ranked as being among the top twenty in the world. The majority of these pharmaceutical companies specialize in the development of a range of brand-name or generic injectable drugs and vaccines.
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Our pharmaceutical customers are primarily responsible for the sale, marketing and clinical use of the combination drug-delivery device to target government agencies, healthcare facilities or patients who self-administer prescription medication within indicated therapeutic drug classes. We expect to support pharmaceutical companies in the development of documentation or marketing material pertaining to the recommended clinical use of the device with the contained drug or vaccine.
We have a small internal team focused on the commercial development, strategic marketing, clinical support and sale of our proprietary devices to pharmaceutical and biotechnology companies. Many members of this team have strong industry expertise and deep relationships within the pharmaceutical market, which are utilized to generate and progress commercial discussions. In addition, we also receive direct inquiries or Request for Proposals from pharmaceutical companies regarding the potential use of our devices with their target drugs. In some instances, we expect to be approached by pharmaceutical companies with unmet needs for a drug delivery system, whereby we will develop and customize the device to address the specific molecular and patient requirement of the target drug. We also attend a number of industry events, trade shows and conferences, and advertise within selected industry media publications whereby we exhibit, network and promote our products and services to prospective customers.
Intellectual Property
Patents, trademarks and other proprietary rights are very important to our business. We hold numerous patents and patent applications covering our existing and future products and technologies. We also rely on a combination of trade secrets and manufacturing know-how to protect our intellectual property. We enter into non-disclosure agreements with certain vendors and suppliers to attempt to ensure the confidentiality of our technology. We also enter into non-disclosure agreements with certain customers. In addition, we require that all our employees sign confidentiality, non-compete and intellectual property assignment agreements. Our focus is to safeguard the intellectual property surrounding our devices, manufacturing processes, and other related technologies to protect not only our position and growth opportunities, but also that of our strategic partners and customers.
As of July 2013, we had approximately 96 issued patents relating to our safety syringe and primary drug container platforms across more than 24 worldwide jurisdictions, including the United States, Australia, Europe and China. Patents relating to our safety syringe technologies expire at various dates between 2018 and 2032, though patent applications covering relevant advancements in these technologies could extend well beyond that time period once granted.
We also have many additional patent applications pending examination with the USPTO and other international patent organizations which we expect to be granted as patents over the next two years. A significant number of other patent applications are expected to be filed with national and international patent organizations during fiscal year 2014. Unilife’s patent filings have more than doubled in the last two years and now cover all of our product platforms. Unilife’s patent portfolio covers current and anticipated product offerings, as well as process improvements and other value-added innovations which streamline our customers’ assembly and drug filling processes.
Additionally, we have registered worldwide trademarks including Unilife® and Unifill®, and are pursuing trademark registration for our other proprietary device platforms in a number of key countries and regions including the United States.
Government Regulation
The development, manufacture, sale and distribution of medical devices are subject to comprehensive government regulation. Our medical devices and manufacturing operations are subject to regulation under the federal Food, Drug and Cosmetic Act, or the FDC Act, as implemented and enforced by the FDA and various
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other federal and state agencies and are also subject to regulation by foreign governmental agencies. These laws and regulations govern the development, testing, manufacturing, labeling, advertising, marketing and distribution and market surveillance of medical devices.
FDA’s Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to distribute commercially in the United States will require either prior 510(k) clearance or premarket approval from the FDA. The FDA classifies medical devices intended for human use into three classes: Class I, Class II and Class III. Class I or Class II devices require the manufacturer to submit to the FDA a premarket notification requesting permission to commercially distribute the device. This process is generally known as 510(k) clearance. Class III devices require premarket approval. Our Unifill syringes are one example of a device platform within our portfolio that does not require 510(k) clearance because it will be sold to drug manufacturers in its component parts for use as a primary packaging container.
There is a different regulatory process that will apply to our Unifill syringe because it will not be distributed as a device. It will be used as a primary container by drug manufacturers to provide drugs in a prefilled format. In the case of the Unifill syringe, it is the responsibility of the pharmaceutical company who will use the Unifill syringe for its drug to obtain final product approvals, either by submitting a new drug application or abbreviated new drug application. In order to support the pharmaceutical company’s application, we intend to create what is known as a Drug Master File (“DMF”). A DMF is a submission to the FDA that may be used to provide information about facilities, processes or articles used in the manufacturing, packaging and storing of one or more human drugs. The DMF will define the manufacturing and safety characteristics of the Unifill syringe while protecting proprietary information regarding its technical design.
510(k) Clearance Pathway
When applying for 510(k) clearance, we must submit a premarket notification demonstrating that our proposed device is substantially equivalent to another legally marketed product (i.e., that it has the same intended use and that it is as safe and effective as a legally marketed, or predicate device and does not raise different questions of safety or effectiveness than does a predicate device). According to FDA regulations, the FDA is required to clear or deny a 510(k) premarket notification within 90 days of submission of the application, or 30 days in the case of an abbreviated 510(k) application that may be filed for product line extensions. As a practical matter, 510(k) clearance often takes between three and twelve months.
Premarket Approval Pathway
A premarket approval application must be submitted to the FDA if the device cannot be cleared through the 510(k) process. A premarket approval application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. To the best of our knowledge, this process does not apply to our current range of products.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements apply. These include, but are not limited to the following:
| | • | | Quality System Regulations, or QSR, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process; |
| | • | | Labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or “off label” uses; |
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| | • | | Medical device reporting regulations, which require that manufacturers report to the FDA and other regulatory agencies that their device may have caused or contributed to the death or serious injury or malfunctioned in a way that would likely cause or contribute to the death or serious injury if the malfunction were to occur; and |
| | • | | Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our manufacturing subcontractors. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any or all of the following sanctions:
| | • | | Fines, injunctions, consent decrees and civil penalties; |
| | • | | Recall or seizure of our products; |
| | • | | Operating restrictions, partial suspensions or total shutdown of production; |
| | • | | Refusing our requests for 510(k) clearance or premarket approval of new products or new intended uses; |
| | • | | Withdrawing 510(k) clearance or premarket approvals that are already granted; and |
Regulation in the European Union and Australia
The European Union has adopted numerous directives regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of the relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member states of the European Union. The method of assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third party assessment by a “Notified Body” which is an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s device. An assessment by a Notified Body in one member state of the European Union is required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 9001 and ISO 13845 are voluntary harmonized standards. In July 2009, we received our ISO 13485:2003 quality system certification. Our certification includes the design, development, production and distribution of safety syringes, ready to fill syringe components and drug delivery devices.
In Australia, the Therapeutic Goods Administration, or TGA, is responsible for administering the Australian Therapeutics Goods Act. The Office of Devices, Blood and Tissues is the department within the TGA responsible for medical devices. The Australian Register of Therapeutic Goods, or ARTG, controls the legal supply of therapeutic goods in Australia. The ARTG is the register of information about therapeutic goods for human use that may be imported, supplied in, or exported from Australia. Any use of an unapproved medical device in humans, even in pilot trials, requires an exemption from the requirement for inclusion on the ARTG. U.S. manufacturers seeking to market product in Australia must acquire CE certification and lodge manufacturer evidence, including the CE certificate and a Declaration of Conformity to Australian Requirements, with the TGA. The lodging of this information with the TGA is completed by an Australian sponsor, with the assistance/support of the manufacturer. Upon TGA acceptance of the manufacturer evidence, the Australian sponsor/manufacturer must create a medical device inclusion in the ARTG and only is then able to release U.S.-manufactured product in Australia.
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With regard to the regulatory process in the European Union and Australia for the Unifill syringe, as in the case of the U.S., it is the responsibility of the pharmaceutical company who will use the Unifill syringe for its drug to obtain final product approvals.
Other Regulations
We are also subject to various federal, state and local laws and regulations, both in the United States and other international territories where we conduct business, relating to such matters as safe working conditions, laboratory and manufacturing practices and the use, handling and disposal of hazardous or potentially hazardous substances used in connection with our research and development work. Although we believe we are in compliance with these laws and regulations in all material respects, we cannot provide assurance that we will not be required to incur significant costs to comply with such laws or regulations in the future.
We are subject to various federal, state and local laws in the United States targeting fraud and abuse in the healthcare industry, which generally prohibit us from soliciting, offering, receiving or paying any remuneration in order to induce the ordering or purchasing of items or services that are in any way paid for by Medicare, Medicaid or other government-sponsored healthcare programs. Healthcare costs have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies around the world. The U.S. federal government continues to scrutinize potentially fraudulent practices affecting Medicare, Medicaid and other government healthcare programs. Payers have become more influential in the marketplace and increasingly are focused on drug and medical device pricing, appropriate drug and medical device utilization and the quality and costs of healthcare. Violations of fraud and abuse-related laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs outside the United States.
Competition
The healthcare equipment, pharmaceutical and medical device industry sectors in which we operate are highly competitive. We compete with many companies, both public and private, that range in size from small, highly focused businesses to large diversified multinational manufacturers of healthcare and pharmaceutical equipment, as more fully described below. Some of the large and established companies we are aware of which are active in the injectable drug delivery device market include Becton Dickinson (“BD”), SCHOTT forma vitrum AG (“Schott”), Baxter Biopharma, Gerresheimer Bünde GmbH (“Gerresheimer”), West Pharma, and Ypsomed. We believe that collectively, these companies represent the significant majority of total revenues for this market, with BD having the largest share. Most of these companies are larger and better-capitalized than we are and have an extensive base of pharmaceutical customers. However, we are aware of very few, if any, other companies, that have developed a broad and diversified portfolio of primary drug containers and other injectable drug delivery systems that are suitable for drugs and vaccines supplied in either a liquid stable or reconstitution form for injection as Unilife’s.
Ready-to-Fill (Prefilled Syringes)
We do not believe there are any other companies that offer a ready-to-fill syringe with safety features which are fully integrated within the glass barrel. However, there is a highly concentrated market for the production of standard ready-to-fill syringes for supply to pharmaceutical manufacturers. We are aware of five companies which specialize in the production and supply of glass ready-to-fill syringes. These companies are BD, Gerresheimer, MGlas AG, Schott and Nuova Ompi. We estimate the market concentration rate for these five companies to be approximately 95%. We believe BD’s market share to be in excess of 50%, as it has supply relationships with most pharmaceutical companies and contract manufacturing organizations. Of these five aforementioned companies, we believe that BD is the only one which also markets and supplies ancillary safety products for attachment onto standard prefilled syringes to assist pharmaceutical companies in their compliance with needle stick prevention laws. We are aware of another specialist supplier of ancillary safety products, Safety Syringes Inc, which has contracts with a number of pharmaceutical manufacturers.
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Auto-Injectors
The global market for patient self-injection devices such as auto-injectors is relatively consolidated, with BD and a handful of other companies including Ypsomed, Owen Mumford and SHL Group holding the majority of market share.
Wearable Injectors
The global market for wearable injectors (also known as patch pumps) targeted for the administration of large volume, highly viscous biologics (outside of the diabetes class) is emerging. We are not aware of any company that commercially markets these systems in a volume size of 5mL or larger. Companies which are active in the more general market for patch pump infusion systems targeted for use with insulin include large established companies such as BD and Medtronic, as well as smaller companies such as Insulet.
Research and Development
During the fiscal years ended June 30, 2013, 2012 and 2011, we invested approximately $21.7 million, $23.1 million and $9.6 million, respectively, on research and development of our technologies. Research and development costs include activities related to the research, development, design, testing and manufacturing of prototypes of our products. They also include clinical activities and regulatory costs as well as expenses associated with certain consultants engaged in research and development activities along with a portion of the overhead costs we incur to operate our manufacturing facility. The increase in research and development activities largely related to the expansion of the company’s portfolio of injectable drug delivery systems.
Employees
As of September 6, 2013, we had 159 employees and associates, of whom 123 are engaged in operations activities including research and development, quality assurance and manufacturing activities, 7 are engaged in sales, marketing and clinical activities and 29 are engaged in finance, legal and other administrative functions. Most of our employees and all of our executive officers are located at our York, Pennsylvania facility. A small number of our employees, mainly focused on research and development, are located in King of Prussia, Pennsylvania and Australia. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be good.
Corporate History
Unilife Corporation was incorporated in Delaware on July 2, 2009 as a wholly-owned subsidiary of UMSL. As we describe in more detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Redomiciliation.”, on January 27, 2010, Unilife Corporation became the parent company of UMSL upon completion of the redomiciliation and UMSL’s shareholders and option holders exchanged their interests in UMSL for equivalent interests in Unilife Corporation. Our principal executive offices are located at 250 Cross Farm Lane, York, Pennsylvania 17406. Our telephone number is +1 717 384 3400.
UMSL was incorporated on June 28, 1985, in South Australia, Australia. The registered office of UMSL is located at 1 Chifley Square, Sydney NSW 2000. Originally known as Musgrave Block Holdings Limited, UMSL acquired all of the issued shares of Unitract Pty Limited in November 2002, and changed its name to Unitract Limited (now Unilife Medical Solutions Limited), listed on the Australian Securities Exchange, or ASX under the ticker “UNI” and continued the business operations of Unitract Pty Limited and the development of Unitract Pty Limited’s retractable syringe project. In January 2007, in order to obtain a manufacturing presence in the United States, UMSL acquired all the stock of Integrated BioSciences, Inc., a Pennsylvania-based company, which in February 2009 changed its corporate name to Unilife Medical Solutions, Inc. At the time of its acquisition by UMSL, Integrated BioSciences, Inc. was in the business of contract manufacturing of syringes for third parties and developing automated assembly equipment.
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Financial Information about Geographical Areas
See Note 3 to our consolidated financial statements for information regarding our revenues by geographic area.
Available Information
We maintain an internet website atwww.unilife.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” portion of our website, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. The information posted on our website is not incorporated into this Annual Report on Form 10-K.
Directors and Executive Officers
The following table sets forth the name, age and position of each of our directors and executive officers.
| | | | | | |
Name | | Age | | | Position |
Slavko James Joseph Bosnjak | | | 64 | | | Chairman and Director |
Alan Shortall | | | 59 | | | Director and Chief Executive Officer |
John Lund | | | 47 | | | Director |
William Galle | | | 73 | | | Director |
Jeff Carter | | | 55 | | | Director |
Mary Katherine Wold | | | 60 | | | Director |
Ramin Mojdeh | | | 51 | | | Chief Operating Officer and Executive Vice President |
R. Richard Wieland II | | | 68 | | | Chief Financial Officer and Executive Vice President |
Mark V. Iampietro | | | 60 | | | Vice President of Quality and Regulatory Affairs |
J. Christopher Naftzger | | | 46 | | | Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer |
Biographical Summaries
Slavko James Joseph Bosnjak. Mr. Bosnjak has served as our director since February 2003 and as chairman of our board since April 2006. Mr. Bosnjak has been a co-owner and director of the Le Meridien Lav Hotel in Split, Croatia since 2002 and is chairman and co-founder of Ultimate Outdoor Ltd., an Australian outdoor advertising company. Mr. Bosnjak is chairman of Chiron Commercial Vehicles Pty Ltd., a Malaysian company which manufactures bus bodies for export to Australia. He has also held positions on Commonwealth and New South Wales government advisory bodies, including the Greater Western Sydney Economic Development Board, and the GROW Employment Council. Mr. Bosnjak also served as the Chairman of the Tourism Council of Australia and Bus 2000 Ltd, which coordinated bus services for the Sydney 2000 Olympic Games. Mr. Bosnjak was awarded an Order of Australia Medal in 1994 for his services to transport and the community, and also holds an honorary doctorate from the University of Western Sydney for his services related to employment growth and economic development.
Alan Shortall. Mr. Shortall has served as our Chief Executive Officer since September 2002. Mr. Shortall founded Unilife in July 2002 and has guided the growth of Unilife since then. In 2008, the trade magazineMedical Device and Diagnostic Industrynamed him as one of 100 Notable People in the medical device industry worldwide.
John Lund. Mr. Lund has served as our director since November 2009. Mr. Lund has also served as managing partner of M&A Holdings, LLC, a private consulting company since July 2003, and Upstart CFO, LLC since December 2010. Upstart CFO provides interim CFO and financial consulting to various clients primarily in the healthcare industry. Mr. Lund was vice president of finance and controller of E-rewards, Inc., an internet
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market research company from February 2009 to March 2011, and vice president and controller of Nexstar Broadcasting Group, Inc., a NASDAQ listed television broadcasting company in 2008. Prior to that, Mr. Lund held chief financial officer and controller positions for various public and private companies, and was a manager at KPMG. Mr. Lund received theCertificate of Director Educationfrom the National Association of Corporate Directors (NACD) and completed various corporate governance courses at Harvard during 2010. Mr. Lund, a certified public accountant, graduated from University of North Texas and has an MBA from Kellogg School of Management. Mr. Lund is a member of the NACD, Financial Executive Institute, American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants.
William Galle. Mr. Galle has served as our director since June 2008. Since 2009, Mr. Galle has been affiliated as an investment banker with Bradley Woods, a 40 year-old New York City-based independent research and investment banking firm specializing in federal regulatory and legislative developments impacting substantial investor portfolios. Since 1993, Mr. Galle has been President of Diversified Portfolio Strategies LLC (DPS) in Washington D.C., which provides alternative investment advisory services for institutions and substantial investors. DPS clients have included public and private retirement plans and Fortune 500 companies. Prior thereto, he was Vice President of Pension Services and consultant for Smith Barney, Harris Upham. He also held the position of Director at NASDAQ Corporate Services for the National Association of Securities Dealers, Inc. in Washington D.C. Mr. Galle is a graduate of Columbia University, Rutgers University, and the New York Institute of Finance.
Jeff Carter. Mr. Carter has served as our director since April 2006. From February 2005 until January 2009, Mr. Carter served as Chief Financial Officer of UMSL. He has also served as Company Secretary of UMSL from March 2007 to July 2010. Mr. Carter is a chartered accountant and holds a master’s degree in applied finance from Macquarie University. Mr. Carter was a Chief Financial Officer of various publicly listed healthcare companies prior to joining UMSL in February 2005. Prior to entering the healthcare industry, Mr. Carter held Senior Management positions with Coca-Cola, Santos, Canadian Imperial Bank of Commerce and Touche Ross. Mr. Carter has in excess of 30 years of experience in professional accounting, investment banking, corporate finance and commercial/strategic planning roles.
Mary Katherine Wold. Ms. Wold has served as our director since May 2010. Ms. Wold serves as Chief Executive Officer of the Church Pension Fund, which oversees defined benefit and defined contribution pension plans for clergy and lay employees of the Episcopal Church. Prior to her position at the Church Pension Fund, Ms. Wold served as Senior Vice President of Finance from 2007 to 2009, Senior Vice President of Tax and Treasury from 2005 to 2007 and Vice President of Tax from 2002 to 2005, of Wyeth, a NYSE-listed pharmaceutical company, which was acquired by Pfizer in October 2009. Prior thereto, Ms. Wold spent 17 years with the international law firm of Shearman & Sterling based in New York, specializing in international tax planning for multinational corporations and in the tax aspects of mergers and acquisitions, capital markets and private equity transactions. Ms. Wold received her law degree from the University of Michigan and her Bachelor of Arts degree from Hamline University.
Ramin Mojdeh. Dr. Mojdeh has served as Chief Operating Officer and Executive Vice President since February 2011. Dr. Mojdeh served as Vice President and General Manager of BD Pharmaceutical Systems, North America between 2008 and 2010 and Worldwide Vice President of Research and Development, BD Medical between 2002 and 2008. Dr. Mojdeh received a Ph.D. in Computer Science from the University of Minnesota, Minneapolis, MN and his MBA from the Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois.
R. Richard Wieland II. Mr. Wieland has served as Chief Financial Officer and Executive Vice President since June 2010. Mr. Wieland served as Chief Financial Officer of Cytochroma Inc., a privately-held specialty pharmaceutical company, from May 2008 to May 2009 and served as Executive Vice President and Chief Financial Officer of Advanced Life Sciences Holdings, Inc., a Nasdaq listed clinical-stage biopharmaceutical company, from June 2004 to April 2008. Mr. Wieland obtained his B.A. in Accounting and Economics from Monmouth College and his MBA from Washington University.
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Mark V. Iampietro. Mr. Iampietro has served as Vice President of Quality and Regulatory Affairs of UMSL since October 2008 and of Unilife Corporation since November 2009. From May 2002 to July 2008, Mr. Iampietro was Vice President of Quality, Regulatory and Clinical Operations at Spherics, Inc., a pharmaceutical manufacturer, where he managed various phases of quality, regulatory, and clinical programs. Mr. Iampietro holds American Society for Quality certifications as both a quality and reliability engineer and holds a Bachelor of Science degree in life sciences with a minor in engineering from Worcester Polytechnic Institute.
J. Christopher Naftzger. Mr. Naftzger has served as Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer of Unilife Corporation since July 2010. Mr. Naftzger served as Assistant General Counsel and Assistant Secretary of Chesapeake Corporation, a NYSE traded packaging company for the pharmaceutical and healthcare industries, from July 2007 to May 2009 and served as Senior Counsel of Koch Industries, Inc., the second largest privately held company in the U.S., from June 2006 to June 2007. Prior to joining Koch, Mr. Naftzger was a partner at Blank Rome LLP, an international Am Law 100 firm. Mr. Naftzger obtained his B.A. in History and Political Science from Hampden-Sydney College and his J.D. from the Willamette University College of Law.
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Our business faces many risks. We believe the risks described below are the material risks facing the Company. However, the risks described below may not be the only risks we face. Additional unknown risks or risks that we currently consider immaterial may also impair our business operations. If any of the events or circumstances described below actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our shares of common stock could decline significantly. Investors should consider the specific risk factors discussed below, and the other information contained or incorporated by reference herein and the other documents that we file from time to time with the Securities and Exchange Commission.
Risks Relating to Our Business
We may need additional funding to meet our capital needs. Such funding may not be available on favorable terms, if at all, and may be dilutive to our existing stockholders.
We may need to obtain additional funding for our product development programs and commercialization efforts. We cannot provide assurance that we will be able to raise additional funding, if needed, on terms favorable to us, or at all. If we raise additional funds from debt financing, we may be obligated to abide by restrictive covenants contained in the debt financing agreements, which may make it more difficult for us to operate our business. If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing shareholders will be reduced, our shareholders may experience additional dilution in net book value, and such equity securities may have rights, preferences or privileges senior to those of our existing shareholders. If we are unable to secure additional funding, our ability to continue operations could be adversely effected.
We have received an audit report that includes an explanatory paragraph stating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern on our fiscal 2013 consolidated financial statements.
The continuation of our Company as a going concern is dependent upon our attaining and maintaining profitable operations and/or raising additional capital. Our independent registered public accounting firm included, in their audit report on our consolidated financial statements for the year ended June 30, 2013, an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing our liquidity. As a result of this uncertainty, we may have a more difficult time obtaining necessary financing.
Our success depends in large part on our ability to achieve substantial commercial sales of our products to customers. If we experience problems or delays in securing favorable agreements to supply our products to customers, our business, including our ability to generate significant revenues, will be materially and adversely affected.
The Unifill syringe is our primary product and, to date, we have derived substantially all of our revenues from our exclusive licensing and industrialization agreements with Sanofi related to its development. However, we have completed the industrialization program and have executed a supply agreement for the Unifill syringe with two pharmaceutical companies, but our ability to generate significant revenues will depend on our ability to negotiate successfully additional supply agreements for the Unifill syringe and our other drug delivery systems with other pharmaceutical companies and to begin supplying substantial quantities of such products under such agreements. Given the substantial size, complexity and long-term duration of many of these prospective agreements, some can take a significant time to negotiate and finalize. While we are in advanced stages of negotiating some of these agreements, we cannot assure you if or when we will be able to enter into any additional supply agreements for the Unifill syringe or our other drug delivery systems or what the terms of any such agreements will be. If we are unable to secure additional supply agreements for the Unifill syringe or our
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other drug delivery systems in a timely manner, our ability to generate significant revenues will be materially and adversely affected.
We have recently devoted significant attention and resources towards the development of other injectable drug delivery systems. We cannot give any assurance that we will be able to complete the development and successfully commercialize these systems.
A significant element of our strategy focuses on developing a broad portfolio of injectable drug delivery systems that deliver greater benefits to pharmaceutical companies, healthcare workers and patients. These new injectable drug delivery systems are a response to changes in drug technologies, industry standards and the emerging needs of pharmaceutical companies. Other device companies, and pharmaceutical companies, are also attempting to develop alternative therapies or drug administration systems such as needle-free or intradermal injection technology for the treatment or prevention of various diseases. Our success will depend on developing and commercializing new injectable drug delivery systems in order to meet the changing conditions of the marketplace. The development of these injectable drug delivery systems requires significant research and development, clinical evaluations, regulatory approvals and expenditures of capital. The results of our product development efforts may be affected by a number of factors, including our ability to innovate, develop and manufacture new products, complete clinical trials, obtain regulatory approvals and secure customer orders for these products. In addition, patents obtained by others can preclude or delay our commercialization of a product. There can be no assurance that any products now in development, or that we may seek to develop in the future, will achieve technological feasibility, obtain regulatory approval or gain market acceptance. The development of new or improved products, processes or technologies by other companies may render our products or proposed products obsolete or less competitive.
We do not expect to be profitable unless, and until, we achieve commercial scale production and sales of the Unifill syringe and/or generate revenues from other propriety drug delivery systems.
We have incurred, and will continue to incur, significant R&D expenses related to the development and expansion of our proprietary portfolio of injectable drug delivery systems. We will also incur general and administrative expenses related to increasing our manufacturing operations, expanding our sales and marketing capabilities, seeking regulatory approvals, and complying with the requirements related to being a public company in both the United States and Australia. We will not be profitable until we are successful in achieving commercial scale production and sales of the Unifill syringe and/or are generating revenues from other proprietary drug delivery systems such as clinical development programs, industrialization programs, commercial supply contracts, or exclusivity or royalty fees.
The Unifill syringe has been designed to be compatible with the drug manufacturing systems currently utilized by Sanofi, which may hinder our ability to sell the product to other pharmaceutical customers whose manufacturing processes may not be compatible with our current product designs.
The Unifill syringe has been designed to be compatible with the drug filling and packaging systems of Sanofi. To our knowledge, the majority of fill-finish lines are designed and operated in a similar way. However, while the standard glass barrels to be used for the Unifill syringe are also currently utilized by most pharmaceutical companies, the specific processes used by other pharmaceutical companies to fill, manufacture or package prefilled syringes with an injectable drug product may vary from those of Sanofi. Furthermore, pharmaceutical companies may in some cases require the use of materials which are biocompatible with a particular drug compound and to which we do not have access. Such events may require design, material or process changes to our product, or restrict our ability to enter into supply relationships with other pharmaceutical companies and accordingly, may have a material adverse effect on our results of operations and financial condition.
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We may encounter difficulties managing our growth, which could materially harm our business.
We have rapidly expanded our operations, including our research and development, product development, regulatory, manufacturing, sales, marketing and administrative functions. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. To manage our growth and to develop and commercialize our products will require continued investment in procedures and systems relating to operational, financial and quality control processes, and continue to expand, train and manage our employee base. In addition, we will need to manage relationships with various manufacturers, suppliers, customers and other organizations. Our failure to accomplish any of these tasks could materially harm our business.
We will continue to incur significant costs as a result of being a public company in both the United States and Australia.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Being a public reporting company in the United States entails significant expense, including costs required for us to comply with the Sarbanes-Oxley Act of 2002. In addition, because our shares of common stock are also listed on the Australian Securities Exchange (“ASX”) in the form of CDIs, we are also required to file financial information and make certain other filings with the ASX. Our status as a reporting company in both the United States and Australia makes some activities more time-consuming and costly and causes us to incur legal, accounting and other expenses that are higher than those that are typically incurred by companies that are subject to reporting requirements in only one jurisdiction.
Our manufacturing facilities and the manufacturing facilities of our suppliers must comply with applicable regulatory requirements. If we or they fail to achieve or maintain regulatory approval for these manufacturing facilities, our business and our results of operations would be harmed.
Commercialization of our products requires access to, or the development of, manufacturing facilities that meet applicable regulatory standards to manufacture a sufficient supply of our products. In addition, the FDA must approve facilities that manufacture our products for US commercial purposes, as well as the manufacturing processes and specifications for the product. Suppliers of components of, and products used to manufacture, our products must also comply with FDA and foreign regulatory requirements, which often require significant time, money and record-keeping and quality assurance efforts and subject us and our suppliers to potential regulatory inspections and stoppages. We and our suppliers may not satisfy these requirements. If we or our suppliers do not achieve or maintain required regulatory approval for our manufacturing operations, our commercialization efforts could be delayed, which would harm our business and our results of operations.
If we experience interruptions in our manufacturing operations, our business will suffer.
We currently manufacture our products at our York, Pennsylvania facility, with no alternate facilities available. If we were to experience a manufacturing disruption as a result of damage or destruction of the building, equipment failure, acts of God or other force majeure events, our ability to satisfy our obligations to our customers would be adversely affected, which would harm our business and our results of operations.
The costs of raw materials have a significant impact on the level of expenses that we incur. If the prices of raw materials and related factors such as energy prices increase, and we cannot pass those price increases on to our customers, our results of operations and financial condition would suffer.
We use a number of raw materials including polymer plastics. The prices of many of these raw materials, such as those sourced from petroleum-based raw materials, are cyclical and volatile. While we would generally attempt to pass along increased costs to our customers in the form of sales price increases, we might not be able to do so, for competitive or contract-related reasons or otherwise. If we could not set our prices to reflect the costs of our raw materials, our results of operations and our financial condition would suffer.
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Disruptions in the supply of key raw materials and difficulties in the supplier qualification process could adversely impact our operations.
We employ a supply chain management strategy which seeks to source components and materials from a number of established third party companies. Where possible, we seek to establish dual contracts for the supply of particular components or services. However, there is a risk that our supply lines may be interrupted in the event of a supplier production problem, material recall or financial difficulties. If one of our suppliers is unable to supply materials required for production of our products or our strategies for managing these risks are unsuccessful, we may be unable to complete the production of sufficient quantities of product to fulfill customer orders, or complete the qualification of new replacement materials for some programs in time to meet future production requirements. Prolonged disruptions in the supply of any of our key raw materials, difficulty in completing qualification of new sources of supply, or in implementing the use of replacement materials or new sources of supply could have a material adverse effect on our results of operations, our financial condition or cash flows.
Some companies we may utilize for the supply of components are also competitors, and they could elect to cease supply relationships with us in the future for competitive reasons.
Some companies we may utilize for the supply of components for the Unifill syringe also develop and market their own safety products which can be attached onto standard prefilled syringes. These companies may elect to cease supply relationships with us in the future for competitive reasons. This may disrupt our supply chain, cause difficulties in the qualification of new sources of supply and impair our ability to supply customer orders. Such events may have a material adverse effect on our results of operations, our financial condition and/or cash flows.
The medical device industry is very competitive.
Competition in the medical device industry is intense. We face this competition from a wide range of companies. These include large medical device companies, most of which have greater financial and human resources, distribution channels and sales and marketing capabilities than we do. Our ability to compete effectively depends upon our ability to distinguish our company and our products from our competitors and their products. Factors affecting our competitive position include, for example, product design and performance, product safety, sales, marketing and distribution capabilities, success and timing of new product development and introductions and intellectual property protection.
We are subject to extensive regulation by governments around the world, and if these regulations are not complied with, existing and future operations may be curtailed, and we could be subject to liability.
The design, development, manufacturing, marketing and labeling of our products are subject to extensive regulation by governmental authorities in the United States, Europe and other countries, including the FDA. Our products must receive clearance or approval from the FDA or its non-U.S. counterparts before they can be marketed or sold. The regulatory process can result in required modification or withdrawal of existing products and a substantial delay in the introduction of new products. Also, it is possible that regulatory approval may not be obtained for a new product. Our business may be adversely affected by changes in the regulation of drug products and medical devices.
The process for obtaining marketing approval or clearance may take a significant period of time and require the expenditure of substantial resources. The process may also require changes to our products or result in limitations on the indicated uses of the products. As a result, our expectations with respect to marketing approval or clearance may prove to be inaccurate, and we may not be able to obtain marketing approval or clearance in a timely manner or at all. In addition, regulatory requirements outside the U.S. change frequently, requiring prompt action to maintain compliance, particularly, when product modifications are required. Following the introduction of a product, these agencies also periodically review our manufacturing processes and product performance. Our
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failure to comply with the applicable good manufacturing practices, adverse event reporting, clinical trial and other requirements of these agencies could delay or prevent the production, marketing or sale of our products and result in fines, delays or suspensions of regulatory clearances, closure of manufacturing sites, seizures or recalls of products and damage to our reputation.
Our target pharmaceutical customers are also subject to government regulations for the manufacturing, approval, marketing and labeling of therapeutic drug products. An effect of the governmental regulation of our customers’ drug products and manufacturing processes is that compliance with regulations makes it costly and time consuming to transition to the use of our drug delivery systems for existing products, or to secure approval for pipeline products targeted for use with our drug delivery systems. If regulation of our customers’ products incorporating our drug delivery systems increases over time, it is likely that this would adversely affect our sales and profitability.
The FDA 510(k) clearance or premarket approval processes may impact our ability to market and sell our products.
Before a new medical device, or a significant change involving a new use of or claim for an existing medical device, can be distributed commercially in the United States, it must receive either 510(k) clearance or premarket approval from the FDA, unless an exemption exists. Either process can be expensive and lengthy. We have previously received 510(k) clearances for proprietary devices by a contractor outside the United States as well as at our Pennsylvania manufacturing facility. Our Unifill syringe does not require 510(k) clearance because it will be sold to drug manufacturers for use as drug packaging. The FDA may, however, revise existing regulations or adopt additional regulations, each of which could prevent or delay 510(k) clearance or premarket approval of our new or modified devices, or could impact our ability to market our currently cleared devices. The FDA, for example, has recently announced its intention to review the 510(k) process and consider enhancements that could impact future 510(k) submissions. It has also encouraged manufacturers to consult with the FDA as to the appropriate 510(k) clearance process for any new product. Such changes could result in additional scrutiny by the FDA of 510(k) applications that we will submit for our new or modified devices and could result in delays and increased costs in obtaining FDA clearances, which could materially impact our business, financial condition and results of operations.
We also may be required to obtain either 510(k) clearance or premarket approval from the FDA for some of our new injectable drug delivery systems. Obtaining such FDA clearances could result in delays in bringing these new injectable drug delivery systems to market and could materially impact our business, financial condition and results of operations.
We may face significant uncertainty in the industry due to government healthcare reform.
The healthcare industry in the United States is subject to fundamental changes due to the ongoing healthcare reform and the political, economic and regulatory influences. In March 2010, comprehensive healthcare reform legislation was signed into law in the United States through the passage of the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act. Among other initiatives, the legislation provides for a 2.3% annual excise tax on the sales of certain medical devices in the United States, commencing in January 2013. This enacted excise tax may adversely affect our operating expenses and results of operations. In addition, various healthcare reform proposals have also emerged at the state level. We cannot predict with certainty what healthcare initiatives, if any, will be implemented at the state level, or what ultimate effect of federal healthcare reform or any future legislation or regulation may have on us or on our customers’ purchasing decisions regarding our products and services.
Product defects could adversely affect the results of our operations.
The design, manufacture and marketing of medical devices involve certain inherent risks. Manufacturing or design defects, unanticipated use of our products, or inadequate disclosure of risks relating to the use of the
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product can lead to injury or other adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market. Any recall could result in significant costs, as well as negative publicity and damage to our reputation that could reduce demand for our products. Personal injuries relating to the use of our products can also result in product liability claims being brought against us. In some circumstances, such adverse events could also cause delays in new product approvals.
We may be sued for product liability, which could adversely affect our business.
The design, manufacture and marketing of medical devices carry a significant risk of product liability claims. We may be held liable if any product we develop and commercialize causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing, sale or consumer use. In addition, the safety studies we must perform and the regulatory approvals required to commercialize our medical safety products will not protect us from any such liability. We carry product liability insurance. However, if there were to be product liability claims against us, our insurance may be insufficient to cover the expense of defending against such claims, or may be insufficient to pay or settle such claims. Furthermore, we may be unable to obtain adequate product liability insurance coverage for commercial sales of any of our approved products. If such insurance is insufficient to protect us, our results of operations will suffer. If any product liability claim is made against us, our reputation and future sales will be damaged, even if we have adequate insurance coverage. We also intend to seek product liability insurance for any approved products that we may develop or acquire in the future. There is no guarantee that such coverage will be available when we seek it or at a reasonable cost to us.
We may be unable to protect our intellectual property rights or may infringe on the intellectual property rights of others.
Our success depends in part on our ability to obtain and maintain protection in the United States and other countries of the intellectual property relating to or incorporated into our technology and products. Our issued patents expire at various dates between 2018 and 2032. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will provide us with any competitive advantage or adequate protection. In particular, the injectable drug delivery systems which we are developing and for which we have filed patent applications are relatively new inventions, and we cannot be sure that we will be able to obtain patents on these inventions. Our issued and future patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of terms of patent protection we may have for our products. Changes in patent laws or their interpretation in the United States and other countries could also diminish the value of our intellectual property or narrow the scope of our patent protection. In addition, the legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. In order to preserve and enforce our patent and other intellectual property rights, we may need to make claims or file lawsuits against third parties. This can entail significant costs to us and divert our management’s attention from developing and commercializing our products.
There also can be no assurance that third parties will not assert that our products infringe their patent or other intellectual property rights. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel or require us to pay substantial damages. If we are unsuccessful in defending ourselves against these types of claims, we may be required to do one or more of the following:
| | • | | stop, delay or abandon our ongoing or planned commercialization of the product that is the subject of the suit; |
| | • | | attempt to obtain a license to sell or use the relevant technology or substitute technology, which license may not be available on reasonable terms or at all; |
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| | • | | redesign those products that use the relevant technology; or |
| | • | | pay substantial damages which could adversely impact our financial condition and ability to execute our business plan and operations. |
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We generally seek to protect this information by confidentiality agreements with our employees, consultants, scientific advisors and third parties. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Impairment of our goodwill, which represents a significant portion of our total assets, would adversely affect our operating results and we may never realize the full value of our goodwill.
As of June 30, 2013, we had $11.5 million of goodwill on our balance sheet, which represented 17% of our total assets. We recorded this goodwill primarily from our historical acquisition activities. Goodwill is subject to, at a minimum, an annual impairment assessment of its carrying value. Any material impairment of our goodwill would likely have a material adverse impact on our results of operations.
Fluctuations in foreign currency exchange rates could adversely affect our financial condition and results of operations.
Changes in foreign currency exchange rates can affect the value of our assets and liabilities, and the amount of our revenues and expenses. We do not currently try to mitigate our exposure to currency exchange rate risks by using hedging transactions. We cannot predict future changes in foreign currency exchange rates, and as a result, we may suffer losses as a result of future fluctuations.
We depend on our executive officers and key personnel and the loss of them could adversely affect our business.
Our success depends upon the efforts and abilities of our executive officers and other key personnel, particularly Mr. Alan Shortall, our Chief Executive Officer, and Dr. Ramin Mojdeh, our Chief Operating Officer, to provide strategic direction, manage our operations and maintain a cohesive and stable environment. Although we have employment agreements with Mr. Shortall and Dr. Mojdeh, as well as incentive compensation plans that provide various economic incentives for them to remain with us, these agreements and incentives may not be sufficient to retain them. Our ability to operate successfully and manage our potential future growth also depends significantly upon our ability to attract, retain and motivate highly skilled and qualified research, technical, clinical, regulatory, sales, marketing, managerial and financial personnel. We face intense competition for such personnel, and we may not be able to attract, retain and motivate these individuals. The loss of our executive officers or other key personnel for any reason or our inability to hire, retain and motivate additional qualified personnel in the future could prevent us from sustaining or growing our business.
Risk Factors Related to Our Shares of Common Stock
The trading price of our shares of common stock may fluctuate significantly.
The price of our shares of common stock may be volatile, which means that it could decline substantially within a short period of time. The trading price of the shares may fluctuate, and investors may experience a
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decrease in the value of the shares that they hold, sometimes regardless of our operating performance or prospects. The trading price of our common stock could fluctuate significantly for many reasons, including the following:
| | • | | future announcements concerning our business and that of our competitors including in particular, the progress of our commercial sales for the Unifill syringe and the development programs for the other injectable drug delivery systems; |
| | • | | regulatory developments, enforcement actions bearing on advertising, marketing or sales of our current or pipeline products; |
| | • | | quarterly variations in operating results; |
| | • | | negative reporting about us in the press; |
| | • | | introduction of new products or changes in product pricing policies by us or our competitors; |
| | • | | acquisition or loss of significant customers, distributors or suppliers; |
| | • | | business acquisitions or divestitures; |
| | • | | changes in third party reimbursement practices; |
| | • | | fluctuations of investor interest in the medical device sector; and |
| | • | | fluctuations in the economy, world political events or general market conditions. |
If there are substantial sales of our shares of common stock, our share price could decline.
As of September 6, 2013, we had 97,183,060 shares of common stock outstanding. All of those shares of common stock other than 8,699,856 shares held by our affiliates are freely tradable under the Securities Act. Shares held by our affiliates are eligible for resale pursuant to Rule 144. If our stockholders sell a large number of shares of common stock, or the short interest position increases significantly, the market may perceive that our stockholders might sell a large number of shares, which could cause the price of our common stock to decline significantly.
In addition, as of September 6, 2013, 9,456,348 shares of our common stock are subject to outstanding stock options and warrants. We have registered the shares issuable upon the exercise of options granted under our 2009 Stock Incentive Plan. In addition, we have effective registration statements covering the resale of shares of our common stock that are issuable upon the exercise of our remaining options and warrants. If these options and warrants are exercised and the holders choose to sell their shares, such sales could have an adverse effect on the market price of our common stock.
We do not intend to pay cash dividends in the foreseeable future.
For the foreseeable future, we do not intend to declare or pay any dividends on our common stock. We intend to retain our earnings, if any, to finance the development and expansion of our business and product lines. Any future decision to declare or pay dividends will be made by our board of directors and will depend upon a number of factors including our financial condition and results of operations. In addition, under our current bank financing agreements, we are not permitted to pay cash dividends without the prior written consent of the lender.
We may be subject to arbitrage risks.
Investors may seek to profit by exploiting the difference, if any, in the price of our shares of common stock on the NASDAQ and our CDIs on the ASX. Such arbitrage activities could cause our stock price in the market with the higher value to decrease to the price set by the market with the lower value.
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Our certificate of incorporation, bylaws, and the Delaware General Corporation Law may delay or deter a change of control transaction.
Certain provisions of our certificate of incorporation and bylaws may have the effect of deterring takeovers, such as those provisions authorizing our board of directors to issue, from time to time, any series of preferred stock and fix the designation, powers, preferences and rights of the shares of such series of preferred stock; prohibiting stockholders from acting by written consent in lieu of a meeting; requiring advance notice of stockholder intention to put forth director nominees or bring up other business at a stockholders’ meeting; prohibiting stockholders from calling a special meeting of stockholders; requiring a 66 2/3% majority stockholder approval in order for stockholders to amend our bylaws or adopt new bylaws; and providing that, subject to the rights of preferred shares, the number of directors is to be fixed exclusively by our board of directors. Section 203 of the Delaware General Corporation Law, from which we did not elect to opt out, provides that if a holder acquires 15% or more of our stock without prior approval of our board of directors, that holder will be subject to certain restrictions on its ability to acquire us within three years. These provisions may delay or deter a change of control of us, and could limit the price that investors might be willing to pay in the future for shares of our common stock.
| Item 1B. | Unresolved Staff Comments |
None.
Our 165,000 square foot global headquarters and manufacturing facility is located on 38 acres of land in York, Pennsylvania. The facility includes 110,000 square feet of production space and 54,000 square feet of office space. The property is subject to a mortgage held by a local bank.
We also lease 17,000 square feet of office space in King of Prussia, Pennsylvania to support our research and development activities.
We also lease 1,100 square feet of office space in Sydney, Australia which is used for certain finance and administrative operations.
As previously disclosed, on September 7, 2012, we received a letter from counsel for Talbot (Todd) Smith, a former employee, alleging that Mr. Smith was wrongly terminated. Mr. Smith, who was terminated “for cause” by the Company, filed a complaint with the Occupational Safety & Health Administration (“OSHA”) in November 2012. We and various third parties have investigated the allegations made by Mr. Smith and have determined that the allegations are without merit. We believe the allegations made by Mr. Smith against us are in retaliation for his “for cause” termination, and we have been defending ourselves vigorously in the OSHA matter. Because OSHA did not make a final determination on Mr. Smith’s complaint within 180 days, Mr. Smith filed a complaint with the U.S. District Court for the Eastern District of Pennsylvania (“USDC”) on August 30, 2013. The USDC complaint makes the same allegations made by Mr. Smith in the OSHA complaint and does not make any additional material allegations. Given that the allegations made by Mr. Smith in the USDC complaint are nearly identical to those made in his OSHA complaint, we and various third parties have investigated the allegations previously and have determined that the allegations are without merit, and we will defend ourselves vigorously in court. Given that Mr. Smith has now filed the complaint with the USDC, OSHA has dismissed the OSHA matter without a final determination.
We do not believe there will be any material impact to us or our business as a result of these matters.
| Item 4. | Mine Safety Disclosures |
Not applicable
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Commencing February 16, 2010, our shares of common stock began trading on the Nasdaq Global Market under the symbol “UNIS”. Our shares of common stock have also traded in the form of CHESS Depositary Interests (“CDIs”), each CDI representing one-sixth of a share of our common stock, on the Australian Securities Exchange (“ASX”) under the symbol “UNS” since January 18, 2010. Prior to that date, the ordinary shares of our predecessor Unilife Medical Solutions Limited (“UMSL”) were traded on the ASX under the symbol “UNI”.
The following table sets forth, for the periods indicated, the high and low closing prices for our common stock on the Nasdaq Global Market:
| | | | | | | | |
Period | | High | | | Low | |
Fiscal Year 2013: | | | | | | | | |
First Quarter | | | 3.55 | | | | 2.87 | |
Second Quarter | | | 3.18 | | | | 2.11 | |
Third Quarter | | | 2.65 | | | | 2.08 | |
Fourth Quarter | | | 3.94 | | | | 1.85 | |
Fiscal Year 2012: | | | | | | | | |
First Quarter | | | 5.25 | | | | 3.37 | |
Second Quarter | | | 5.30 | | | | 2.95 | |
Third Quarter | | | 4.23 | | | | 3.24 | |
Fourth Quarter | | | 4.85 | | | | 3.38 | |
Holders
As of September 6, 2013, we had 97,183,060 shares of common stock outstanding, and there were 286 holders of record of our common stock, including CHESS Depositary Nominees which held shares of our common stock on behalf of 8,179 CDI holders. The closing sales price for our common stock on September 6, 2013 was $3.07 as reported by the Nasdaq Global Market.
Dividends
We currently intend to retain any earnings to finance research and development and the operation and expansion of our business and do not anticipate paying any cash dividends for the foreseeable future. The declaration and payment of any dividends in the future by us will be subject to the sole discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt obligations, legal requirements, regulatory constraints and other factors deemed relevant by our board of directors. Moreover, if we determine to pay any dividend in the future, there can be no assurance that we will continue to pay such dividends. In addition, under our bank financing agreements, we are not permitted to pay cash dividends without the prior written consent of the lender.
Private Offering
On April 17, 2013, we issued, pursuant to Section 4(2) of the Securities Act, a warrant to purchase 150,000 shares of common stock to a vendor in connection with services rendered by such vendor. The warrant is exercisable at $2.00 per share, vests upon the first anniversary of the date of grant, and is exercisable for a period of three years from the date of grant.
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Performance Graph
The performance graph shown below compares the change in cumulative total shareholder return on shares of common stock with the Nasdaq Stock Market Index (U.S.) and the Nasdaq Health Care Index (U.S.) from February 16, 2010, our first day of trading on the Nasdaq Global Market, through our fiscal year ended June 30, 2013. The graph sets the beginning value of shares of common stock and the indices at $100, and assumes that all quarterly dividends were reinvested at the time of payment. This graph does not forecast future performance of shares of common stock.
| Item 6. | Selected Financial Data |
The following table presents our selected consolidated financial data as of and for each of the years in the five year period ended June 30, 2013. The statements of operations data for the years ended June 30, 2013, 2012 and 2011 and the balance sheet data as of June 30, 2013 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. All such data should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes thereto included elsewhere in this report. The statements of operations data for the years ended June 30, 2010 and 2009 and the balance sheet data as of June 30, 2011, 2010 and 2009 have been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results to be expected in the future.
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | |
| | | (In thousands, except share data) | |
Statements of Operations Data: | | | | | | | | | | | | | | | | | | | | |
Revenues(a) | | $ | 2,743 | | | $ | 5,519 | | | $ | 6,650 | | | $ | 11,422 | | | $ | 19,976 | |
Net loss | | | (63,198 | ) | | | (52,302 | ) | | | (40,682 | ) | | | (29,748 | ) | | | (517 | ) |
Basic and diluted net loss per share | | | (0.78 | ) | | | (0.78 | ) | | | (0.70 | ) | | | (0.64 | ) | | | (0.02 | ) |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 68,401 | | | $ | 82,308 | | | $ | 89,478 | | | $ | 64,817 | | | $ | 32,212 | |
Long-term debt, including current portion | | | 23,871 | | | | 28,765 | | | | 22,687 | | | | 2,741 | | | | 3,133 | |
| (a) | Includes $2.6 million, $4.1 million, $3.9 million, $8.9 million and $16.1 million in connection with our exclusive licensing agreement and our industrialization agreement with Sanofi in the years ended June 30, 2013, 2012, 2011, 2010 and 2009, respectively. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Information” at the beginning of this report. References to our fiscal year refer to the fiscal year ending June 30.
Redomiciliation
On January 27, 2010, Unilife Medical Solutions Limited, an Australian corporation (“UMSL”), completed a redomiciliation from Australia to the State of Delaware pursuant to which stockholders and option holders of UMSL exchanged their interests in UMSL for equivalent interests in Unilife Corporation, a Delaware corporation (“Unilife”) and Unilife became the parent company of UMSL and its subsidiaries. The redomiciliation was conducted by way of schemes of arrangement under Australian law. The issuance of Unilife common stock and stock options under the schemes of arrangement was exempt from registration under Section 3(a)(10) of the Securities Act of 1933, as amended. The redomiciliation was approved by the Australian Federal Court, and approved by UMSL shareholders and option holders.
In connection with the redomiciliation, holders of UMSL ordinary shares or share options received one share of Unilife common stock or an option to purchase one share of Unilife common stock, for every six UMSL ordinary shares or share options, respectively, held by such holders, unless the holder elected to receive in lieu of Unilife common stock, Chess Depositary Interests of Unilife, or CDIs (each representing one-sixth of one share of Unilife common stock), in which case such holder received one CDI for every UMSL ordinary share. All share and per share amounts in this Annual Report on Form 10-K have been restated to reflect the one for six share recapitalization effected in connection with the redomiciliation.
On February 16, 2010, Unilife’s common stock began trading on the Nasdaq Global Market under the symbol “UNIS.”
Overview
We are a U.S. based developer, manufacturer and supplier of injectable drug delivery systems. Our customers are pharmaceutical and biotechnology companies who seek to leverage our innovative, differentiated and customizable devices to enable or enhance the clinical development, regulatory approval and commercial lifecycles of their injectable biologics, drugs and vaccines. We manufacture and supply our proprietary devices to pharmaceutical companies in a format where they can be filled and packaged with an injectable therapy prior to its shipment to the end-user for safe, simple and convenient administration.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. This requires management to make certain estimates, judgments and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. The following accounting policies require significant estimates, judgments and assumptions.
Goodwill
Goodwill is the excess of purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is subject to, at a minimum, an annual impairment assessment of its carrying value. Additional
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impairment assessments would be performed if events and circumstances warranted such additional assessments during the year. Goodwill impairment is deemed to exist if the net book value of our reporting unit exceeds its estimated fair value. Estimated fair value of our reporting unit is determined utilizing the value implied by our year end quoted stock price. We did not record any goodwill impairments during fiscal 2013, 2012 or 2011.
We have one reporting unit. The reporting unit includes our product lines, the base technology for which we obtained as part of our November 2002 acquisition of Unitract Syringe Pty Limited and the manufacturing capability which we obtained in our January 2007 acquisition of Integrated BioSciences, Inc.
In estimating the reporting unit’s fair value for purposes of our fiscal 2013 impairment assessment, management compared the carrying value of our reporting unit to our market capitalization as of June 30, 2013, which is our annual impairment testing date. Our market capitalization of $303.0 million, based on the quoted stock price on the Nasdaq was in excess of our stockholders’ equity of $35.6 million. Management also considered that market capitalization through early September 2013 continued to be in excess of the carrying value.
Share-Based Compensation
We grant equity awards to our employees, directors and consultants. Certain employee and director awards vest over stated vesting periods and others also require achievement of specific performance or market conditions. We expense the grant-date fair value of awards to employees and directors over their respective vesting periods. To the extent that employee and director awards vest only upon the achievement of a specific performance condition, expense is recognized over the period from the date management determines that the performance condition is probable of achievement through the date they are expected to be met. Awards granted to consultants are sometimes granted for past services, in which case their fair value is expensed on their grant date, while other awards require future service, or the achievement of performance or market conditions. Timing of expense recognition for consultant awards is similar to that of employee and director awards; however, aggregate expense is re-measured each quarter end based on the then fair value of the award through the vesting date of the award. We estimate the fair value of stock options using the Black-Scholes option-pricing model, with the exception of market-based grants, which are valued based on the Monte Carlo option-pricing model. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility.
Revenue Recognition
We recognize revenue from industrialization and development fees, licensing fees and products sales. We recognize up front, non-refundable licensing fees ratably over the expected life of the related agreement. Revenue from industrialization and development fees is recognized upon achievement of the ‘at risk” milestone events, which represents the culmination of the earnings process related to such events. Milestones include specific phases of projects, such as product design, prototype availability, user tests, manufacturing proof of principle and the various steps to complete the industrialization of the product. Revenue recognized is commensurate with the milestones achieved and we have no future performance obligations related to previous milestone payments as each milestone payment is non-refundable when received.
We recognize revenue from sales of products at the time of shipment and when title passes to the customer.
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Results of Operations
The following table summarizes our results of operations for the fiscal years ended June 30, 2013, 2012 and 2011:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (in thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Industrialization and development fees | | $ | — | | | $ | 2,820 | | | $ | 1,350 | |
Licensing fees | | | 2,623 | | | | 2,638 | | | | 2,527 | |
Product sales and other | | | 120 | | | | 61 | | | | 2,773 | |
| | | | | | | | | | | | |
Total revenues | | | 2,743 | | | | 5,519 | | | | 6,650 | |
Cost of product sales | | | 128 | | | | 584 | | | | 2,597 | |
| | | | | | | | | | | | |
Gross profit | | | 2,615 | | | | 4,935 | | | | 4,053 | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 21,749 | | | | 23,137 | | | | 9,631 | |
Selling, general and administrative | | | 32,437 | | | | 27,685 | | | | 31,571 | |
Depreciation and amortization | | | 9,487 | | | | 4,582 | | | | 4,009 | |
| | | | | | | | | | | | |
Total operating expenses | | | 63,673 | | | | 55,404 | | | | 45,211 | |
| | | | | | | | | | | | |
Operating loss | | | (61,058 | ) | | | (50,469 | ) | | | (41,158 | ) |
Interest expense | | | 2,392 | | | | 2,120 | | | | 511 | |
Interest income | | | (54 | ) | | | (124 | ) | | | (399 | ) |
Other income | | | (198 | ) | | | (163 | ) | | | (588 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (63,198 | ) | | $ | (52,302 | ) | | $ | (40,682 | ) |
| | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | |
Basic and diluted net loss per share | | $ | (0.78 | ) | | $ | (0.78 | ) | | $ | (0.70 | ) |
| | | | | | | | | | | | |
Fiscal Year 2013 Compared to Fiscal Year 2012
Revenues. Revenues decreased by $2.8 million or 50%. During fiscal 2013, we recognized revenue from our exclusive licensing agreement with Sanofi of $2.6 million. We have recognized and will continue to recognize revenue from the exclusive licensing agreement on a straight-line basis over the remaining term of the agreement. Since these revenues are based in euros, fluctuation in the amount of revenue recognized will result from fluctuations in foreign current translation rates. During fiscal 2012, we recognized $1.4 million related to the achievement of the last milestone under our industrialization agreement with Sanofi and $1.4 million related to the clinical development and supply of a novel drug device for targeted organ delivery.
Research and development expenses. Research and development expenses decreased by $1.4 or 6% million due to lower materials costs, which were partially offset by increased payroll costs and research and development share-based compensation expense.
Selling, general and administrative expenses. Selling, general and administrative expenses increased by $4.8 million or 17%, primarily due to an increase in our non-research and development share-based compensation expense.
Depreciation and amortization expense. Depreciation and amortization expense increased by $4.9 million or 107%, primarily as a result of a $4.1 million loss on the disposal of certain pieces of equipment during fiscal 2013 and the additional machinery and equipment placed into service during fiscal 2013.
33
Interest expense. Interest expense increased by $0.3 million primarily resulting from debt incurred in relation to our secured lending facility for production equipment for the Unifill syringe during August 2011.
Interest income. Interest income decreased by $0.1 million, primarily as a result of lower cash balances.
Net loss and loss per share. Net loss during fiscal 2013 and 2012 was $63.2 million and $52.3 million, respectively. Basic and diluted net loss per share was $0.78, on weighted average shares outstanding of 81,165,773 and 67,449,286 during fiscal 2013 and 2012, respectively. The increase in the weighted average shares outstanding was primarily due to the issuance of common stock in connection with our July 2012, October 2012 and February 2013 equity financings.
Fiscal Year 2012 Compared to Fiscal Year 2011
Revenues. Revenues decreased by $1.1 million or 17%. During both fiscal 2012 and 2011, we recognized $1.4 million related to the achievement of one milestone under our industrialization agreement with Sanofi. The milestone met during fiscal 2012 was the last remaining milestone under the agreement. During fiscal 2012, we also recognized $1.4 million related to the clinical development and supply of a novel drug device for targeted organ delivery. Revenues from our exclusive licensing agreement with Sanofi increased from $2.5 million to $2.6 million. We have recognized and will continue to recognize revenue from the exclusive licensing agreement on a straight-line basis over the remaining term of the agreement. Since these revenues are based in euros, the $0.1 million increase resulted from fluctuations in foreign currency translation rates. Revenues from product sales decreased by $2.7 million, as we ceased our contract manufacturing activities in December 2010 in order to focus our efforts on the Unifill syringe and our portfolio of injectable drug delivery devices.
Cost of product sales. Cost of product sales decreased by $2.0 million or 78%, primarily as a result of the associated decrease in our contract manufacturing revenue.
Research and development expenses. Research and development expenses increased by $13.5 million due to additional payroll costs and expenditures related to the development of our portfolio of injectable drug delivery systems.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased by $3.9 million or 12%. During fiscal 2012, we recorded $7.1 million of share-based compensation expense, a decrease of $1.9 million compared to fiscal 2011. Additionally, during fiscal 2012 our non-research and development payroll expenses and recruitment fees declined $1.9 million, primarily as a result of amounts incurred to recruit and relocate certain members of our management team during fiscal 2011, which did not occur during fiscal 2012. Finally, during fiscal 2011, we incurred expenses of $0.3 million in connection with the relocation to our current headquarters and manufacturing facility.
Depreciation and amortization expense. Depreciation and amortization expense increased by $0.6 million or 14%, primarily as a result of the completion of construction of our current headquarters and manufacturing facility, as well as equipment placed into service during fiscal 2012.
Interest expense. Interest expense increased by $1.6 million, primarily resulting from debt incurred in relation to our secured lending facility for production equipment for the Unifill syringe during August 2011. Additionally, interest on our debt financing obtained for our current headquarters and manufacturing facility was capitalized during construction through December 2010, while recorded as expense during fiscal 2012.
Interest income. Interest income decreased by $0.3 million, primarily as a result of fluctuations in interest rates.
Other income. Other income decreased $0.4 million, primarily as a result of fiscal 2011 including the receipt of a $0.5 million opportunity grant from the Commonwealth of Pennsylvania.
34
Net loss and loss per share. Net loss during fiscal 2012 and 2011 was $52.3 million and $40.7 million, respectively. Basic and diluted loss per share was $0.78 and $0.70, respectively, on weighted average shares outstanding of 67,449,286 and 57,891,024, respectively. The increase in the weighted average shares outstanding was primarily due to the issuance of common stock in connection with our December 2010 and November 2011 equity financings.
Liquidity and Capital Resources
To date, we have funded our operations primarily from a combination of equity issuances, borrowings under our bank mortgage, term loans, an external secured financing and payments from Sanofi under our exclusive licensing and industrialization agreements. As of June 30, 2013, cash and cash equivalents were $5.7 million, restricted cash was $2.4 million and our long-term debt was $23.9 million. As of June 30, 2012, cash and cash equivalents were $11.4 million, restricted cash was $2.4 million and our long-term debt was $28.8 million. The $2.4 million of restricted cash relates to amounts that must remain in cash deposits under our loan agreement with Metro Bank (“Metro”).
During July 2012, we issued 6,154,000 shares of common stock and raised $18.8 million, net of issuance costs, through an underwritten registered public offering.
During October 2012, we entered into a Controlled Equity Offering Sales Agreement, pursuant to which we may, from time to time, issue and sell shares of common stock having an aggregate offering price of up to $45.0 million. During the year ended June 30, 2013, we issued 4,990,434 shares of common stock and raised net proceeds of $14.3 million under the Sales Agreement. Subsequent to June 30, 2013, we issued 1,825,145 shares of common stock and raised approximately $5.5 million under the Sales Agreement. We are not obligated to make any additional sales of shares under the Sales Agreement.
During February 2013, we issued 4,460,966 shares of common stock and two warrants to purchase an aggregate of 1,586,988 shares of common stock for net proceeds of $9.6 million, net of issuance costs, through a Securities Purchase Agreement.
We have incurred recurring losses from operations during each of the years in the three-year period ended June 30, 2013 and anticipate incurring additional losses until such time that we can generate sufficient revenue from the sale, customization or exclusive use and licensing of our proprietary range of injectable drug delivery systems to pharmaceutical and biotechnology customers. We estimate that our cash and cash equivalents of $8.1 million as of June 30, 2013, which includes $2.4 million of restricted cash is sufficient to sustain planned operations through the first quarter of fiscal 2014.
The following table summarizes our cash flows during the fiscal years ended June 30, 2013, 2012 and 2011:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands) | |
Net cash provided by (used in): | | | | | | | | | | | | |
Operating activities | | $ | (41,333 | ) | | $ | (43,217 | ) | | $ | (28,521 | ) |
Investing activities | | | (2,240 | ) | | | (4,000 | ) | | | (30,037 | ) |
Financing activities | | | 37,909 | | | | 40,742 | | | | 53,838 | |
Fiscal Year 2013 Compared to Fiscal Year 2012
Net Cash Used in Operating Activities
Net cash used in operating activities during fiscal 2013 was $41.3 million compared to $43.2 million during fiscal 2012.
35
Net Cash Used in Investing Activities
Net cash used in investing activities during fiscal 2013 and fiscal 2012 was $2.2 million and $4.0 million, respectively, as a result of costs incurred in connection with the purchase of machinery and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during fiscal 2013 was $37.9 million compared to $40.7 million during fiscal 2012. During fiscal 2013, we received $42.7 million in connection with the issuance of common stock and warrants, partially offset by principal debt repayments of $5.0 million. During fiscal 2012, we received $33.8 million in connection with our public offering of common stock and $9.9 million in proceeds from the issuance of long-term debt, partially offset by principal debt payments of $4.1 million.
Fiscal Year 2012 Compared to Fiscal Year 2011
Net Cash Used in Operating Activities
Net cash used in operating activities during fiscal 2012 was $43.2 million compared to $28.5 million during fiscal 2011. The increase in net cash used in operations was primarily due to increased operating expenses leading to $12.2 million of higher net loss after adding back depreciation and amortization, loss on disposal of property, plant and equipment and share-based compensation expense.
Net Cash Used in Investing Activities
Net cash used in investing activities during fiscal 2012 was $4.0 million, primarily as a result of costs incurred in connection with the purchase of machinery and equipment, compared to $30.0 million during fiscal 2011, primarily resulting from construction costs incurred in connection with our current headquarters and manufacturing facility.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during fiscal 2012 was $40.7 million compared to $53.8 million during fiscal 2011. During fiscal 2012, we received $33.8 million in connection with our public offering of common stock and $9.9 million in proceeds from the issuance of long-term debt, partially offset by principal debt payments of $4.1 million. During fiscal 2011, we received $33.4 million in connection with our issuance of common stock related to our December 2010 private placement and share purchase plan, as well as $3.2 million upon the exercise of stock options. Additionally, during fiscal 2011, we received $20.2 million in aggregate proceeds from our external financing from Metro and the Commonwealth of Pennsylvania.
Contractual Obligations
The following table provides information regarding our contractual obligations as of June 30, 2013:
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
| | | Total | | | Less Than
1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than
5 Years | |
| | | (In thousands) | |
Long-term debt and related interest | | $ | 35,064 | | | $ | 5,285 | | | $ | 4,459 | | | $ | 4,281 | | | $ | 21,039 | |
Operating leases | | | 2,317 | | | | 470 | | | | 796 | | | | 760 | | | | 291 | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 37,381 | | | $ | 5,755 | | | $ | 5,255 | | | $ | 5,041 | | | $ | 21,330 | |
| | | | | | | | | | | | | | | | | | | | |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as such term is defined in the SEC rules.
36
Legal Proceedings
As previously disclosed, on September 7, 2012, we received a letter from counsel for Talbot (Todd) Smith, a former employee, alleging that Mr. Smith was wrongly terminated. Mr. Smith, who was terminated “for cause” by the Company, filed a complaint with the Occupational Safety & Health Administration (“OSHA”) in November 2012. We and various third parties have investigated the allegations made by Mr. Smith and have determined that the allegations are without merit. We believe the allegations made by Mr. Smith against us are in retaliation for his “for cause” termination, and we have been defending ourselves vigorously in the OSHA matter. Because OSHA did not make a final determination on Mr. Smith’s complaint within 180 days, Mr. Smith filed a complaint with the U.S. District Court for the Eastern District of Pennsylvania (“USDC”) on August 30, 2013. The USDC complaint makes the same allegations made by Mr. Smith in the OSHA complaint and does not make any additional material allegations. Given that the allegations made by Mr. Smith in the USDC complaint are nearly identical to those made in his OSHA complaint, we and various third parties have investigated the allegations previously and have determined that the allegations are without merit, and we will defend ourselves vigorously in court. Given that Mr. Smith has now filed the complaint with the USDC, OSHA has dismissed the OSHA matter without a final determination.
As previously disclosed, subsequent to the filing of the OSHA complaint by Mr. Smith, we received a subpoena from the staff of the U.S. Securities and Exchange Commission (the “Staff”) requesting us to provide certain information to the Staff, which is generally consistent with the meritless allegations made by Mr. Smith in his OSHA complaint. In the USDC complaint, Mr. Smith states that he provided the Staff with information about his allegations in July and August 2012. We responded to that subpoena and received a second subpoena from the Staff, requesting additional information consistent with the first subpoena. We are cooperating fully with the Staff and are providing the requested information.
We do not believe there will be any material impact to us or our business as a result of these matters.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The new guidance requires an entity to disclose in a single location the effects of reclassifications out of accumulated other comprehensive income (“AOCI”). For items reclassified out of AOCI and into net income in their entirety, entities must disclose the effect of the reclassification on each affected net income item. For AOCI reclassification items that are not reclassified in their entirety into net income, entities must provide a cross reference to other required U.S. GAAP disclosures. The standard does not change the items which must be reported in other comprehensive income. ASU 2013-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2012. Since this guidance impacts presentation only, it will have no effect on our financial condition or our financial statements.
In July 2013, the FASB issued ASC 2013-11, “Income Taxes—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss, or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. We are currently evaluating the impact of the July 1, 2014 adoption of this guidance on our financial statements.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk from changes in interest rates and foreign currency exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows.
37
Interest Rate Risk
Our exposure to interest rate risk is limited to our cash and cash equivalents that are invested in money market funds with highly liquid short term investments and our variable interest rate term loans. We currently do not utilize derivative instruments to mitigate changes in interest rates.
Foreign Currency Exchange Rate Fluctuations
Certain of our revenues are derived from payments under our industrialization agreement received in euros while we incur most of our expenses in U.S. dollars and Australian dollars. In addition, a portion of our cash and cash equivalents and investments are held at Australian banking institutions and are denominated in Australian dollars. We are exposed to foreign currency exchange rate risks on these amounts. We currently do not utilize options or forward contracts to mitigate changes in foreign currency exchange rates. For U.S. reporting purposes, we translate all assets and liabilities of our non-U.S. entities into U.S. dollars using the exchange rate as of the end of the related period and we translate all revenues and expenses of our non-U.S. entities using the average exchange rate during the applicable period.
38
| Item 8. | Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
39
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting was designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the fair presentation of our consolidated financial statements.
With the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2013 to provide reasonable assurance regarding the reliability of financial reporting and the fair presentation of our consolidated financial statements.
KPMG LLP, an independent registered public accounting firm, audited our internal control over financial reporting as of June 30, 2013. Their audit report can be found on page 41.
/s/ Alan Shortall
Alan Shortall
Chief Executive Officer
/s/ R. Richard Wieland II
R. Richard Wieland II
Executive Vice President and Chief Financial Officer
/s/ Dennis P. Pyers
Dennis P. Pyers
Vice President, Controller and Chief Accounting Officer
September 13, 2013
40
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Unilife Corporation:
We have audited Unilife Corporation and subsidiaries (the Company) internal control over financial reporting as of June 30, 2013, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2013, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Unilife Corporation as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the each of the years in the three-year period ended June 30, 2013 and our report dated September 13, 2013 expressed an unqualified opinion on those consolidated financial statements. Our report dated September 13, 2013 contains an explanatory paragraph that states there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
Harrisburg, Pennsylvania
September 13, 2013
41
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Unilife Corporation:
We have audited the accompanying consolidated balance sheets of Unilife Corporation and subsidiaries (the Company) as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unilife Corporation and subsidiaries as of June 30, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2013 in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, 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. Management’s plans in regard to these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of June 30, 2013, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 13, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Harrisburg, Pennsylvania
September 13, 2013
42
UNILIFE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands, except
share data) | |
| Assets | |
Current Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 5,736 | | | $ | 11,410 | |
Restricted cash | | | 2,400 | | | | 2,400 | |
Accounts receivable | | | 654 | | | | 1,042 | |
Inventories | | | 71 | | | | 212 | |
Prepaid expenses and other current assets | | | 409 | | | | 676 | |
| | | | | | | | |
Total current assets | | | 9,270 | | | | 15,740 | |
Property, plant and equipment, net | | | 46,106 | | | | 52,514 | |
Goodwill | | | 11,498 | | | | 12,734 | |
Intangible assets, net | | | 23 | | | | 34 | |
Other assets | | | 1,504 | | | | 1,286 | |
| | | | | | | | |
Total assets | | $ | 68,401 | | | $ | 82,308 | |
| | | | | | | | |
| Liabilities and Stockholders’ Equity | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 3,428 | | | $ | 2,399 | |
Accrued expenses | | | 2,444 | | | | 2,209 | |
Current portion of long-term debt | | | 3,826 | | | | 5,655 | |
Deferred revenue | | | 3,010 | | | | 2,595 | |
| | | | | | | | |
Total current liabilities | | | 12,708 | | | | 12,858 | |
Long-term debt, less current portion | | | 20,045 | | | | 23,110 | |
Deferred revenue | | | 50 | | | | 2,595 | |
| | | | | | | | |
Total liabilities | | | 32,803 | | | | 38,563 | |
| | | | | | | | |
Commitments and Contingencies (Note 8) | | | | | | | | |
Stockholders’ Equity: | | | | | | | | |
Preferred stock, $0.01 par value, 50,000,000 shares authorized as of June 30, 2013; none issued or outstanding as of June 30, 2013 and 2012 | | | — | | | | — | |
Common stock, $0.01 par value, 250,000,000 shares authorized as of June 30, 2013; 95,602,558 and 75,849,439 shares issued, and 95,573,888 and 75,820,769 shares outstanding as of June 30, 2013 and 2012, respectively | | | 956 | | | | 758 | |
Additional paid-in-capital | | | 268,157 | | | | 212,326 | |
Accumulated deficit | | | (235,832 | ) | | | (172,634 | ) |
Accumulated other comprehensive income | | | 2,457 | | | | 3,435 | |
Treasury stock, at cost, 28,670 shares as of June 30, 2013 and 2012 | | | (140 | ) | | | (140 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 35,598 | | | | 43,745 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 68,401 | | | $ | 82,308 | |
| | | | | | | | |
See accompanying notes to the consolidated financial statements.
43
UNILIFE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands, except per share data) | |
Revenues: | | | | | | | | | | | | |
Industrialization and development fees | | $ | — | | | $ | 2,820 | | | $ | 1,350 | |
Licensing fees | | | 2,623 | | | | 2,638 | | | | 2,527 | |
Product sales and other | | | 120 | | | | 61 | | | | 2,773 | |
| | | | | | | | | | | | |
Total revenues | | | 2,743 | | | | 5,519 | | | | 6,650 | |
Cost of product sales | | | 128 | | | | 584 | | | | 2,597 | |
| | | | | | | | | | | | |
Gross profit | | | 2,615 | | | | 4,935 | | | | 4,053 | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | | 21,749 | | | | 23,137 | | | | 9,631 | |
Selling, general and administrative | | | 32,437 | | | | 27,685 | | | | 31,571 | |
Depreciation and amortization | | | 9,487 | | | | 4,582 | | | | 4,009 | |
| | | | | | | | | | | | |
Total operating expenses | | | 63,673 | | | | 55,404 | | | | 45,211 | |
| | | | | | | | | | | | |
Operating loss | | | (61,058 | ) | | | (50,469 | ) | | | (41,158 | ) |
Interest expense | | | 2,392 | | | | 2,120 | | | | 511 | |
Interest income | | | (54 | ) | | | (124 | ) | | | (399 | ) |
Other income | | | (198 | ) | | | (163 | ) | | | (588 | ) |
| | | | | | | | | | | | |
Net loss | | | (63,198 | ) | | | (52,302 | ) | | | (40,682 | ) |
Other comprehensive loss: | | | | | | | | | | | | |
Foreign currency translation | | | 978 | | | | 340 | | | | (2,700 | ) |
| | | | | | | | | | | | |
Comprehensive loss | | $ | (64,176 | ) | | $ | (52,642 | ) | | $ | (37,982 | ) |
| | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | |
Basic and diluted net loss per share | | $ | (0.78 | ) | | $ | (0.78 | ) | | $ | (0.70 | ) |
| | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
44
UNILIFE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Addional
Paid-In
Capital | | | Accumulated
Deficit | | | Accumulated
Other
Comprehensive
Income | | | Treasury
Stock | | | Total | |
| | | Shares | | | Amount | | | | | | |
| | | (In thousands, except share data) | |
Balance as of July 1, 2010 | | | 54,761,848 | | | $ | 548 | | | $ | 122,397 | | | $ | (79,650 | ) | | $ | 1,075 | | | $ | — | | | $ | 44,370 | |
Net loss | | | — | | | | — | | | | — | | | | (40,682 | ) | | | — | | | | — | | | | (40,682 | ) |
Foreign currency translation | | | — | | | | — | | | | — | | | | — | | | | 2,700 | | | | — | | | | 2,700 | |
Share-based compensation expense | | | 443,184 | | | | 4 | | | | 10,639 | | | | — | | | | — | | | | — | | | | 10,643 | |
Issuance of common stock in connection with private placement and share purchase plan, net of issuance costs | | | 7,048,373 | | | | 70 | | | | 33,361 | | | | — | | | | — | | | | — | | | | 33,431 | |
Issuance of common stock upon exercise of stock options | | | 1,670,998 | | | | 17 | | | | 3,193 | | | | — | | | | — | | | | — | | | | 3,210 | |
Purchase of treasury stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (100 | ) | | | (100 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2011 | | | 63,924,403 | | | | 639 | | | | 169,590 | | | | (120,332 | ) | | | 3,775 | | | | (100 | ) | | | 53,572 | |
Net loss | | | — | | | | — | | | | — | | | | (52,302 | ) | | | — | | | | — | | | | (52,302 | ) |
Foreign currency translation | | | — | | | | — | | | | — | | | | — | | | | (340 | ) | | | — | | | | (340 | ) |
Share-based compensation expense | | | 3,007,127 | | | | 30 | | | | 7,856 | | | | — | | | | — | | | | — | | | | 7,886 | |
Issuance of common stock from public offering, net of issuance costs | | | 8,250,000 | | | | 83 | | | | 33,681 | | | | — | | | | — | | | | — | | | | 33,764 | |
Issuance of common stock upon exercise of stock options | | | 667,909 | | | | 6 | | | | 1,199 | | | | — | | | | — | | | | — | | | | 1,205 | |
Purchase of treasury stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (40 | ) | | | (40 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2012 | | | 75,849,439 | | | | 758 | | | | 212,326 | | | | (172,634 | ) | | | 3,435 | | | | (140 | ) | | | 43,745 | |
Net loss | | | — | | | | — | | | | — | | | | (63,198 | ) | | | — | | | | — | | | | (63,198 | ) |
Foreign currency translation | | | — | | | | — | | | | — | | | | — | | | | (978 | ) | | | — | | | | (978 | ) |
Share-based compensation expense | | | 2,611,167 | | | | 27 | | | | 13,260 | | | | — | | | | — | | | | — | | | | 13,287 | |
Issuance of common stock from public offerings, net of issuance costs | | | 15,605,400 | | | | 156 | | | | 39,526 | | | | — | | | | — | | | | — | | | | 39,682 | |
Exercise of warrant to purchase common stock . | | | 1,424,220 | | | | 14 | | | | 2,820 | | | | — | | | | — | | | | — | | | | 2,834 | |
Issuance of common stock upon exercise of stock options | | | 112,332 | | | | 1 | | | | 225 | | | | — | | | | — | | | | — | | | | 226 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2013 | | | 95,602,558 | | | $ | 956 | | | $ | 268,157 | | | $ | (235,832 | ) | | $ | 2,457 | | | $ | (140 | ) | | $ | 35,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
45
UNILIFE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands) | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net loss | | $ | (63,198 | ) | | $ | (52,302 | ) | | $ | (40,682 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 5,435 | | | | 4,582 | | | | 3,482 | |
Loss on disposal of equipment | | | 4,052 | | | | — | | | | 527 | |
Share-based compensation expense | | | 13,287 | | | | 7,886 | | | | 9,022 | |
Recognition of deferred revenue | | | (2,623 | ) | | | (2,638 | ) | | | (2,527 | ) |
Changes in assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | 388 | | | | (1,029 | ) | | | 1,739 | |
Inventories | | | 141 | | | | 414 | | | | 176 | |
Prepaid expenses and other current assets | | | 267 | | | | (295 | ) | | | 266 | |
Other assets | | | (227 | ) | | | (473 | ) | | | (552 | ) |
Accounts payable | | | 65 | | | | 844 | | | | (515 | ) |
Accrued expenses | | | 355 | | | | (206 | ) | | | 543 | |
Deferred revenue | | | 725 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash used in operating activities | | | (41,333 | ) | | | (43,217 | ) | | | (28,521 | ) |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (2,240 | ) | | | (4,000 | ) | | | (30,037 | ) |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (2,240 | ) | | | (4,000 | ) | | | (30,037 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from the issuance of long-term debt | | | — | | | | 9,885 | | | | 20,190 | |
Principal payments on long-term debt and capital lease agreements | | | (5,024 | ) | | | (4,072 | ) | | | (493 | ) |
Proceeds from the issuance of note payable | | | — | | | | — | | | | 6,900 | |
Principal payments on note payable | | | — | | | | — | | | | (6,900 | ) |
Proceeds from the issuance of common stock, net of issuance costs | | | 42,707 | | | | 33,764 | | | | 33,431 | |
Proceeds from the exercise of options to purchase common stock | | | 226 | | | | 1,205 | | | | 3,210 | |
Purchase of treasury stock | | | — | | | | (40 | ) | | | (100 | ) |
Increase in restricted cash | | | — | | | | — | | | | (2,400 | ) |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 37,909 | | | | 40,742 | | | | 53,838 | |
Effect of exchange rate changes on cash | | | (10 | ) | | | (25 | ) | | | 1,880 | |
| | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (5,674 | ) | | | (6,500 | ) | | | (2,840 | ) |
Cash and cash equivalents at beginning of year | | | 11,410 | | | | 17,910 | | | | 20,750 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 5,736 | | | $ | 11,410 | | | $ | 17,910 | |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | | | | | |
Cash paid for interest | | $ | 2,479 | | | $ | 2,036 | | | $ | 514 | |
| | | | | | | | | | | | |
Supplemental disclosure of non-cash activities | | | | | | | | | | | | |
Purchases of property, plant and equipment in accounts payable and accrued expenses | | $ | 744 | | | $ | 12 | | | $ | 1,143 | |
| | | | | | | | | | | | |
Purchases of property, plant and equipment pursuant to capital lease agreements | | $ | 74 | | | $ | 320 | | | $ | 249 | |
| | | | | | | | | | | | |
Purchases of property, plant and equipment through the issuance of warrants | | $ | — | | | $ | — | | | $ | 1,621 | |
| | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements.
46
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of Business
Unilife Corporation and subsidiaries (the “Company”) is a U.S. based manufacturer and supplier of injectable drug delivery systems. The Company’s customers are biotechnology companies who seek to leverage its innovative, differentiated and customizable devices to enable or enhance the clinical development, regulatory approval and commercial lifecycles of its injectable biologics, drugs and vaccines. The Company manufactures and supplies its proprietary devices to pharmaceutical companies in a format where they can be filled and packaged with an injectable therapy prior to its shipment to the end-user for safe, simple and convenient administration.
2. Liquidity
The Company has incurred recurring losses from operations in each of the years in the three-year period ended June 30, 2013 and anticipates incurring additional losses until such time that it can generate sufficient revenue from the sale, customization or exclusive use and licensing of its proprietary range of injectable drug delivery systems to pharmaceutical and biotechnology customers. Management has taken such steps delineated below to address its cash requirements.
The Company needs additional funding to support its operations and capital expenditure requirements. The Company continues to have discussions with current and prospective customers for many active programs in its commercial pipeline and expects to progressively execute agreements featuring a combination of revenue streams including exclusivity fees, device customization programs and supply contracts that are expected to generate cash payments to the Company during calendar 2013. Given the substantial size, complexity and long-term duration of many of these prospective agreements, some can take a significant time to negotiate and finalize. The Company is consciously managing its cash position to minimize raising additional equity capital and thereby minimize dilution to existing stockholders.
The Company continues discussions with a financing firm for up to a $20.0 million debt funding program. Combined with the anticipated revenue to be generated from new and existing customer agreements or through other transactions, the Company expects to have sufficient near term liquidity. However, there can be no assurance that such additional funding, or sales transactions, will close as expected or be available when needed. These various factors raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
In July 2012, the Company issued 6,154,000 shares of common stock and raised $18.8 million, net of issuance costs, through an underwritten registered public offering.
In October 2012, the Company entered into a Controlled Equity Offering Sales Agreement, pursuant to which the Company may, from time to time, issue and sell shares of common stock having an aggregate offering price of up to $45.0 million. During the year ended June 30, 2013, the Company issued 4,990,434 shares of common stock and raised net proceeds of $14.3 million under the Sales Agreement. Subsequent to June 30, 2013, the Company issued 1,825,145 shares of common stock and raised approximately $5.5 million under the Sales Agreement. The Company is not obligated to make any additional sales of shares under the Sales Agreement.
47
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
In February 2013, the Company issued 4,460,966 shares of common stock and two warrants to purchase an aggregate of 1,586,988 shares of common stock for net proceeds of $9.6 million, net of issuance costs, pursuant to a Securities Purchase Agreement.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Unilife Corporation and its wholly-owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP.”) All significant intercompany accounts and transactions have been eliminated in consolidation.
On September 1, 2009, Unilife Medical Solutions Limited, an Australian Corporation (“UMSL”), entered into a Merger Implementation Agreement with Unilife Corporation, a newly-formed Delaware subsidiary of UMSL, pursuant to which stockholders and option holders of UMSL would exchange their existing interests in UMSL for equivalent interests in Unilife Corporation and Unilife Corporation would become the parent or ultimate parent of UMSL and its subsidiaries. The redomiciliation transaction was approved by the Australian Federal Court and the stockholders and option holders of UMSL and was completed on January 27, 2010. In the redomiciliation each holder of UMSL ordinary shares or share options received one share of common stock or one stock option of Unilife Corporation for every six UMSL ordinary shares or share options, respectively, held by such holder, unless a holder of UMSL ordinary shares elected to receive, in lieu of common stock, Chess Depository Interests, or CDIs of Unilife (each representing one-sixth of a share of Unilife common stock) in which case such holder received one CDI of Unilife for each ordinary share of UMSL. All share and per share data have been retroactively restated to reflect the one for six share recapitalization.
References to the “Company” include Unilife Corporation and its consolidated subsidiaries, including UMSL, unless the context otherwise requires. References to “Unilife” are references solely to Unilife Corporation.
References to A$ mean the lawful currency of the Commonwealth of Australia. References to € or euros are to the lawful currency of the European Union.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates are principally in the areas of revenue recognition and share-based compensation expense. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on hand, deposits at banks and other short-term highly liquid investments with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, which also represents the net realizable amount. The Company evaluates the collectability of its accounts receivable on a periodic basis and has historically not recorded an allowance for doubtful accounts. In instances in which management becomes aware
48
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
of circumstances that may impair a particular customer’s ability to meet its obligation, the related receivable would be written off.
Inventories
Inventories consist primarily of syringe components and include direct materials, direct labor and manufacturing overhead. Inventories are stated at the lower of cost or market, with cost determined using the first in, first out method. The Company routinely reviews its inventory for obsolete, slow moving or otherwise impaired inventory and records estimated impairments in the periods in which they occur. Inventories consist of the following:
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands) | |
Raw materials | | $ | 45 | | | $ | 58 | |
Work in process | | | 19 | | | | 143 | |
Finished goods | | | 7 | | | | 11 | |
| | | | | | | | |
Total inventories | | $ | 71 | | | $ | 212 | |
| | | | | | | | |
Property, Plant and Equipment
Property, plant and equipment, including significant improvements, are recorded at cost, net of accumulated depreciation and amortization. Repairs and maintenance are expensed as incurred.
Depreciation and amortization expense is recorded on a straight-line basis over the estimated useful life of the asset as listed below:
| | |
Asset Category | | Useful Lives |
Building | | 40 years |
Machinery and equipment | | 2 to 15 years |
Computer software | | 3 to 7 years |
Furniture and fixtures | | 7 years |
Leasehold improvements | | Shorter of leasehold improvement life or remaining term of lease |
Interest expense incurred during the construction of the new headquarters and manufacturing facility has been capitalized as one of the elements of cost and is being amortized over the useful life of the building. Interest capitalized during the year ended June 30, 2011 was $0.3 million with no such capitalized interest during the years ended June 30, 2013 or 2012.
The Company reviews the carrying value of the long-lived assets periodically to determine if facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Among the factors the Company considers in making the evaluation are changes in market position and profitability. If facts and circumstances exist which may indicate impairment, the Company will prepare a projection of the undiscounted cash flows of the asset group and determine if the long-lived assets are recoverable based on these undiscounted cash flows. If impairment is indicated, an adjustment will be made to reduce the carrying amount of these assets to their fair value.
49
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
Goodwill and Intangible Assets
Goodwill is the excess of purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is subject to, at a minimum, an annual impairment assessment of its carrying value. Additional impairment assessments would be performed if events and circumstances warranted such additional assessments during the year. Goodwill impairment is deemed to exist if the net book value of the Company’s reporting unit exceeds its estimated fair value. Estimated fair value of the Company’s reporting unit is determined utilizing the value implied by the Company’s year-end quoted stock price. The Company performs its annual impairment test at the end of its fiscal year. There were no impairments recorded on goodwill during the years ended June 30, 2013, 2012 or 2011.
Definite-lived intangible assets include patents which are amortized on a straight-line basis over their estimated useful lives of 15 years. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When factors indicate a possible impairment, if the sum of the estimated undiscounted future cash flows expected to result from the use and eventual disposition of an asset is less than the carrying amount of the asset, an impairment may be recognized. Measurement of an impairment loss is based on the excess of the carrying value of the asset over its fair value. There were no impairments recorded on intangible assets during the years ended June 30, 2013, 2012 or 2011.
Deferred Financing Costs
Deferred financing costs are included in other assets on the consolidated balance sheets and consist of costs incurred in connection with debt financings. These costs are amortized over the term of the related debt using the effective interest rate method.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are recorded to the extent the Company believes they will more likely than not be realized. In making such determinations, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected more likely than not to be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company’s policy is to include interest and penalties related to uncertain tax positions within the provision (benefit) for income taxes within the Company’s consolidated statements of operations.
Fair Value of Financial Instruments
The carrying value of financial instruments such as accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value because of the short maturity of these items. The Company
50
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
believes that the current carrying amount of its long-term debt approximates fair value because the interest rates on these instruments are similar to those rates that the Company would currently be able to receive for similar instruments of comparable maturity.
Share-Based Compensation
The Company grants equity awards to its employees, directors and consultants. Certain employee and director awards vest over stated vesting periods and others also require achievement of specific performance or market conditions. The Company expenses the grant-date fair value of awards to employees and directors over their respective vesting periods. To the extent that employee and director awards vest only upon the achievement of a specific performance condition, expense is recognized over the period from the date management determines that the performance condition is probable of achievement through the date they are expected to be met. Awards granted to consultants are sometimes granted for past services, in which case their fair value is expensed on their grant date, while other awards require future service, or the achievement of performance or market conditions. Timing of expense recognition for consultant awards is similar to that of employee and director awards; however, aggregate expense is re-measured each quarter-end based on the then fair value of the award through the vesting date of the award. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, with the exception of market-based grants, which are valued based on the Monte Carlo option pricing model. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility.
Foreign Currency Translation
The Australian dollar is the functional currency for the Company’s Australian operations. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the rate of exchange existing at the end of the period. Revenues and expenses are translated at the average exchange rates during the applicable period. Adjustments resulting from these translations are recorded in accumulated other comprehensive income within the Company’s consolidated balance sheets and will be included in income upon sale or liquidation of the foreign investment. Gains and losses from foreign currency transactions, denominated in a currency other than the functional currency, are recorded in other (income) expense within the Company’s consolidated statements of operations and aggregated less than $0.1 million for each of the years ended June 30, 2013, 2012 and 2011.
Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive loss. The Company’s other comprehensive loss consists only of foreign currency translation adjustments.
Revenue Recognition
The Company recognizes revenue from industrialization and development fees, licensing fees and product sales.
The Company recognizes up front, non-refundable licensing fees ratably over the expected life of the related agreement. Revenue from industrialization and development fees is recognized upon achievement of the “at risk” milestone events, which represents the culmination of the earnings process related to such events. Milestones include specific phases of projects such as product design, prototype availability, user tests, manufacturing proof of principle and the various steps to complete the industrialization of the product. Revenue recognized is commensurate with the milestones achieved and the Company has no future performance obligations related to previous milestone payments as each milestone payment is non-refundable when received.
51
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
The Company recognizes revenue from sales of products at the time of shipment and when title passes to the customer. Product sales from B. Braun, a customer who accounted for 10% or more of the Company’s revenue, was $2.5 million, during the year ended June 30, 2011.
Advertising Costs
Advertising costs are expensed in the period incurred. The Company incurred total advertising costs of $0.2 million, $0.4 million and $0.6 million during the years ended June 30, 2013, 2012 and 2011, respectively.
Research and Development Costs
Research and development costs, which primarily consist of salaries, benefits, contracted services, design work and prototype development are expensed as incurred.
Net Loss Per Share
Basic net loss per share is computed as net loss divided by the weighted average number of shares outstanding during the period. Diluted net earnings per share reflect the potential dilution that could occur from common shares issued through common stock equivalents. The dilutive effect of potential common shares, consisting of non-participating restricted stock and outstanding options to purchase common stock, is calculated using the treasury stock method.
Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and are included in the computation of net loss per share according to the two class method if the impact is dilutive. Shares of the Company’s unvested restricted stock are considered participating securities. However, in the event of a net loss, participating securities are excluded from the calculation of both basic and diluted net loss per share.
Business Segments
The Company operates in one reportable segment, which includes the design, development and manufacture of injectable drug delivery systems. Revenues by geographic location based on location of customer are as follows:
| | | | | | | | | | | | |
| | | Years Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands) | |
Domestic | | $ | 120 | | | $ | 61 | | | $ | 2,773 | |
International | | | 2,623 | | | | 5,458 | | | | 3,877 | |
| | | | | | | | | | | | |
| | $ | 2,743 | | | $ | 5,519 | | | $ | 6,650 | |
| | | | | | | | | | | | |
Reclassifications
Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation.
52
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). The new guidance requires an entity to disclose in a single location the effects of reclassifications out of accumulated other comprehensive income (“AOCI”). For items reclassified out of AOCI and into net income in their entirety, entities must disclose the effect of the reclassification on each affected net income item. For AOCI reclassification items that are not reclassified in their entirety into net income, entities must provide a cross reference to other required U.S. GAAP disclosures. The standard does not change the items which must be reported in other comprehensive income. ASU 2013-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2012. Since this guidance impacts presentation only, it will have no effect on the Company’s financial condition or its financial statements.
In July 2013, the FASB issued ASC 2013-11, “Income Taxes — Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”) which is part of Accounting Standards Codification (“ASC”) 740: Income Taxes. The new guidance requires an entity to present an unrecognized tax benefit and an NOL carryforward, a similar tax loss, or a tax credit carryforward on a net basis as part of a deferred tax asset, unless the unrecognized tax benefit is not available to reduce the deferred tax asset component or would not be utilized for that purpose, then a liability would be recognized. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning after December 15, 2013. The Company is currently evaluating the impact of the July 1, 2014 adoption of this guidance on it’s financial statements.
4. Equity Transactions and Share-Based Compensation
In December 2010, the Company issued 7,048,373 shares of common stock and 2,268,934 options to purchase common stock for aggregate proceeds of A$34.1 million ($33.4 million), net of issuance costs, through an Australian private placement and a share purchase plan for the Company’s Australian and New Zealand stockholders. Of these options, 50% are exercisable at A$7.50 per share, and 50% are exercisable at A$12.00 per share. The options became exercisable in June 2011 and will expire in December 2013.
In November 2011, the Company issued 8,250,000 shares of common stock and raised $33.8 million, net of issuance costs, through an underwritten registered public offering.
During the year ended June 30, 2012, the Company granted certain directors 180,000 shares of common stock that were vested upon issuance, of which 120,000 shares may not be sold or transferred until such time as the director leaves the board for any reason, including a change in control. The weighted-average grant date fair value of the shares was $3.66 per share.
In July 2012, the Company issued 6,154,000 shares of common stock and raised $18.8 million, net of issuance costs, through an underwritten registered public offering.
In October 2012, the Company entered into a Controlled Equity Offering Sales Agreement, pursuant to which the Company may, from time to time, issue and sell shares of common stock having an aggregate offering price of up to $45.0 million. During the year ended June 30, 2013, the Company issued 4,990,434 shares of common stock and raised net proceeds of $14.3 million under the Sales Agreement. The Company is not obligated to make any additional sales of shares under the Sales Agreement.
In February 2013, the Company issued 4,460,966 shares of common stock for net proceeds of $9.6 million, net of issuance costs, pursuant to a Securities Purchase Agreement.
53
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
In connection with the Securities Purchase Agreement, the Company issued two warrants to purchase an aggregate of 1,586,988 shares of common stock. The warrants are exercisable at $3.00 per share and will expire five years from the date of grant. The warrants contain exchange features whereby the warrant holders can exchange the warrants for cash or common stock equal to the value of the warrants at the time of exchange, which value is based upon a contractual formula. Based on the terms of the agreements, the Company has determined that the warrants should be classified as a liability. As of March 31, 2013, the Company recorded a liability of $3.0 million related to the negotiated value of the warrants. In April 2013, the exchange feature was exercised for one of the warrants and a total of 1,424,220 shares of common stock were issued in settlement of a warrant to purchase 1,486,988 shares of common stock and the related warrant liability of $2.8 million was reclassified to equity. As of June 30, 2013, one warrant to purchase 100,000 shares of common stock remains outstanding.
During the year ended June 30, 2013, the Company granted certain directors 75,000 shares of common stock that were vested upon issuance, of which 45,000 shares may not be sold or transferred into such time as the director leaves the Board for any reason, including a change in control. The weighted average grant date fair value of the shares was $3.17 per share.
The Company recognized share-based compensation expense related to equity awards to employees, directors and consultants of $13.3 million, $7.9 million and $9.0 million during the years ended June 30, 2013, 2012 and 2011, respectively.
As of June 30, 2013, the total compensation cost related to all non-vested awards not yet recognized was $14.5 million. This amount is expected to be recognized over a remaining weighted average period of 2.38 years.
Stock Options and Warrants
The Company has granted stock options to certain employees and directors under the Employee Share Option Plan (the “Plan”). The Plan is designed to assist in the motivation and retention of employees and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain consultants outside of the Plan. The majority of the options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to three years. Additionally, certain stock options vest upon the closing price of the Company’s common stock reaching certain minimum levels, as defined in the agreements. Share-based compensation expense related to options granted to employees is recognized on a straight-line basis over the related vesting term. Share-based compensation expense related to options granted to consultants is recognized ratably over each vesting tranche of the options.
In November 2009, the Company adopted the 2009 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan initially provided for a maximum of 6,000,000 shares of common stock to be reserved for the issuance of stock options and other stock-based awards. Commencing on January 1, 2012, and on each January 1st thereafter, through January 1, 2019, the share reserve automatically adjusts so that it equals 17.5% of the weighted average number of shares of common stock outstanding reduced by the sum of any shares of common stock issued under the Stock Incentive Plan and any shares of common stock subject to outstanding awards under the Stock Incentive Plan.
In January 2010, the Company issued 1,000,000 options to purchase common stock to a consultant under the Stock Incentive Plan in consideration for various services to be performed for the Company. The options to purchase common stock are exercisable at A$6.33 per share and vest upon the trading price of the Company’s CHESS Depositary Interests reaching certain minimum levels on the Australian Securities Exchange, which range from A$1.75 to A$3.22 per share. The options are re-measured each reporting date and as of June 30, 2013
54
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
were valued at $0.25 per option, which is being expensed ratably over the vesting period of each tranche, which ranges from 1.1 years to 1.3 years. The options will be re-valued on a quarterly basis and marked to market until exercised.
During the year ended June 30, 2011, the Company issued a total of 1,493,517 options to purchase common stock under the Stock Incentive Plan with a weighted average exercise price of $5.57 per share. A total of 660,000 options vest upon meeting certain performance targets, as defined in the agreements. The remaining options vest over a period of three years. The weighted average grant date fair value of the options was $2.78 per share.
During the year ended June 30, 2011, the Company issued warrants to purchase 375,000 shares of common stock to Keystone Redevelopment Group, LLC (“Keystone’) and warrants to purchase 225,000 shares of common stock to L2 Architecture (“L2”) outside of both the Plan and the Stock Incentive Plan. The warrants issued to Keystone were in partial consideration for managing the development of the Company’s current headquarters and manufacturing facility and the warrants issued to L2 were in partial consideration for the custom design of the facility. The warrants issued to both Keystone and L2 are exercisable at $5.30 per share vested immediately upon issuance and were valued at $2.70 per share. The aggregate fair value of the warrants of $1.6 million has been capitalized and included as a component of the cost of the building.
During the year ended June 30, 2011, the Company issued 2,268,934 options to purchase common stock outside of both the Plan and the Stock Incentive Plan in connection with the Company’s December 2010 private placement as discussed above.
During the year ended June 30, 2012, the Company issued a total of 1,540,000 options to purchase common stock under the Stock Incentive Plan with a weighted-average exercise price of $3.87 per share. A total of 700,000 options vest upon meeting certain performance targets, as defined in the agreements. The remaining options vest over a period of three years.
The following is a summary of activity related to stock options held by employees and directors during the year ended June 30, 2013:
| | | | | | | | | | | | | | | | |
| | | Number of
Options | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual Life
(In Years) | | | Aggregate
Intrinsic
Value | |
| | | | | | | | | | | | (In thousands) | |
Outstanding as of July 1, 2012 | | | 5,577,959 | | | $ | 4.30 | | | | | | | | | |
Granted | | | 660,000 | | | | 2.56 | | | | | | | | | |
Cancelled | | | (857,818 | ) | | | 5.02 | | | | | | | | | |
Expired | | | (258,334 | ) | | | 1.85 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding as of June 30, 2013 | | | 5,121,807 | | | $ | 4.08 | | | | 4.6 | | | $ | 2,014 | |
| | | | | | | | | | | | | | | | |
Exercisable as of June 30, 2013 | | | 2,597,670 | | | $ | 3.61 | | | | 3.1 | | | $ | 1,684 | |
| | | | | | | | | | | | | | | | |
55
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
The following is a summary of activity related to stock options and warrants held by persons other than employees and directors during the year ended June 30, 2013:
| | | | | | | | | | | | | | | | |
| | | Number of
Options and
Warrants | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual Life
(In Years) | | | Aggregate
Intrinsic
Value | |
| | | | | | | | | | | | (In thousands) | |
Outstanding as of July 1, 2012 | | | 7,758,699 | | | $ | 7.74 | | | | | | | | | |
Granted | | | 1,736,988 | | | | 2.91 | | | | | | | | | |
Exercised | | | (1,599,320 | ) | | | 2.90 | | | | | | | | | |
Expired | | | (3,637,430 | ) | | | 8.34 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding as of June 30, 2013 | | | 4,258,937 | | | $ | 7.08 | | | | 1.2 | | | $ | 298 | |
| | | | | | | | | | | | | | | | |
Exercisable as of June 30, 2013 | | | 3,258,937 | | | $ | 7.47 | | | | 1.0 | | | $ | 298 | |
| | | | | | | | | | | | | | | | |
The aggregate intrinsic value is defined as the difference between the market value of the Company’s common stock as of the end of the period and the exercise price of the in-the-money stock options. The total intrinsic value of stock options exercised during the years ended June 30, 2013, 2012 and 2011 was $0.1 million, $1.5 million and $6.0 million respectively. Of the 3,524,137 non vested options, 1,000,000 are held by a consultant.
The Company currently uses authorized and unissued shares to satisfy stock option exercises.
The weighted average fair value of stock options granted during the years ended June 30, 2013, 2012 and 2011 was $1.69, $1.86 and $2.65 per share, respectively. The weighted average fair value of $2.65 per share during the year ended June 30, 2011 does not include the weighted average fair value of the stock options granted in connection with the Company’s 2010 private placement of $1.26 per share.
The following is a summary of outstanding and exercisable stock options held by employees and directors as of June 30, 2013:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options | | | Exercisable Options | |
Range of Exercise Prices | | Outstanding
as of
June 30,
2013 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Life (In Years) | | | Exercisable
as of
June 30,
2013 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Life (In Years) | |
$0.00 — $2.00 | | | 1,250,000 | | | $ | 1.81 | | | | 0.3 | | | | 1,250,000 | | | $ | 1.81 | | | | 0.3 | |
$2.01 — $5.00 | | | 2,150,000 | | | | 3.56 | | | | 8.6 | | | | 555,000 | | | | 4.03 | | | | 8.3 | |
$5.01 — $6.83 | | | 1,721,807 | | | | 6.37 | | | | 2.8 | | | | 792,670 | | | | 6.16 | | | | 3.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 5,121,807 | | | $ | 4.08 | | | | 4.6 | | | | 2,597,670 | | | $ | 3.61 | | | | 3.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
56
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
The following is a summary of outstanding and exercisable stock options held by persons other than employees and directors as of June 30, 2013:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding Options | | | Exercisable Options | |
Range of Exercise Prices | | Outstanding
as of
June 30,
2013 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Life (In Years) | | | Exercisable
as of
June 30,
2013 | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual
Life (In Years) | |
$0.00 — $2.00 | | | 205,000 | | | $ | 1.95 | | | | 2.1 | | | | 205,000 | | | $ | 1.95 | | | | 2.1 | |
$2.01 — $6.00 | | | 1,785,003 | | | | 5.32 | | | | 2.0 | | | | 785,003 | | | | 4.73 | | | | 2.5 | |
$6.01 — $10.98 | | | 2,268,934 | | | | 8.92 | | | | 0.4 | | | | 2,268,934 | | | | 8.92 | | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 4,258,937 | | | $ | 7.08 | | | | 1.2 | | | | 3,258,937 | | | $ | 7.47 | | | | 1.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
The Company used the following weighted average assumptions in calculating the fair value of options and warrants granted during the year ended June 30, 2013, 2012 and 2011:
| | | | | | | | | | | | |
| | | Years Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
Number of stock options granted | | | 810,000 | | | | 1,540,000 | | | | 2,093,517 | |
Expected dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
Risk-free interest rate | | | 1.03 | % | | | 1.23 | % | | | 1.96 | % |
Expected volatility | | | 55 | % | | | 55 | % | | | 59 | % |
Expected life (in years) | | | 5.44 | | | | 6.0 | | | | 5.15 | |
The assumptions noted above for the year ended June 30, 2013 do not include amounts related to the warrants to purchase 1,586,988 shares of common stock issued in connection with the Securities Purchase Agreement. The assumptions noted above for the year ended June 30, 2011 do not include amounts related to the 2,268,934 options issued in the Company’s December 2010 private placement as discussed above.
The fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions, which were valued using a Monte Carlo option pricing model. The Company has not historically paid dividends to its stockholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of U.S. Treasury bonds with a term equal to the expected term of the option. Due to the Company’s limited Nasdaq trading history, the expected volatility used to value options granted after January 27, 2010 is based upon a blended rate of the historical share price of the Company’s stock on the Australian Securities Exchange and the volatility of peer companies traded on U.S. exchanges operating in the same industry as the Company. The expected term of the options to purchase common stock issued to employees and directors is based upon the simplified method, which is the mid-point between the vesting date of the option and its contractual term unless a reasonable alternate term is estimated by management. The expected term of the options to purchase common stock issued to consultants is based on the contractual term of the awards.
Restricted Stock
The Company has granted shares of restricted stock to certain employees and consultants under the Stock Incentive Plan. During the period prior to vesting, the holder of the non-vested restricted stock will have the right to vote and the right to receive all dividends and other distributions declared. All non-vested shares of restricted stock are reflected as outstanding; however, they have been excluded from the calculation of basic earnings per share.
57
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
For employees, the fair value of restricted stock is measured on the date of grant using the price of the Company’s common stock on that date. Share-based compensation expense for restricted stock issued to employees is recognized on a straight-line basis over the requisite service period, which is generally the longest vesting period. For restricted stock granted to consultants, the fair value of the awards will be re-valued on a quarterly basis and marked to market until vested. Share-based compensation expense for restricted stock issued to consultants is recognized ratably over each vesting tranche.
The Company committed to issue its Chief Executive Officer a total of 1,166,000 shares of restricted stock and 750,000 options to purchase common stock in connection with the execution of his employment agreement dated October 1, 2011. The issuance of the shares of restricted stock and options to purchase common stock were subject to the approval of shareholders, which was obtained on December 1, 2011. For accounting purposes, 273,338 shares of restricted stock were considered granted on December 1, 2011. The remaining 892,662 shares of restricted stock and 750,000 options to purchase common stock were granted January 3, 2012, when sufficient shares under the Stock Incentive Plan became available for grant. The grant date fair value of the restricted stock on December 1, 2011 was $3.93 per share and on January 3, 2012 was $3.24 per share. The grant date fair value of the options to purchase common stock was $1.69 per share.
The following is a summary of activity related to restricted stock awards during the year ended June 30, 2013:
| | | | | | | | |
| | | Number of
Restricted Stock
Awards | | | Weighted Average
Grant Date Fair
Value | |
Unvested as of July 1, 2012 | | | 4,511,665 | | | $ | 4.86 | |
Granted | | | 2,720,525 | | | | 3.13 | |
Vested | | | (3,672,097 | ) | | | 4.95 | |
Cancelled | | | (305,690 | ) | | | 4.90 | |
| | | | | | | | |
Unvested as of June 30, 2013 | | | 3,254,403 | | | $ | 3.31 | |
| | | | | | | | |
Grants of Common Stock to Employees
During the year ended June 30, 2011, the Company granted 23,184 shares of common stock to certain employees. The Company recorded a charge to operations of $0.1 million related to the issuance of these shares.
During the year ended June 30, 2012, the Company granted 36,462 shares of common stock to certain employees. The Company recorded a charge to operations of $0.1 million related to the issuance of these shares.
During the year ended June 30, 2013, the Company granted 46,332 shares of common stock to certain employees. The Company recorded a charge to operations of $0.1 million related to the issuance of these shares.
58
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
5. Property, Plant and Equipment and Construction-in-Progress
Property, plant and equipment consist of the following:
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands) | |
Building | | $ | 32,188 | | | $ | 32,182 | |
Machinery and equipment | | | 21,682 | | | | 18,356 | |
Computer software | | | 2,653 | | | | 2,544 | |
Furniture and fixtures | | | 374 | | | | 374 | |
Construction in progress | | | 91 | | | | 5,615 | |
Land | | | 2,036 | | | | 2,036 | |
Leasehold improvements | | | 88 | | | | 32 | |
| | | | | | | | |
| | | 59,112 | | | | 61,139 | |
Less: accumulated depreciation and amortization | | | (13,006 | ) | | | (8,625 | ) |
| | | | | | | | |
Property, plant and equipment, net | | $ | 46,106 | | | $ | 52,514 | |
| | | | | | | | |
Construction in progress as of June 30, 2012 consisted primarily of amounts incurred in connection with machinery and equipment.
Included in depreciation and amortization were losses on disposals of equipment of $4.1 million and $0.5 million during the years ended June 30, 2013 and 2011, respectively. The loss on disposal of equipment incurred during the year ended June 30, 2013 related to the disposal of equipment used in the manufacturing of Unitract products.
6. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill during the years ended June 30, 2012 and 2013 are as follows:
| | | | |
| | | (In thousands) | |
Balance as of July 1, 2011 | | $ | 13,265 | |
Foreign currency translation | | | (531 | ) |
| | | | |
Balance as of June 30, 2012 | | | 12,734 | |
Foreign currency translation | | | (1,236 | ) |
| | | | |
Balance as of June 30, 2013 | | $ | 11,498 | |
| | | | |
Intangible assets consist of patents acquired in a business acquisition of $0.1 million. Related accumulated amortization as of both June 30, 2013 and 2012 was $0.1 million. Future amortization expense is scheduled to be $7,000 annually, excluding the impact of foreign currency exchange.
59
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
7. Accrued Expenses
Accrued expenses consist of the following:
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands) | |
Accrued payroll and other employee related expenses | | $ | 1,445 | | | $ | 1,411 | |
Accrued other | | | 999 | | | | 798 | |
| | | | | | | | |
Total accrued expenses | | $ | 2,444 | | | $ | 2,209 | |
| | | | | | | | |
8. Commitments and Contingencies
The Company leases certain facilities, office equipment and automobiles under non-cancellable operating leases. The future minimum lease payments related to the Company’s non-cancellable operating lease commitments as of June 30, 2013 were as follows:
| | | | |
For the Year Ending June 30, | | (In thousands) | |
2014 | | $ | 470 | |
2015 | | | 421 | |
2016 | | | 375 | |
2017 | | | 375 | |
2018 | | | 385 | |
Thereafter | | | 291 | |
| | | | |
| | $ | 2,317 | |
| | | | |
Rental expenses under operating leases during the years ended June 30, 2013, 2012 and 2011 were $0.3 million, $0.2 million and $0.7 million, respectively.
From time to time, the Company is involved in various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, management believes that these claims, suits and complaints are adequately provided for, covered by insurance, without merit or not probable that an unfavorable outcome will result.
As previously disclosed, on September 7, 2012, the Company received a letter from counsel for Talbot (Todd) Smith, a former employee, alleging that Mr. Smith was wrongly terminated. Mr. Smith, who was terminated “for cause” by the Company, filed a complaint with the Occupational Safety & Health Administration (“OSHA”) in November 2012. The Company and various third parties have investigated the allegations made by Mr. Smith and have determined that the allegations are without merit. The Company believes the allegations made by Mr. Smith against the Company are in retaliation for his “for cause” termination and has been defending itself vigorously in the OSHA matter. Because OSHA did not make a final determination on Mr. Smith’s complaint within 180 days, Mr. Smith filed a complaint with the U.S. District Court for the Eastern District of Pennsylvania (“USDC”) on August 30, 2013. The USDC complaint makes the same allegations made by Mr. Smith in the OSHA complaint and does not make any additional material allegations. Given that the allegations made by Mr. Smith in the USDC complaint are nearly identical to those made in his OSHA complaint, the Company and various third parties have investigated the allegations previously and have determined that the allegations are without merit, and the Company will defend itself vigorously in court. Given that Mr. Smith has now filed the complaint with the USDC, OSHA has dismissed the OSHA matter without a final determination.
60
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
As previously disclosed, subsequent to the filing of the OSHA complaint by Mr. Smith, the Company received a subpoena from the staff of the U.S. Securities and Exchange Commission (the “Staff”) requesting the Company to provide certain information to the Staff, which is generally consistent with the meritless allegations made by Mr. Smith in his OSHA complaint. In the USDC complaint, Mr. Smith states that he provided the Staff with information about his allegations in July and August 2012. The Company responded to that subpoena and received a second subpoena from the Staff, requesting additional information consistent with the first subpoena. The Company is cooperating fully with the Staff and is providing the requested information.
The Company does not believe there will be any material impact to the Company or its business as a result of these matters.
9. Long-Term Debt
Long-term debt consists of the following:
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands) | |
6.00% Mortgage loans, due December 2031 | | $ | 13,677 | | | $ | 14,033 | |
6.00% Mortgage loans, due October 2020 | | | 3,322 | | | | 3,588 | |
12.85% Secured lending facility, due 2013 | | | 2,586 | | | | 6,420 | |
4.75% Bank term loans, due January 2021 through August 2021 | | | 1,701 | | | | 1,874 | |
5.00% Commonwealth of Pennsylvania financing authority loan, due January 2021 | | | 2,133 | | | | 2,182 | |
Other | | | 452 | | | | 668 | |
| | | | | | | | |
| | | 23,871 | | | | 28,765 | |
Less: current portion of long-term debt | | | 3,826 | | | | 5,655 | |
| | | | | | | | |
Total long-term debt | | $ | 20,045 | | | $ | 23,110 | |
| | | | | | | | |
Mortgage Loans
In October 2010, Unilife Cross Farm LLC, a wholly owned subsidiary of the Company, (“Cross Farm”) entered into a loan agreement with Metro Bank (“Metro”), pursuant to which Metro provided Cross Farm with two mortgage loans in the amounts of $14.25 million and $3.75 million. The proceeds received were used to finance the purchase of land and construction of the Company’s current corporate headquarters and manufacturing facility in York, Pennsylvania.
During construction, Cross Farm paid only interest on both term loans at the Prime Rate plus 1.50% per annum, with a floor of 4.50% per annum. Subsequent to construction, Cross Farm is paying principal and interest on both term loans, with interest at a fixed rate of 6.00%. The weighted average interest rate on both term notes was 6.00% and 5.38% during the years ended June 30, 2013 and 2012, respectively.
The loan agreement contains certain customary covenants, including the maintenance of a Debt Service Reserve Account in the amount of $2.4 million, classified as restricted cash on the consolidated balance sheet, which will remain in place until Cross Farm and Metro agree on the financial covenants. The terms of the loan agreement allow the Company to use the Debt Service Reserve Account to pay monthly debt service on the mortgage loans, so long as the balance in the account is at least $1.6 million and is replenished to $2.4 million every six months. The Company was in compliance with its debt covenants as of June 30, 2013. However, there can be no assurance that the Company will be able to maintain the Debt Service Reserve Account balance for a
61
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
period of 12 months from June 30, 2013. Cross Farm may prepay the loan, but will incur a prepayment penalty of 2.0%, if it does so before October 2013. The U.S. Department of Agriculture has guaranteed $10.0 million of the loan.
Secured Lending Facility
In August 2011, the Company entered into a Master Lease Agreement with Varilease Finance, Inc. (“Varilease”) for up to $10.0 million of secured financing for production equipment for the Unifill syringe. Based on the Company’s continuing involvement throughout the term of the agreement and the integral nature of the production equipment, the transaction is being accounted for under the financing method. Over the term of the agreement, the Company will make up to 27 monthly installments based upon the amount drawn. This facility has an effective interest rate of 12.85%. At the end of the initial term, the Company has the option to (i) return the equipment; (ii) extend the term for 12 months followed by optional 6 month extensions terminable by either party; or (iii) repurchase the equipment for a price to be agreed upon by both lessor and lessee. The secured lending facility contains covenants and provisions for events of default customarily found in lease agreements. The Company is negotiating with Varilease to repurchase the equipment.
Commonwealth of Pennsylvania Financing Authority Loan
In October 2009, the Company accepted a $5.45 million offer of assistance from the Commonwealth of Pennsylvania which included up to $2.25 million in financing for land and the construction of its current manufacturing facility. In December 2010, Cross Farm received the $2.25 million loan which bears interest at a rate of 5.00% per annum, matures in January 2021 and is secured by a third mortgage on the facility. In connection with the loan agreement, Cross Farm entered into an intercreditor agreement by which the Commonwealth of Pennsylvania agreed that it would not exercise its rights in the event of a default by Cross Farm without the consent of Metro, which holds the first and second mortgages on the facility.
As of June 30, 2013, aggregate maturities of long-term obligations are as follows:
| | | | |
For the Year Ending June 30, | | (In thousands) | |
2014 | | $ | 3,826 | |
2015 | | | 1,142 | |
2016 | | | 1,120 | |
2017 | | | 1,140 | |
2018 | | | 1,207 | |
Thereafter | | | 15,436 | |
| | | | |
| | $ | 23,871 | |
| | | | |
62
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
10. Net Loss Per Share
The Company’s net loss per share is as follows:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands, except share and per share data) | |
Numerator | | | | | | | | | | | | |
Net loss | | $ | (63,198 | ) | | $ | (52,302 | ) | | $ | (40,682 | ) |
Denominator | | | | | | | | | | | | |
Weighted average number of shares used to compute basic net loss per share | | | 81,165,773 | | | | 67,449,286 | | | | 57,891,024 | |
Effect of dilutive options to purchase common stock | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Weighted average number of shares used to compute diluted net loss per share | | | 81,165,773 | | | | 67,449,286 | | | | 57,891,024 | |
| | | | | | | | | | | | |
Basic and diluted net loss per share | | $ | (0.78 | ) | | $ | (0.78 | ) | | $ | (0.70 | ) |
| | | | | | | | | | | | |
Due to the Company’s net losses, unvested shares of restricted stock (participating securities) totaling 4,909,091, 2,715,897 and 1,959,288 were excluded from the calculation of basic and diluted net loss per share during the years ended June 30, 2013, 2012 and 2011, respectively.
In addition, stock options (non-participating securities) totaling 7,996,935, 10,145,641, and 8,998,164 during the years ended June 30, 2013, 2012 and 2011, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive. Certain of these stock options were excluded solely due to the Company’s net loss position. Had the Company reported net income during the years ended June 30, 2013, 2012 and 2011, these shares would have had an effect of 595,550, 1,100,720, and 1,861,935 diluted shares, respectively, for purposes of calculating diluted net loss per share.
11. Income Taxes
For the years ended June 30, 2013, 2012 and 2011, income (loss) before income taxes consists of the following:
| | | | | | | | | | | | |
| | | Years Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | (In thousands) | |
Domestic | | $ | (63,752 | ) | | $ | (56,873 | ) | | $ | (41,529 | ) |
International | | | 554 | | | | 4,571 | | | | 847 | |
| | | | | | | | | | | | |
| | $ | (63,198 | ) | | $ | (52,302 | ) | | $ | (40,682 | ) |
| | | | | | | | | | | | |
63
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
Tax Rate Reconciliation
Income tax expense (benefit) is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
| | | Current | | | Deferred | | | Total | | | Current | | | Deferred | | | Total | | | Current | | | Deferred | | | Total | |
| | | (In thousands) | |
U.S. Federal | | $ | — | | | $ | (21,188 | ) | | $ | (21,188 | ) | | $ | — | | | $ | (19,065 | ) | | $ | (19,065 | ) | | $ | — | | | $ | (13,907 | ) | | $ | (13,907 | ) |
State | | | — | | | | (6,226 | ) | | | (6,226 | ) | | | — | | | | (5,602 | ) | | | (5,602 | ) | | | — | | | | (4,086 | ) | | | (4,086 | ) |
International | | | — | | | | 177 | | | | 177 | | | | — | | | | 586 | | | | 586 | | | | — | | | | 279 | | | | 279 | |
Changes in valuation allowance | | | — | | | | 27,237 | | | | 27,237 | | | | — | | | | 24,081 | | | | 24,081 | | | | — | | | | 17,714 | | | | 17,714 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax provision | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense (benefit) was $0 for the years ended June 30, 2013, 2012 and 2011 and differed from the amounts computed by applying the U.S. federal income tax rate to pretax income as a result of the following:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2013 | | | 2012 | | | 2011 | |
Tax at U.S. statutory rate | | | (35 | )% | | | (35 | )% | | | (35 | )% |
State taxes, net of federal benefit | | | (10 | )% | | | (10 | )% | | | (10 | )% |
Non-deductible and non-taxable items | | | 1 | % | | | 1 | % | | | 1 | % |
Change in valuation allowance | | | 44 | % | | | 44 | % | | | 44 | % |
| | | | | | | | | | | | |
| | | 0 | % | | | 0 | % | | | 0 | % |
| | | | | | | | | | | | |
Significant Components of Deferred Taxes
The tax effects of temporary differences and net operating losses that give rise to significant portions of deferred tax assets (liabilities) at June 30, 2013 and 2012 are presented below:
| | | | | | | | |
| | | June 30, | |
| | | 2013 | | | 2012 | |
| | | (In thousands) | |
Net operating loss carryforwards | | $ | 73,578 | | | $ | 54,978 | |
Share-based compensation expense | | | 14,258 | | | | 8,413 | |
Deferred revenue | | | 837 | | | | 1,557 | |
Depreciation differences | | | (3,421 | ) | | | (5,379 | ) |
Valuation allowance | | | (85,252 | ) | | | (59,569 | ) |
| | | | | | | | |
Net deferred taxes | | $ | — | | | $ | — | |
| | | | | | | | |
The valuation allowance for deferred tax assets as of June 30, 2013 and 2012 was $85.3 million and $59.6 million, respectively. The net change in the total valuation allowance was an increase of $25.7 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or prior to the expiration of the net operating loss carryforwards. Management considers the
64
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making the assessment as to the realizability of deferred tax assets. Based upon the level of historical taxable income and uncertainty regarding projections for future taxable income over the periods in which the deferred tax assets are deductible or can be utilized, management does not believe it is more likely than not that the Company will realize the benefits of these net operating losses and deductible temporary differences, as of June 30, 2013 and 2012. Therefore, a full valuation allowance has been provided as of June 30, 2013 and 2012. The amount of the net deferred tax assets considered realizable; however, could change if estimates of future taxable income during the carryforward period are increased.
As of June 30, 2013, the Company had net operating loss carryforwards for U.S federal, state and Australian income tax purposes of approximately $152.3 million, $152.3 million and $21.9 million, respectively, which are available to offset future taxable income. The U.S. federal and state net operating loss carryforwards begin to expire in 2023. The Australian net operating losses do not expire.
The Australian net operating loss carryforwards of approximately $21.9 million as of June 30, 2013 are subject to either the continuity of ownership or same business test (as defined under Australian tax law) that could limit or substantially eliminate the Company’s ability to use these carryforwards. If there have been or will be changes in the Company’s ownership or Australian business operations before these net operating loss carryforwards are utilized, they may be unavailable to reduce taxable income in the future. Further, under provision of the Internal Revenue Code, the utilization of a U.S corporation’s federal and state net operating loss carryforwards may be significantly limited following a change in ownership of greater than 50% within a three-year period. The Company’s federal and state net operating loss carryforwards may, therefore, be subject to an annual limitation. In addition, state net operating loss carryforwards may be further limited in Pennsylvania, which has a limitation equal to the greater of 20% of taxable income after modifications and apportionment, or $3.0 million on state net operating losses utilized in any one year.
Management has evaluated the tax positions taken and has concluded that no liability for unrecognized tax benefits was required to be recorded for the years ended June 30, 2013, 2012 and 2011.
The Company files Australian, U.S. federal and state income tax returns. The Company is not subject to examination in any jurisdiction at this time. As a result of the net operating losses in prior years, the statute of limitations will remain open for a period following any utilization of net operating loss carryforwards and as such these periods remain subject to examination.
12. Employee Benefit Plan
The Company has a retirement savings 401(k) plan covering all U.S. employees (the “Plan”). Participating employees may contribute up to 100% of their pre-tax earnings, subject to the statutory limits. Effective January 1, 2012, the Company began a discretionary match to participant contributions into the Plan. The Company contributes fifty cents for each dollar a participant contributes, with a maximum of 3% of a participants’ eligible earnings. The contributions made by the Company vest 50% upon two years of service and 100% upon three years of service. During the years ended June 30, 2013 and 2012, the Company paid $0.3 million and $0.1 million, respectively to match employee contributions. During the year ended June 30, 2011, the Company did not match any employee contributions.
Additionally, during the year ended June 30, 2013, the Company made a discretionary contribution of 1% of compensation, as defined to all eligible employees, which amounted to $0.1 million. During the years ended June 30, 2012 and 2011, the Company did not make any discretionary contributions.
65
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
13. Business Alliances
Sanofi
The Company signed an exclusive licensing agreement and an industrialization agreement with Sanofi, a multinational pharmaceutical company, between June 2008 and July 2009. Under the terms of these agreements, Sanofi had agreed to pay the Company an aggregate of approximately $36.4 million in exclusivity fees and industrialization milestone payments for the exclusive right to negotiate the purchase of the Unifill ready-to-fill (prefilled) syringe (Unifill syringe or product).
Pursuant to the exclusive licensing agreement, Sanofi had paid the Company a €10.0 million ($13.0 million) up front non-refundable one-time fee. During the year ended June 30, 2009, the Company recognized $2.5 million of this up-front payment as revenue and deferred $10.6 million, which is being recognized on a straight-line basis over the remaining term of the agreement.
Pursuant to the industrialization agreement, Sanofi agreed to pay the Company up to €17.0 million in milestone-based payments to fund the completion of the Company’s industrialization program for the Unifill syringe. During the year ended June 30, 2012 the Company received and recognized as revenue the final €1.0 million milestone payment under the industrialization agreement.
This exclusive right for Sanofi to negotiate for the purchase of the Unifill syringe is limited to the therapeutic drug classes of anti-thrombotic agents, vaccines and four confidential sub-classes until June 30, 2014 (exclusivity list). The Company is able to negotiate with other pharmaceutical companies seeking to utilize the Unifill syringe with drugs targeted for use in therapeutic drug classes outside of those retained by Sanofi under its exclusivity list. Upon mutual agreement by both parties, Sanofi may add additional therapeutic sub-classes to the exclusivity list for the Unifill syringe provided the Company has not previously signed exclusive terms for the product to a third party. The Company is not obligated to sell more than 30% of its annual production capacity for the Unifill syringe to Sanofi without written notification up to two years in advance.
14. Financial Instruments
The Company does not hold or issue financial instruments for trading purposes. The estimated fair values of the Company’s financial instruments are as follows:
| | | | | | | | | | | | | | | | |
| | | June 30, 2013 | | | June 30, 2012 | |
| | | Carrying
Amount | | | Estimated
Fair Value | | | Carrying
Amount | | | Estimated
Fair Value | |
| | | (In thousands) | |
Cash equivalents — certificates of deposit | | $ | — | | | $ | — | | | $ | 1,003 | | | $ | 1,003 | |
| | | | | | | | | | | | | | | | |
The carrying amount of the Company’s cash equivalents, which includes certificates of deposit, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short term maturities of these items. The estimated fair value of the Company’s debt approximates its carrying value based upon the rates that the Company would currently be able to receive for similar instruments of comparable maturity.
66
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are as follows:
Level 1— Quoted prices in active markets for identical assets or liabilities.
Level 2— Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The levels in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents the Company’s assets that are measured at fair value on a recurring basis for the periods presented:
| | | | | | | | | | | | | | | | |
| | | Fair Value Based On | |
| | | Quoted Market
Prices in Active
Markets for
Identical Assets
(Level 1) | | | Significant
Other
Observable Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | | | Total
Fair Value
Measurements | |
| | | (In thousands) | |
Cash equivalents — certificates of deposit (June 30, 2012) | | $ | — | | | $ | 1,003 | | | $ | — | | | $ | 1,003 | |
| | | | | | | | | | | | | | | | |
15. Related Party Transactions
The Company has an agreement with a consulting firm, of which a member of the Company’s board of directors is the principal. Under the terms of the agreement, the Company pays a commercial arm’s length fee for finance, accounting and secretarial consulting services within Australia to be performed. Amounts paid to the consulting entity during the years ending June 30, 2013, 2012 and 2011 were $0.2 million, $0.2 million and $0.3 million, respectively.
16. Quarterly Results (unaudited)
| | | | | | | | | | | | | | | | |
| | | Quarter Ended
September 30, 2012 | | | Quarter Ended
December 31, 2012 | | | Quarter Ended
March 31, 2013 | | | Quarter Ended
June 30, 2013 | |
| | | (In thousands, except per share data) | |
Year Ended June 30, 2013 | | | | | | | | | | | | | | | | |
Revenues | | $ | 692 | | | $ | 699 | | | $ | 685 | | | $ | 667 | |
Gross profit | | | 633 | | | | 677 | | | | 639 | | | | 666 | |
Net loss | | | (12,497 | ) | | | (14,640 | ) | | | (14,084 | ) | | | (21,977 | ) |
Basic and diluted loss per share | | $ | (0.16 | ) | | $ | (0.19 | ) | | $ | (0.17 | ) | | $ | (0.25 | ) |
| | | | | | | | | | | | | | | | |
| | | Quarter Ended
September 30, 2011 | | | Quarter Ended
December 31, 2011 | | | Quarter Ended
March 31, 2012 | | | Quarter Ended
June 30, 2012 | |
| | | (In thousands, except per share data) | |
Year Ended June 30, 2012 | | | | | | | | | | | | | | | | |
Revenues | | $ | 2,130 | | | $ | 912 | | | $ | 1,251 | | | $ | 1,226 | |
Gross profit | | | 2,056 | | | | 896 | | | | 1,233 | | | | 750 | |
Net loss | | | (9,705 | ) | | | (12,850 | ) | | | (14,886 | ) | | | (14,861 | ) |
Basic and diluted loss per share | | $ | (0.16 | ) | | $ | (0.19 | ) | | $ | (0.21 | ) | | $ | (0.21 | ) |
67
UNILIFE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements – (Continued)
Per share amounts for the quarters may not add to the annual amount due to differences in the weighted average common shares outstanding during the periods.
17. Subsequent Events
On September 3, 2013, the Company entered into a long-term supply contract with Sanofi, pursuant to which it has agreed to supply Sanofi with the Unifill Finesse™, a customized device from its Unifill® platform of prefilled syringes with automatic, needle retraction, for use with the anti-thrombotic therapy Enoxaparin Sodium sold under the brand names Lovenox® and Clexane® (“Lovenox”). The contract period can extend up to 2024. The Company has granted Sanofi the exclusive use of the Unifill Finesse with anti-thrombotic drugs during the contract period. Following a four year ramp-up period after market entry, exclusivity will be maintained, subject to Sanofi purchasing a minimum of 150 million units of the Unifill Finesse or other Unifill syringes per year. The Company can supply its Unifill syringes, including the Unifill Finesse, to additional customers in all other therapeutic classes outside of anti-thrombotics. In addition to future revenue from the sale of Unifill Finesse syringes, the Company may receive up to $15 million from Sanofi in milestones based payments with $5.0 million of these payments expected in calendar 2013. This supply contract replaces and supersedes all other agreements previously signed between both parties regarding the Unifill syringe platform.
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
| Item 9A. | Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective insofar as they are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm is included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control
There has not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d — 15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
On September 12, 2013, the Company and Dr. Ramin Mojdeh, its Chief Operating Officer, entered into an amendment to his employment agreement, dated June 14, 2012, amending certain provisions of such agreement (the “Amendment”). The Amendment is filed as an exhibit to this Form 10-K.
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required by this Item 10 regarding directors, executive officers and corporate governance is incorporated by reference to our definitive proxy statement for our 2013 Annual Meeting of Stockholders (the “2013 Proxy Statement”) under the headings “Election of Directors” and “Board of Directors and Corporate Governance”. Information regarding directors and executive officers is set forth in Item 1 of Part I of this Report under the caption “Directors and Executive Officers.”
| Item 11. | Executive Compensation |
The information required by this Item 11 is incorporated by reference to the 2013 Proxy Statement under the headings of “Executive Compensation” and “Director Compensation”.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Except as set forth below, the information required by Item 12 is incorporated by reference to the 2013 Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management,” and “Equity Compensation Plan Information.”
69
ASX-Required Disclosure
Corporations Act 2001 (Cth)
We are not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act dealing with the acquisition of our shares (in particular, relating to substantial shareholdings and takeovers).
Under the Delaware General Corporation Law, we are generally permitted to purchase or redeem our outstanding shares out of funds legally available for that purpose without obtaining stockholder approval, provided that (i) our capital is not impaired; (ii) such purchase or redemption would not cause our capital to become impaired; (iii) the purchase price does not exceed the price at which the shares are redeemable at our option and (iv) immediately following any such redemption, we shall have outstanding one or more shares of one or more classes or series of stock, which shares shall have full voting powers. Our certificate of incorporation does not create any further limitation on our purchase or redemption of our shares.
Australian Disclosure Requirements
In addition to our primary listing on Nasdaq, our shares of common stock are also quoted in the form CHESS Depositary Interests (CDIs) on the Australian Securities Exchange (ASX) and trade under the symbol “UNS”. As part of our ASX listing, we are required to comply with various disclosure requirements as set out under the ASX Listing Rules. The following information is intended to comply with the ASX Listing Rules and is not intended to fulfill information required by this Annual Report on Form 10-K.
Comparative Performance Graph
The performance graph shown below compares the change in cumulative total stockholder return of Unilife Corporation’s Chess Depository Interest (CDI), the ASX All Ordinaries Index and the S&P/ASX 200 Health Care Index for the five year period ended June 30, 2013. The graph sets the beginning value of shares of CDIs and the indices at $100, and assumes that all quarterly dividends were reinvested at the time of payment. This graph does not forecast future performance of shares of the Company’s common stock or CDIs.
70
Distribution of Common Stock and CDI Holders as of September 6, 2013
| | | | | | | | | | | | | | | | |
| | | Common Stock | | | CDIs | |
| | | Number of
Holders | | | Number of
Shares of
Common Stock | | | Number of
Holders | | | Number of
CDIs | |
1 — 1,000 | | | 171 | | | | 77,379 | | | | 1,377 | | | | 706,024 | |
1,001 — 5,000 | | | 59 | | | | 134,558 | | | | 2,378 | | | | 6,900,897 | |
5,001 — 10,000 | | | 13 | | | | 85,821 | | | | 1,196 | | | | 9,511,779 | |
10,001 — 100,000 | | | 27 | | | | 1,010,513 | | | | 2,723 | | | | 90,276,451 | |
100,001 — and over | | | 16 | | | | 95,874,789 | | | | 505 | | | | 170,284,567 | |
| | | | | | | | | | | | | | | | |
| | | 286 | | | | 97,183,060 | | | | 8,179 | | | | 277,679,718 | |
| | | | | | | | | | | | | | | | |
The number of stockholders holding less than a marketable parcel of shares was 952 as of September 6, 2013.
There is no current on-market buy-back of the Company’s securities.
Twenty Largest CDI Holders as of September 6, 2013
| | | | | | | | | | |
Rank | | Name | | Number of
CDIs Held | | | % of CDIs
Outstanding | |
1. | | Citicorp Nominees Pty Ltd | | | 6,157,332 | | | | 2.22 | |
2. | | Penila Investments Pty Ltd <Hornung Superannuation A/C> | | | 4,545,870 | | | | 1.64 | |
3. | | Joseph Kaal | | | 3,417,059 | | | | 1.23 | |
4. | | Mr. Bradley Gavin Downes | | | 3,034,169 | | | | 1.09 | |
5. | | Admark Investments Pty Ltd <JS Pinto Super Fund A/C> | | | 3,000,000 | | | | 1.08 | |
6. | | Hertogs Investments Pty Ltd | | | 2,800,000 | | | | 1.01 | |
7. | | Torsby Pty Ltd <Bosnjak Family S/F A/C> | | | 2,746,230 | | | | 0.99 | |
8. | | Mr. Dennis John Banks <The Banks Family A/C> | | | 2,405,938 | | | | 0.87 | |
9. | | Thorley Management Pty Ltd <Thorley Investment A/C> | | | 2,270,897 | | | | 0.82 | |
10. | | JP Morgan Nominees Australia Ltd <Cash Income A/C> | | | 2,224,736 | | | | 0.80 | |
11. | | Omah Nominees Pty Ltd <The PJH A/C> | | | 2,000,000 | | | | 0.72 | |
12. | | Regnal Superannuation Pty Ltd <Regnal Super Fund A/C> | | | 1,971,000 | | | | 0.71 | |
13. | | HSBC Custody Nominees (Australia) Limited — A/C 3 | | | 1,863,081 | | | | 0.67 | |
14. | | UBS Nominees Pty Ltd | | | 1,668,414 | | | | 0.60 | |
15. | | Mrs. Cherie Ann Lauder + Mr. John William Lauder <J&C Lauder Family S/F A/C> | | | 1,643,234 | | | | 0.59 | |
16. | | J & N Kaal Pty Ltd <Kaal Superfund A/C> | | | 1,585,365 | | | | 0.57 | |
17. | | Mr. Warwick Wright | | | 1,540,000 | | | | 0.56 | |
18. | | Hertogs Family Superannuation Fund Pty Ltd <Hertogs Family S/Fund A/C> | | | 1,450,000 | | | | 0.52 | |
19 | | Mr. Alan Shortall | | | 1,420,560 | | | | 0.51 | |
20. | | Mr. Michael Anthony Logan + Mrs Robyn Joy Logan <Marj Super Fund A/C> | | | 1,320,000 | | | | 0.48 | |
| | | | | | | | | | |
Total | | | 49,063,885 | | | | 17.68 | |
| | | | | | | | | | |
General Information
The name of the Company Secretary is Mr. J. Christopher Naftzger.
The complete mailing address, including zip code, of our principal executive offices is 250 Cross Farm Lane, York, Pennsylvania 17406.
71
The address of the principal registered office in Australia is 1 Chifley Square, Sydney NSW 2000 and our telephone number there is +61 2 8346 6500. The ASX Liaison Officer is Mr. Jeff Carter.
Registers of securities are held at Computershare Investor Services Pty Limited, Level 2, 45 St Georges Terrace Perth WA 6000 Australia, Investor Enquiries +61 8 9323 2000 (within Australia) +61 3 9415 4677 (outside Australia).
Voting Rights
Unilife’s by-laws provide that each stockholder has one vote for every share of common stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share of stock entitled to vote so held, unless otherwise provided by Delaware General Corporation Law or in the certificate of incorporation. Holders of restricted stock awards have the same voting rights as holders of shares of common stock.
If holders of CDIs wish to attend Unilife’s general meetings, they will be able to do so. Under the ASX Listing Rules, Unilife, as an issuer of CDIs, must allow CDI holders to attend any meeting of the holders of the underlying securities unless relevant U.S. law at the time of the meeting prevents CDI holders from attending those meetings.
In order to vote at such meetings, CDI holders have the following options:
(a) instructing CDN, as the legal owner, to vote the Unilife Shares underlying their CDIs in a particular manner. The instruction form must be completed and returned to Unilife’s share registry prior to the meeting;
(b) informing Unilife that they wish to nominate themselves or another person to be appointed as CDN’s proxy for the purposes of attending and voting at the general meeting;
(c) converting their CDIs into a holding of Unilife shares prior to the record date for the meeting and voting these at the meeting (however, if thereafter the former CDI holder wishes to sell their investment on ASX, it would be necessary to convert Unilife Shares back to CDIs).
As holders of CDIs will not appear on Unilife’s share register as the legal holders of Unilife Shares, they will not be entitled to vote at a Unilife stockholder meetings unless one of the above steps is undertaken.
CDI Voting Instruction Forms and details of these alternatives will be included in each notice of meeting sent to CDI holders by Unilife.
Holders of options and phantom stock units are not entitled to vote.
Australian Corporate Governance Statement
The Board of Directors and employees of Unilife Corporation (“Unilife” or the “Company”) are committed to developing, promoting and maintaining a strong culture of good corporate governance and ethical conduct.
The Board of Directors confirms that the Company’s corporate governance framework is generally consistent with the Australian Securities Exchange’s (“ASX”) Corporate Governance Council’s “Corporate Governance Principles and Recommendations (2nd Edition)” (“ASX Governance Recommendations”), other than as set out below. To this end, the Company provides below a review of its governance framework using the same numbering as adopted for the Principles as set out in the ASX Governance Recommendations.
Copies of the Company’s charters, codes and policies may be downloaded from the corporate governance section of the Unilife website (www.unilife.com).
72
The Company redomiciled to the United States in January 2010 and listed on Nasdaq in February 2010. As a result and to meet Nasdaq listing requirements, the policies and practices adopted by the Company are predominantly “U.S.-focused”.
Principle 1 — Lay solid foundations for management and oversight
Recommendation 1.1 — Establish the functions reserved to the board and those delegated to senior executives and disclose those functions
The primary responsibility of:
(a) the Board of Directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its stockholders; and
(b) the Chief Executive Officer is to oversee the day-to-day performance of Unilife (pursuant to Board delegated powers).
The Board’s responsibilities are recognized and documented on an aggregated basis via the Charter of the Board of Directors, which is available on the corporate governance section of the Company’s website.
While day-to-day management has been delegated to the Chief Executive Officer, it is noted that the following matters are specifically reserved for the attention of the Board:
(a) providing input into and final approval of management’s development of corporate strategy and performance objectives;
(b) reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct, and legal compliance;
(c) ensuring appropriate resources are available to senior executives;
(d) approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestments; and
(e) approving and monitoring financial and other reporting.
Recommendation 1.2 — Disclose the process for evaluating the performance of senior executives
Information regarding executive compensation required by Item 11 of Form 10-K, including a discussion in relation to the mechanics concerning the evaluation of performance of the Company’s senior executives, including relevant benchmarking activities, will be contained in the 2013 Proxy Statement under the caption “Executive Compensation,” and is incorporated by reference.
Recommendation 1.3 — Disclosure of information under Principle 1 of the ASX Governance Recommendations
Reporting Requirement
The Company has complied with Recommendation 1.1 to 1.3 during the fiscal year ended June 30, 2013 other than in regards to the inclusion of certain recommendation disclosures in our 2013 Proxy Statement as opposed to this annual report.
73
Principle 2 — Structure the Board to add value
Recommendation 2.1 — A majority of the board should be independent directors
Recommendation 2.2 — The chair should be an independent director
Recommendation 2.3 — The roles of Chairman and Chief Executive Officer should not be exercised by the same individual
The Board of Directors is currently comprised of six directors. The six directors include five non-executive directors (including the Chairman of the Board) and one executive director (being the Chief Executive Officer) with the role of Chairman and Chief Executive Officer being exercised by different individuals, which is set forth in our Board Charter. Four of the five non-executive directors are “independent” as defined in the Nasdaq listing rules and the ASX listing rules. These independent directors are Messrs. Bosnjak, Lund and Galle and Ms. Wold.
At the Company’s expense, the Board collectively or directors (acting as individuals) are entitled to seek advice from independent external advisers in relation to any matter which is considered necessary to fulfill their relevant duties and responsibilities. Individual directors seeking such advice must obtain the approval of the Chairman. Any advice so obtained will be made available to the Board.
Recommendation 2.4 — The board should establish a nomination committee
The Company has established a Nominating and Corporate Governance Committee which consists of all independent directors (including the Chairman of the Nominating and Corporate Governance Committee). The members of the Nominating and Corporate Governance Committee are Mr. Bosnjak (Chair), Mr. Lund, and Mr. Galle. The Corporate Governance Committee Charter includes the process and criteria for selecting new directors. A copy of the Nominating and Corporate Governance Committee Charter is available on the corporate governance section of the Company’s website.
Reporting Requirement
The Company has complied with Recommendation 2.1 to 2.4 during the fiscal year ended June 30, 2013 other than in regards to the inclusion of certain recommendation disclosure in our 2013 Proxy Statement as opposed to this annual report.
Recommendation 2.5 — Disclose the process for evaluating the performance of the Board, its committees and individual directors
Reporting Requirement
The Corporate Governance & Nominating Committee periodically undertakes a formal review of the performance of the Board, its committees and individual directors.
Recommendation 2.6 — Disclosure of information under Principle 2 of the ASX Governance Recommendations
Reporting Requirement
The Corporate Governance & Nominating Committee looks to recruit Board members with a mix of skills and diverse backgrounds. Biographies of the board members are included elsewhere in this annual report.
Information regarding our directors, including biographical information and share ownership information required by Items 10 and 12 of Form 10-K will be included in the 2013 Proxy Statement under the captions “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management.”
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Principle 3 — Promote ethical and responsible decision-making
Recommendation 3.1 — Establish a Code of Conduct and disclose it.
The Company has adopted a Code of Business Conduct and Ethics which is available on the corporate governance section of the Company’s website.
Recommendation 3.2 — Establish a policy concerning diversity and disclose it. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them.
The Board of Directors has adopted a Diversity Policy which includes the responsibility to establish appropriate and measurable diversity objectives and for the Board to assess regularly the overall effectiveness of the objectives and annually review the progress in achieving the diversity objectives.
Recommendation 3.3 — Disclosure of measurable objectives for achieving gender diversity set by the Board in accordance with the Diversity Policy and progress towards achieving them.
During the year ended June 30, 2012, the Board of Directors adopted a Diversity Policy. Diversity at Unilife signifies not only a blend of races, genders, ages, ethnicities, religions, cultural backgrounds, languages, social backgrounds and military service but also a range of experiences, perspectives, skill sets, capabilities and thought. The Board, with the assistance of the Nominating and Governance Committee and management, is working to establish a baseline to establish and measure diversity objectives.
Recommendation 3.4 — Disclosure of the proportion of women employees in the whole organization, women in senior executive positions and women on the Board
Unilife is committed to driving diversity across all levels of the Company. As of June 30, 2013, women represented approximately 34 % (55 of 163) of the total employee base, 21 % (3 of 14) of the executive management and 17 % (1 out of 6) of the Board of Directors.
Recommendation 3.5 — Disclosure of information under Principle 3 of the ASX Governance Recommendations
Reporting Requirement
Save as set forth above, the Company has complied with Recommendation 3.1 to 3.5 during the fiscal year ended June 30, 2013.
Principle 4 — Safeguard integrity in financial reporting
Recommendation 4.1 — The Board should establish an Audit Committee
Recommendation 4.2 — The Audit Committee should: (a) consist of non-executive directors only; (b) consist of a majority of independent directors; (c) be chaired by an independent chair who is not chair of the Board; and (d) have at least three members
Recommendation 4.3 — The Audit Committee should have a formal charter
The Company has established an Audit Committee which consists only of non-executive directors all of whom are independent (including the Chairman of the Audit Committee). The members of the Audit Committee are Mr. Bosnjak, Mr. Lund (Chair) and Ms. Wold.
The Audit Committee Charter is available on the corporate governance section of the Company’s website.
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Reporting Requirement
The Company has complied with Recommendation 4.1 to 4.3 during the fiscal year ended June 30, 2013.
Recommendation 4.4 — Disclosure of information under Principle 4 of the ASX Governance Recommendations
Reporting Requirement
Information regarding the skills, experience and expertise of directors, including audit committee members in accordance with U.S disclosure requirements, will be included in the 2013 Proxy Statement.
In Item 9A of this Annual Report on Form 10-K, we have disclosed information regarding the Company’s Controls and Procedures, including management’s evaluation of the effectiveness of our disclosure controls and procedures and management’s evaluation of the effectiveness of our internal control over financial reporting.
Principle 5 — Make timely and balanced disclosure
Recommendation 5.1 — Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies
Recommendation 5.2 — Disclosure of information under Principle 5 of the ASX Governance Recommendations
Unilife is committed to providing timely and balanced disclosure to the market and, in consequence, to meeting its continuous disclosure requirements. The Company established a Disclosure Committee for the purpose of ensuring significant matters requiring public disclosure are communicated to management and disclosed in a timely manner.
In accordance with its commitment to fully comply with its continuous disclosure requirements, the Company has adopted a Continuous Disclosure Policy, together with other internal mechanisms and reporting requirements.
Reporting Requirement
The Company has complied with Recommendation 5.1 and 5.2 during the fiscal year ended June 30, 2013.
Principle 6 — Respect the rights of shareholders
Recommendation 6.1 — Design a communications policy for promoting effective communication with shareholders and encourage their participation at stockholder’s meetings and disclose those policies
Recommendation 6.2 — Disclosure of information under Principle 6 of the ASX Governance Recommendations
While the Company has not adopted a formal communications policy as recommended under Recommendation 6.1, the Company communicates information to shareholders through a range of media including annual reports, public (ASX and SEC) announcements and via the Company’s website. The Company provides advanced notice of group briefings, including earning calls, shareholder meetings and investor events, and to the extent practicable provides webcast links on its website. Key financial information and stock performance are also available on the Company’s website. Shareholders can raise questions with the Company by contacting the Company via telephone, facsimile, post or email, with relevant contact details being available on the Company’s website.
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All shareholders are invited to attend the Company’s Annual Meeting of Stockholders, either in person or by proxy. The Board regards the Annual Meeting as an excellent forum in which to discuss issues relevant to the Company and thereby encourages full participation by shareholders. Shareholders have an opportunity to submit questions to the Board and the Company’s auditors. The meeting is also webcast to provide access to those shareholders who are unable to attend the Annual Meeting.
Reporting requirement
Save as set out above, the Company has complied with Recommendation 6.1 and 6.2 for the fiscal year ended June 30, 2013.
Principle 7 — Recognize and manage risk
Recommendation 7.1 — Establish policies for the oversight and management of material business risks and disclose it
The risks that the Company faces are continually changing in line with the development of the Company. The primary risks faced by the Company during the fiscal year ended June 30, 2013 included liquidity or funding risk and operational risks associated with the finalization of the Company’s industrialization of its Unifill syringe.
The Company operates in an environment where it is required to actively manage fundamental risks such as the integrity of the Company’s intellectual property portfolio, disaster management, exchange rate risk and the risk of losing key management personnel.
In simple terms, risk is inherent in all business activities undertaken by Unilife. Unfortunately, many of these risks are beyond the control of the Company and, as such, it is important that risk be mitigated on a continuous basis, particularly if the Company is to preserve shareholder value.
The Company has a Risk Management Policy, which is designed to ensure that risks including, amongst others, technology risks, economic risks, financial risks and other operational risks are identified, evaluated and mitigated to enable the achievement of the Company’s goals.
Reporting requirement
The Company has complied with Recommendation 7.1 for the fiscal year ended June 30, 2013.
Recommendation 7.2 — Require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it whether those risks are being managed effectively (and makes disclosures therein); Disclose that management has reported to the Board as to the effectiveness of the Company’s management of its material business risks
Management provides the Board with frequent (i.e. generally monthly) updates on the state of the Company’s business, including the risks that the Company faces from time-to-time. This update includes up-to-date financial information, operational activity, clinical status and competitor updates. These updates are founded on internal communications that are fostered internally through weekly management meetings and other internal communications. These processes operate in addition to the Company’s Quality System, complaint handling processes, employee policies and standard operating procedures.
The Risk Management Policy also requires that, the Chief Executive Officer and the Chief Financial Officer will, at least on an annual basis, provide written assurances to the Board in writing that:
| | • | | all assurances given by management in respect of the integrity of financial statements are founded on sound systems of risk management and internal compliance and control which implements the policies adopted by the Board; and |
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| | • | | the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. |
In addition, the Board of Directors holds regular meetings for the purposes of discussing and reviewing operational developments.
The Company has complied with Recommendation 7.2 for the fiscal year ended June 30, 2013.
Recommendation 7.3 — Disclose whether the Board has received assurance from the Chief Executive Officer and the Chief Financial Officer that the declaration under Section 295A of the Corporations Act is founded on a sound system of risk management and internal control and is operating effectively in all material respects in relation to financial reporting risks
Reporting requirement
As the Company prepares and files its financial statements under U.S. accounting practices and laws, management is required to provide representations to the Board on a wide range of issues, including in relation to the effectiveness of the Company’s disclosure controls and procedures as well as the design or operation of internal control over financial reporting. However, as the Company is incorporated in the US and is not bound by certain financial reporting provisions under the Australian Corporations Act 2001 (Cth) no declaration is required under Section 295A of the Corporations Act. To this end, shareholders’ attention is drawn to Item 9A. of this Annual Report on Form 10-K and the certifications provided by the Chief Executive Officer and the Chief Financial Officer at the end of the Form 10-K. As stated above, Item 9A of this Annual Report on Form 10-K discloses information regarding the Company’s controls and procedures, including management’s evaluation of the effectiveness of our disclosure controls and procedures and management’s evaluation of the effectiveness of our internal control over financial reporting.
For the reasons stated above, the Company has complied with Recommendation 7.3 for the fiscal year ended June 30, 2013.
Recommendation 7.4 — Disclosure of information under Principle 7 of the ASX Governance Recommendations
Reporting requirement
Except as disclosed above, the Company believes that the aforementioned reporting meets, or exceeds, the requirements of Recommendation 7.2 to 7.4 for the fiscal year ended June 30, 2013.
Principle 8 — Remunerate fairly and responsibly
Recommendation 8.1 — Establish a Remuneration Committee
The Company has established a Compensation Committee to review and assess executive and director compensation. A copy of the Compensation Committee Charter is available on the corporate governance section of the Company’s website.
Recommendation 8.2 — The Compensation Committee should be structured so that it consists of a majority of independent directors, is chaired by an independent chair and has at least three members.
The Company has established a Compensation Committee which consists of solely independent directors (including the Chairman of the Compensation Committee). The members of the Compensation Committee are Mr. Bosnjak (Chair), Mr. Galle and Mr. Lund.
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Recommendation 8.3 — Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives
As noted above in the discussion regarding Recommendation 1.2, Item 11 of this Annual Report on Form 10-K includes disclosure relating to the structure of non-executive directors’, executive directors’ and senior executives’ remuneration practices and policies, including its annual performance review process, its external benchmarking review and its meritorious approach to employee performance. The 2013 Proxy Statement will also include a breakdown of compensation by individual directors.
Reporting requirement
Except as previously disclosed, no review or other form of assessment has been undertaken in relation to the directors.
With the exception noted above, the Company complied with the Recommendation 8.1 to 8.3 during the year ended June 30, 2013.
This report is made in accordance with a resolution of the Board of Directors.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item 13 is incorporated by reference to the 2013 Proxy Statement under the headings “Information on our Board of Directors and Corporate Governance” and “Certain Relationships and Related Party Transactions.”
| Item 14. | Principal Accounting Fees and Services |
The information required by this Item 14 is incorporated into this report by reference to the 2013 Proxy Statement under the heading “Ratification of Appointment of the Independent Registered Public Accounting Firm.”
PART IV
| Item 15. | Exhibits and Financial Statement Schedules |
(a) Documents filed as part of this report:
(1) Financial Statements
The financial statements required by this Item 15 are set forth in Part II, Item 8 of this report.
(b) Exhibits. The following Exhibits are filed as a part of this report:
| | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 2.1 | | Amended and Restated Merger Implementation Agreement dated as of September 1, 2009 between Unilife Medical Solutions Limited and Unilife Corporation | | | | | 10 | | | | 2.1 | | | February 11, 2010 |
| | | | | |
| 2.2 | | Share Purchase Agreement among Unilife Medical Solutions Limited, Edward Paukovits, Jr., Keith Bocchicchio, and Daniel Adlon dated as of October 25, 2006 and amended as of September 26, 2007 | | | | | 10 | | | | 2.2 | | | January 6, 2010 |
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| | | | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 3.1 | | Certificate of Incorporation of Unilife Corporation | | | | | | | 10 | | | | 3.1 | | | November 12, 2009 |
| | | | | |
| 3.2 | | Amended and Restated Bylaws of Unilife Corporation | | | | | | | 8-K | | | | 3.1 | | | August 17, 2010 |
| | | | | |
| 4.1 | | Form of Common Stock Certificate | | | | | | | 10 | | | | 4.1 | | | November 12, 2009 |
| | | | | |
| 4.2 | | Warrant to Purchase Common Stock dated February 11, 2013 (Buyer) | | | | | | | 8-K | | | | 4.1 | | | February 11, 2013 |
| | | | | |
| 4.3 | | Warrant to Purchase Common Stock dated February 11, 2013 (Placement Agent) | | | | | | | 8-K | | | | 4.1 | | | February 11, 2013 |
| | | | | |
| 4.4 | | Warrant to Purchase Common Stock dated April 17, 2013 | | | X | | | | | | | | | | | |
| | | | | |
| 10.1 | | Exclusive Agreement dated as of June 30, 2008 between Unilife Medical Solutions Limited and Sanofi Winthrop Industrie | | | | | | | 10 | | | | 10.1 | | | November 12, 2009 |
| | | | | |
| 10.2* | | First Amendment dated as of June 29, 2009 to Exclusive Agreement dated as of June 30, 2008 between Unilife Medical Solutions Limited and Sanofi Winthrop Industrie | | | | | | | 10 | | | | 10.2 | | | November 12, 2009 |
| | | | | |
| 10.3* | | Industrialization Agreement dated as of June 30, 2009 between Unilife Medical Solutions Limited and Sanofi Winthrop Industrie | | | | | | | 10 | | | | 10.3 | | | February 6, 2010 |
| | | | | |
| 10.4 | | Business Lease, dated as of August 17, 2005, between Integrated BioSciences, Inc. and AMC Delancey Heartland Partners, L.P. | | | | | | | 10 | | | | 10.4 | | | November 12, 2009 |
| | | | | |
| 10.5 | | Agreement dated as of September 15, 2003 between Integrated BioSciences, Inc. and B. Braun Medical, Inc. and amendments thereto | | | | | | | 10 | | | | 10.5 | | | February 1, 2010 |
| | | | | |
| 10.6 | | Promissory Note, dated as of December 30, 2005 between Integrated BioSciences, Inc. and Commerce Bank | | | | | | | 10 | | | | 10.6 | | | November 12, 2009 |
| | | | | |
| 10.7 | | Promissory Note, dated as of August 25, 2006 between Integrated BioSciences, Inc. and Commerce Bank | | | | | | | 10 | | | | 10.7 | | | November 12, 2009 |
| | | | | |
| 10.8 | | Employment Agreement, dated as of October 26, 2008 between Unilife Medical Solutions Limited and Alan Shortall | | | | | | | 10 | | | | 10.8 | | | November 12, 2009 |
| | | | | |
| 10.9 | | Employment Agreement, dated as of February 15, 2005 between Unilife Medical Solutions Limited and Jeff Carter | | | | | | | 10 | | | | 10.9 | | | November 12, 2009 |
| | | | | |
| 10.10 | | Employment Agreement, dated as of November 10, 2009 between Unilife Medical Solutions, Inc. and Daniel Calvert | | | | | | | 10 | | | | 10.10 | | | November 12, 2009 |
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| | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 10.11 | | Employment Agreement, dated as of November 10, 2009 between Unilife Medical Solutions, Inc. and Bernhard Opitz | | | | | 10 | | | | 10.11 | | | November 12, 2009 |
| | | | | |
| 10.12 | | Employment Agreement, dated as of November 10, 2009 between Unilife Medical Solutions, Inc. and Mark Iampietro | | | | | 10 | | | | 10.12 | | | November 12, 2009 |
| | | | | |
| 10.13 | | Employment Agreement, dated as of November 10, 2009 between Unilife Medical Solutions, Inc. and Stephen Allan | | | | | 10 | | | | 10.13 | | | November 12, 2009 |
| | | | | |
| 10.14 | | Employment Agreement, dated as of November 10, 2009 between Unilife Medical Solutions, Inc. and Eugene Shortall | | | | | 10 | | | | 10.14 | | | November 12, 2009 |
| | | | | |
| 10.15 | | Consulting Agreement, dated as of January 22, 2009 between Unilife Medical Solutions Limited and Joblak Pty Ltd | | | | | 10 | | | | 10.15 | | | November 12, 2009 |
| | | | | |
| 10.16 | | Deed of Mutual Release, dated January 12, 2009 between Unilife Medical Solutions Limited and Jeff Carter | | | | | 10 | | | | 10.16 | | | November 12, 2009 |
| | | | | |
| 10.17 | | Unilife Corporation Employee Stock Option Plan | | | | | 10 | | | | 10.17 | | | November 12, 2009 |
| | | | | |
| 10.18 | | Unilife Corporation 2009 Stock Incentive Plan | | | | | 10 | | | | 10.18 | | | November 12, 2009 |
| | | | | |
| 10.19 | | Unilife Medical Solutions Limited Exempt Employee Share Plan | | | | | 10 | | | | 10.19 | | | November 12, 2009 |
| | | | | |
| 10.20 | | Agreement dated November 12, 2009 between Unilife Medical Solutions, Inc. and Mikron Assembly Technology | | | | | 10 | | | | 10.20 | | | February 10, 2010 |
| | | | | |
| 10.21 | | Purchase and Mutual Indemnification Agreement dated November 16, 2009 between Unilife Cross Farm LLC and Greenspring Partners, LP | | | | | 10 | | | | 10.21 | | | January 6, 2010 |
| | | | | |
| 10.22 | | Offer of assistance dated October 16, 2009 from the Commonwealth of Pennsylvania to Unilife Medical Solutions and acceptance of the offer | | | | | 10 | | | | 10.22 | | | January 6, 2010 |
| | | | | |
| 10.23 | | Agreement Between Unilife Cross Farm LLC and L2 Architecture dated as of December 29, 2009, as amended | | | | | 10 | | | | 10.23 | | | January 6, 2010 |
| | | | | |
| 10.24 | | Agreement between Unilife Cross Farm LLC and HSC Builders & Construction Managers dated as of December 14, 2009, as amended | | | | | 10 | | | | 10.24 | | | January 6, 2010 |
| | | | | |
| 10.25 | | Development Agreement, dated December 14, 2009 between Unilife Cross Farm LLC and Keystone Redevelopment Group LLC | | | | | 10 | | | | 10.25 | | | February 1, 2010 |
| | | | | |
| 10.26 | | Amended and Restated Operating Agreement dated December 14, 2009 of Unilife Cross Farm LLC | | | | | 10 | | | | 10.26 | | | January 6, 2010 |
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| | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 10.27 | | Form of Share Purchase Agreement between Unilife Medical Solutions Limited and each of the US investors in the October and November 2009 private placement | | | | | 10 | | | | 10.27 | | | January 6, 2010 |
| | | | | |
| 10.28 | | Form of Subscription Agreement between Unilife Medical Solutions Limited and each of the Australian investors in the October and November 2009 private placement | | | | | 10 | | | | 10.28 | | | January 6, 2010 |
| | | | | |
| 10.29 | | 2009 Share Purchase Plan Terms and Conditions | | | | | 10 | | | | 10.29 | | | January 6, 2010 |
| | | | | |
| 10.30 | | Offer Letter dated November 12, 2008 from Unilife Medical Solutions Limited to Daniel Calvert | | | | | 10 | | | | 10.30 | | | February 1, 2010 |
| | | | | |
| 10.31 | | Offer Letter dated November 20, 2008 from the Coelyn Group, on behalf of Unilife Medical Solutions Limited to Bernhard Opitz | | | | | 10 | | | | 10.31 | | | February 1, 2010 |
| | | | | |
| 10.32 | | Consulting Agreement between Unilife Medical Solutions Limited and Medical Middle East Limited | | | | | 10 | | | | 10.32 | | | February 1, 2010 |
| | | | | |
| 10.33 | | Option Deed, dated January 21, 2010 between Unilife Medical Solutions Limited and Edward Fine | | | | | 10 | | | | 10.33 | | | February 1, 2010 |
| | | | | |
| 10.34 | | Deed of Settlement and Release dated October 26, 2008 among Unilife Medical Solutions Limited and Craig Thorley, Joseph Kaal, Alan Shortall and Roger Williamson and notification related thereto dated October 27, 2009 | | | | | 10 | | | | 10.34 | | | February 10, 2010 |
| | | | | |
| 10.35 | | Deed of Confirmation of Intellectual Property Rights and Confidentiality among Unilife Medical Solutions Limited, Unitract Syringe Pty Limited, Craig Thorley and Joseph Kaal | | | | | 10 | | | | 10.35 | | | February 10, 2010 |
| | | | | |
| 10.36 | | Form of Restricted Stock Agreement under the Unilife Corporation 2009 Stock Incentive Plan between Unilife Corporation and Alan Shortall | | | | | 10 | | | | 10.36 | | | February 1, 2010 |
| | | | | |
| 10.37 | | Form of Unilife Corporation Nonstatutory Stock Option Agreement between Unilife Corporation and Alan Shortall | | | | | 10 | | | | 10.37 | | | February 1, 2010 |
| | | | | |
| 10.38 | | Membership Interest Purchase Agreement, dated December 14, 2009 between Unilife Cross Farm LLC and Cross Farm, LLC. | | | | | 10 | | | | 10.38 | | | February 1, 2010 |
| | | | | |
| 10.39 | | Letter Agreement dated January 29, 2010 between sanofi-aventis and Unilife Medical Solutions. | | | | | 10 | | | | 10.39 | | | February 1, 2010 |
| | | | | |
| 10.40 | | Form of Restricted Stock Agreement Under the Unilife Corporation 2009 Stock Incentive Plan | | | | | 10-Q | | | | 10.1 | | | March 24, 2010 |
| | | | | |
| 10.41 | | Form of Unilife Corporation Nonstatutory Stock Option Notice | | | | | 10-Q | | | | 10.2 | | | March 24, 2010 |
| | | | | |
| 10.42* | | Letter Agreement dated February 25, 2010 between sanofi-aventis and Unilife Medical Solutions Limited | | | | | 10-Q | | | | 10.1 | | | May 17, 2010 |
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| | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 10.43 | | Employment Agreement, dated as of June 8, 2010 between Unilife Corporation and R Richard Wieland | | | | | 8-K | | | | 10.1 | | | June 14, 2010 |
| | | | | |
| 10.44 | | Separation Agreement and General Release, dated as of June 28, 2010 between Unilife Corporation and Daniel Calvert | | | | | 8-K | | | | 10.1 | | | July 2, 2010 |
| | | | | |
| 10.45 | | Employment Agreement, dated as of July 6, 2010 between Unilife Corporation and J. Christopher Naftzger | | | | | 10-K | | | | 10.45 | | | September 28, 2010 |
| | | | | |
| 10.46 | | Employment Agreement, dated as of July 27, 2010 between Unilife Corporation and Dennis P. Pyers | | | | | 10-K | | | | 10.46 | | | September 28, 2010 |
| | | | | |
| 10.47 | | Non-revolving Credit Agreement dated August 13, 2010 between Unilife Cross Farm LLC and Univest National Bank and Trust Co. | | | | | 10-K | | | | 10.47 | | | September 28, 2010 |
| | | | | |
| 10.48 | | Non-revolving Promissory Note dated August 13, 2010 between Unilife Cross Farm LLC and Univest National Bank and Trust Co. | | | | | 10-K | | | | 10.48 | | | September 28, 2010 |
| | | | | |
| 10.49 | | Surety dated August 13, 2010 between Unilife Corporation and Univest National Bank and Trust Co. | | | | | 10-K | | | | 10.49 | | | September 28, 2010 |
| | | | | |
| 10.50 | | Security and Control Agreement Regarding Reserve Account dated August 13, 2010 between Unilife Corporation and Univest National Bank and Trust Co. | | | | | 10-K | | | | 10.50 | | | September 28, 2010 |
| | | | | |
| 10.51 | | Loan Agreement between Metro Bank and Unilife Cross Farm LLC dated as of October 20, 2010 | | | | | 8-K | | | | 10.1 | | | October 26, 2010 |
| | | | | |
| 10.52 | | Term Note in the principal amount of $14,250,000 dated as of October 20, 2010 | | | | | 8-K | | | | 10.2 | | | October 26, 2010 |
| | | | | |
| 10.53 | | Term Note in the principal amount of $3,750,000 dated as of October 20, 2010 | | | | | 8-K | | | | 10.3 | | | October 26, 2010 |
| | | | | |
| 10.54 | | Guaranty and Suretyship Agreement dated October 20, 2010 (Unilife Corporation) | | | | | 8-K | | | | 10.4 | | | October 26, 2010 |
| | | | | |
| 10.55 | | Guaranty and Suretyship Agreement dated October 20, 2010 (Unilife Medical Solutions, Inc.) | | | | | 8-K | | | | 10.5 | | | October 26, 2010 |
| | | | | |
| 10.56 | | Form of Subscription Agreement between Unilife Corporation and each investor in the December 2010 Regulation S placement | | | | | 8-K | | | | 10.1 | | | December 2, 2010 |
| | | | | |
| 10.57 | | Form of Option Agreement between Unilife Corporation and each investor in the December 2010 Regulation S placement | | | | | 8-K | | | | 10.2 | | | December 2, 2010 |
| | | | | |
| 10.58 | | Form of Warrant issued to Keystone Redevelopment Group, LLC and L2 Architecture on December 2, 2010 | | | | | POS AM | | | | 10.58 | | | December 10, 2010 |
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Exhibit No. | | | | Included Herewith | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 10.59 | | Form of Subscription Agreement (the Company entered into separate Subscription Agreements with the investors in substantially the same form set forth in Exhibit 10.1) | | | | | 8-K | | | | 10.1 | | | December 2, 2010 |
| | | | | |
| 10.60 | | Form of Option Agreement (the Company entered into separate Option Agreements with the investors in substantially the same form set forth in Exhibit 10.2) | | | | | 8-K | | | | 10.2 | | | December 2, 2010 |
| | | | | |
| 10.61 | | 2010 Unilife Share Purchase Plan Terms and Conditions | | | | | 8-K | | | | 10.1 | | | January 6, 2011 |
| | | | | |
| 10.62 | | Separation Agreement and General Release between Unilife Corporation and Bernhard Opitz | | | | | 10-Q | | | | 10.5 | | | February 14, 2011 |
| | | | | |
| 10.63 | | Employment Agreement dated February 7, 2011 between Unilife Corporation and Ramin Mojdeh, Ph.D. | | | | | 8-K | | | | 10.1 | | | February 7, 2011 |
| | | | | |
| 10.64 | | Amendment to Executive Employment Agreement, dated July 18, 2011 between Unilife Corporation and Alan D. Shortall | | | | | 10-Q | | | | 10.1 | | | November 9, 2011 |
| | | | | |
| 10.65 | | Master Lease Agreement dated August 15, 2011 between Unilife Medical Solutions, Inc. and Varilease Finance, Inc. | | | | | 10-Q | | | | 10.2 | | | November 9, 2011 |
| | | | | |
| 10.66 | | Guaranty to Varilease Finance, Inc. from Unilife Corporation, dated August 15, 2011 | | | | | 10-Q | | | | 10.3 | | | November 9, 2011 |
| | | | | |
| 10.67 | | Employment Agreement, effective October 1, 2011 between Unilife Corporation and Alan D. Shortall | | | | | 10-Q | | | | 10.4 | | | November 9, 2011 |
| | | | | |
| 10.68 | | Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and R. Richard Wieland | | | | | 10-Q | | | | 10.5 | | | November 9, 2011 |
| | | | | |
| 10.69 | | Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and J. Christopher Naftzger | | | | | 10-Q | | | | 10.6 | | | November 9, 2011 |
| | | | | |
| 10.70 | | Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and Mark Iampietro | | | | | 10-Q | | | | 10.7 | | | November 9, 2011 |
| | | | | |
| 10.71 | | Employment Agreement, effective July 1, 2012 between Unilife Corporation and Ramin Mojdeh, Ph.D. | | | | | 8-K | | | | 10.1 | | | June 15, 2012 |
| | | | | |
| 10.72 | | Controlled Equity Offering Sales Agreement, dated October 3, 2012, by and between Unilife Corporation and Cantor Fitzgerald & Co. | | | | | 8-K | | | | 10.1 | | | October 4, 2012 |
| | | | | |
| 10.73 | | Securities Purchase Agreement by and between Unilife Corporation and the buyer listed therein dated February 11, 2013. | | | | | 8-K | | | | 10.1 | | | February 11, 2013 |
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| | | | | | | | | | | | | | | | |
Exhibit No. | | | | Included Herewith | | | Incorporated by Reference Herein |
| | Description of Exhibit | | | Form | | | Exhibit | | | Filing Date |
| | | | | |
| 10.74 | | Placement Agent Agreement, dated February 11, 2013 by and between Unilife Corporation and Westor Capital Group, Inc. | | | | | | | 8-K | | | | 10.2 | | | February 11, 2013 |
| | | | | |
| 10.75 | | Letter Agreement, dated May 14, 2013, between Unilife Corporation and Ramin Mojdeh, Ph.D | | | X | | | | | | | | | | | |
| | | | | |
| 10.76 | | Amendment to Employment Agreement, effective September 12, 2013 between Unilife Corporation and Ramin Mojdeh, Ph.D | | | X | | | | | | | | | | | |
| | | | | |
| 12.1 | | Statement regarding computation of Ratio of Earnings to Fixed Charges | | | X | | | | | | | | | | | |
| | | | | |
| 21 | | List of subsidiaries of Unilife Corporation | | | X | | | | | | | | | | | |
| | | | | |
| 23.1 | | Consent of KPMG LLP | | | X | | | | | | | | | | | |
| | | | | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | | | X | | | | | | | | | | | |
| | | | | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | | | X | | | | | | | | | | | |
| | | | | |
| 32.1 | | Section 1350 Certification | | | X | | | | | | | | | | | |
| | | | | |
| 32.2 | | Section 1350 Certification | | | X | | | | | | | | | | | |
| | | | | |
| 101.INS | | XBRL Instance Document | | | X | | | | | | | | | | | |
| | | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema | | | X | | | | | | | | | | | |
| | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | X | | | | | | | | | | | |
| | | | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | X | | | | | | | | | | | |
| | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | X | | | | | | | | | | | |
| | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | X | | | | | | | | | | | |
| * | Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
UNILIFE CORPORATION |
| |
By: | | /s/ Alan Shortall |
| | Name: Alan Shortall |
| | Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | |
Name | | Title | | Date |
| | |
/s/ Alan Shortall Alan Shortall | | Director and Chief Executive Officer (Principal Executive Officer) | | September 13, 2013 |
| | |
/s/ R. Richard Wieland II R. Richard Wieland II | | Chief Financial Officer and Executive Vice President (Principal Financial Officer) | | September 13, 203 |
| | |
/s/ Dennis P. Pyers Dennis P. Pyers | | Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) | | September 13, 2013 |
| | |
/s/ John Lund John Lund | | Director | | September 13, 2013 |
| | |
/s/ William Galle William Galle | | Director | | September 13, 2013 |
| | |
/s/ Jeff Carter Jeff Carter | | Director | | September 13, 2013 |
| | |
/s/ Slavko James Joseph Bosnjak Slavko James Joseph Bosnjak | | Chairman and Director | | September 13, 2013 |
| | |
/s/ Mary Katherine Wold Mary Katherine Wold | | Director | | September 13, 2013 |
86
