UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-K

 

 

Commission File Number 001-34540

 

UNILIFE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code (717) 384-3400

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

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 o     No þ

 

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 o     No þ

 

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 þ     No o

 

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 o     No o

 

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.  þ

 

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):

 

(Do not check if a 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 o     No þ

 

The aggregate market value of the common equity held by non-affiliates of the registrant as of December 31, 2010, the last business day of the registrant’s most recently completed second fiscal quarter was $310.4 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 1, 2011, there were 64,058,508 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 2011 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, 2011.

 

 

UNILIFE CORPORATION

FORM 10-K
FOR THE YEAR ENDED JUNE 30, 2011

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 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.”

 

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.

 

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.

PART I

 

 

Overview

 

We are a U.S. based developer and commercial supplier of a diversified portfolio of advanced drug delivery systems. We collaborate with pharmaceutical and biotechnology companies seeking to optimize drug lifecycles and generate differentiation for their brand in competitive therapeutic markets through the use of innovative devices that can improve patient care, protect healthcare workers and prevent disease. We have developed a broad portfolio of drug delivery systems in direct response to unmet market needs for macromolecule injectable drugs including biologics.

 

Our Unifill^® syringe, the world’s first and only known, commercially available, ready-to-fill syringe with automatic, user-controlled safety features integrated within the glass barrel, sits at the leading edge of a proprietary platform of primary drug containers. The Unifill syringe is designed to be supplied to pharmaceutical manufacturers in a form that is ready for filling with an injectable drug or vaccine of up to 1mL in dose volume. As a primary drug container, the Unifill syringe has USP Class Six compatible materials within the drug fluid path. Following our supply of the Unifill syringe to the pharmaceutical company, they are primarily responsible for the filling, packaging, shipment, regulatory approval, clinical use and marketing of the drug-device combination product. The Unifill syringe is suitable for use by healthcare workers and by patients that self-administer prescription medication outside of healthcare facilities.

 

We have a strategic relationship with Sanofi, a large global pharmaceutical company, pursuant to which it has paid to us 10.0 million euros under an exclusive licensing agreement plus an additional 17.0 million euros during the industrialization program for the Unifill syringe. Together, these payments (equating to approximately $40 million in total based upon currency rates at the time of payments) provide Sanofi with the exclusive right to negotiate for the purchase of the Unifill syringe within the main therapeutic classes of anti-thrombotic agents, vaccines and four smaller confidential sub-classes until June 30, 2014.

 

We commenced initial production and supply of the Unifill syringe to Sanofi and one other U.S. based pharmaceutical company in July 2011. We are also in discussions with other pharmaceutical companies regarding the supply of, and access to, the Unifill syringe, within therapeutic drug classes outside of those retained by Sanofi.

 

We expect that current and future customers will seek to utilize initial units of the Unifill syringe for required compatibility and stability studies with target injectable drugs and vaccines.

 

Our Unifill portfolio of ready-to-fill syringes with integrated safety features is now being expanded to support the delivery of other prefilled injectable drugs and vaccines. Our Unifill Select syringes are designed for the use of interchangeable needles of up to 11/2” in length. They can be prefilled either with liquid stable drugs for therapeutic classes such as vaccines where intramuscular injections are commonly required, or with a diluent for use with lyophilized drugs supplied in a vial for reconstitution at the point of delivery. We have also developed and filed provisional patent applications for the Unifill EZMix range of syringes with multiple chambers that contain the lyophilized drug and the diluent for reconstitution within the single delivery system.

 

Additional technology platforms that we have developed in response to the unmet device needs of pharmaceutical companies include patient self-administration systems including auto-injectors and wearable subcutaneous pump infusion systems for viscous, large-volume drugs, and other specialized devices for targeted organ delivery. We also supply our Unitract 1mL range of syringes to medical distributors for use within healthcare facilities and by patients that self-administer prescription medication.

 

These technology platforms may also facilitate the customization of each device to address the specific pharmaceutical, molecular and patient requirements of a target drug supplied in either a liquid stable form or lyophilized for reconstitution. As our devices can form an integral part of the drug-device combination product that is submitted to regulatory agencies for approval, our collaboration with pharmaceutical companies can begin during the early clinical development of a pipeline drug and potentially span its entire commercial lifecycle.

Our goal is to enter into commercial supply contracts with pharmaceutical companies, as well as to enter into development agreements under which a pharmaceutical company may fund the development or customization of a Unilife device for use with its drugs entering into scheduled clinical trials. Programs to develop products suitable for use in scheduled clinical trials are now ongoing with one pharmaceutical company.

 

We design and manufacture our devices out of a state-of-the-art global headquarters and production facility located in York, Pennsylvania. We opened the 165,000 square foot facility in December 2010 following a $32 million one-year construction program. The facility includes a 100,000 square foot production center that contains eleven cleanrooms, a product development center, quality labs, machine shops and a fully segregated warehouse. 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 are guided by 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.

 

Market Opportunity

 

The Pharmaceutical Market for Pre-Filled Syringes

 

A ready-to-fill or prefilled syringe serves as a primary drug container for an injectable drug or vaccine.

 

Prefilled syringes have a number of advantages over conventional plastic syringes that typically draw medication from vials or ampoules at the time of administration. First, prefilled syringes help pharmaceutical companies improve manufacturing efficiencies through the elimination of drug wastage commonly associated with the overfilling of multi-use vials. Second, healthcare workers often prefer prefilled syringes because they can facilitate a relatively fast, accurate and convenient administration of a drug. Furthermore, a pre-measured dose of an injectable drug in a prefilled syringe can help reduce the risk of dosing errors. Finally, the relative ease-of-use and accuracy of prefilled syringes can also make them suitable for patient self-administration of many types of prescription medication.

 

Prefilled syringes are supplied to a pharmaceutical company ‘ready for filling’ with an injectable drug or vaccine, before it is packaged and shipped for administration by either healthcare workers or by patients that self-administer prescription medication outside of healthcare facilities. Prefilled syringes are made of glass, with USP compliant materials within the fluid path to support the compatibility and stability of the target drug within the device for an average period of at least two years. The majority of prefilled syringes are used with drugs supplied in a liquid stable dose format of up to 1mL in volume, and targeted for administration either by subcutaneous or intramuscular injection. Some lyophilized drugs requiring reconstitution at the point of delivery are also supplied in a dual-chamber prefilled syringe where one container is filled with a drug and another chamber with diluent.

 

We are aware of more than 50 drugs and vaccines that are currently available in a prefilled syringe format from more than 20 pharmaceutical companies, and believe that a number of pipeline drugs are likely to be supplied in this format in the future. Greystone Associates, a medical and health care technology consulting firm, has estimated that approximately 2.54 billion prefilled syringes were used globally in 2010, and that this number will increase significantly in the coming years. Another market research firm, MarketsandMarkets, estimates that the market for prefilled syringes was valued at $2.55 billion in 2010, and is projected to increase to $4.806 billion in 2015, representing a compound average growth rate of 13.5%.

 

Drugs targeted for use across more than a dozen therapeutic classes that are currently supplied in a prefilled syringe format include anti-coagulants to prevent and treat thrombosis, anti-inflammatories to treat rheumatoid arthritis, anti-infectives to treat hepatitis B and C, hematological drugs to stimulate production of red or white blood cells to treat anemia or fight infection, and vaccines which seek to prevent a range of diseases. We expect that prefilled syringes will also be increasingly used in the coming years as a drug delivery device for other therapeutic drug classes including obstetrics, oncology, osteoporosis and human growth hormone treatment.

Increased Focus on Prevention of Needlestick Injuries

 

The World Health Organization estimates that 1.3 million people die each year as a result of unsafe injection practices, which can include syringe re-use and needlestick injuries. Unsafe injection practices result in the transmission of a number of blood-borne diseases such as HIV/AIDS and hepatitis C. The U.S. Centers for Disease Control and Prevention estimates that 385,000 needlestick and other sharps-related injuries are sustained by U.S. hospital-based healthcare personnel each year. The U.S. Occupational Safety and Health Administration, or OSHA, estimates that when other secondary healthcare settings are also taken into account, there are as many as 800,000 needlestick injuries to U.S. healthcare workers each year. To help minimize the transmission of blood-borne pathogens caused by unsafe injection practices, many international healthcare and pharmaceutical markets are transitioning to the mandatory use of safety syringes.

 

In many sophisticated healthcare markets, governments are focused on the mandatory use of safety devices within healthcare facilities to protect healthcare workers from the risk of acquiring blood-borne pathogens via needlestick injuries. The United States was the first nation to mandate the use of safety syringes and other safety-engineered medical devices within healthcare facilities, with the adoption of the Federal Needlestick Prevention Act in 2000, or FNSPA, and the subsequent revision to the Bloodborne Pathogens Standard (BPS).

 

The European Union has also introduced a directive in March 2010 requiring member countries to introduce laws within three years requiring the use of needlestick prevention products within healthcare facilities. Other countries such as Canada and Australia have also taken steps to encourage the use of safety syringes. As a result of this existing and proposed legislation, safety syringes are now commonly used within the healthcare facilities in a number of countries.

 

The United States represents the largest and most mature market for safety syringes, with a substantial majority of hypodermic syringes and needles used within acute-care facilities featuring some type of needlestick prevention device. Notwithstanding the increased use of safety syringes, we believe that current safety syringe technologies are in several respects inadequate to fully protect healthcare workers from infection risk caused by needlestick injuries or other potential transmission modes. First, most products currently available require operators to manually slide an external plastic guard or sheath over the needle after use, or retract the needle into the barrel at a rapid, uncontrolled rate. Second, healthcare workers may choose to remove or not activate the safety feature of some types of safety syringe products. Moreover, activation of the needle retraction mechanism in the open air for some retractable syringes, rather than inside the body of the patient, may create the potential risk of infection via needlestick injuries or aerosol (splatter).

 

OSHA differentiates safety features in two primary ways. First, it differentiates passive safety features which “remain in effect before, during and after use” from active devices which “require the worker to activate the safety mechanism.” Second, OSHA regulations state that products with an “integrated safety design that is an integral part of the device and cannot be removed” are usually preferred to those with an accessory safety device with safety features that are “external” and “dependent on employee compliance.” We believe the majority of safety syringe products used in U.S. healthcare facilities incorporate active safety features which are not fully integrated within the barrel of the syringe.

 

We are not aware of any prefilled syringe with passive safety features that are integrated within the glass barrel. To improve compliance with legislation such as the FNSPA, a number of pharmaceutical companies attach ancillary safety products onto standard prefilled syringes following dose filling and prior to packaging. We estimate that approximately half of the approved drugs currently available in a prefilled syringe format are supplied by the pharmaceutical manufacturer with some type of ancillary safety device. The majority of these ancillary safety products slide an external plastic sheath or guard over the needle once the injection has been completed.

 

It is costly for pharmaceutical companies to purchase these ancillary safety products and to operate the automated assembly systems required to attach them onto a standard prefilled syringe. The relatively large size of prefilled syringes supplied with an ancillary safety device can also significantly increase the shipping and packaging costs of pharmaceutical companies. Furthermore, some of these prefilled syringes supplied with an ancillary safety device require the removal of the device from the body prior to activation of the safety mechanism, creating the risk of infection via needlestick injury or aerosol (splatter). Thus, we believe that there is a significant

market opportunity for the Unifill syringe that has passive and integrated safety features and is compatible with pharmaceutical companies’ drug filling systems.

 

We also believe there are significant market opportunities for the use of conventional and prefilled safety syringes outside of mainstream healthcare facilities. In addition to insulin, a range of other injectable drugs designed for the prevention and/or treatment of chronic or debilitating conditions such as arthritis, multiple sclerosis and osteoporosis and thrombosis are now available for self-administration. We believe the popularity of safety syringes among patients who self-administer prescription medication may increase due to their capacity to prevent needlestick injuries to family members and encourage safe, convenient disposal. When purchased with a prescription, a number of insurance providers in the U.S. now cover safety insulin syringes under the same tier level for reimbursement as standard insulin syringes.

 

Increasing Pharmaceutical Investment in Large-Molecule Drugs

 

The composition of clinical development pipelines is being increasingly dominated by large-molecule injectable drugs, such as biologics, with specific formulation and delivery requirements. Biological drugs are created by biologic processes, rather than being chemically synthesized. They are used in the treatment of many acute and chronic diseases such as cancer, rheumatoid arthritis, diabetes, multiple sclerosis and growth hormone deficiency. The market for biologics has grown from $60.3 billion in 2004 to $109.8 billion in 2010. The injectable drug delivery market is being increasingly driven by the increasing development and marketing of large-molecule drugs and vaccines such as biologics by a number of top tier pharmaceutical companies. According to MarketsandMarkets, the biologics market is expected to grow from $109.8 billion in 2010 to $180.9 billion in 2015, representing a compound annual growth rate of 10.5%. Based on available information, we believe that there are more than a thousand large-molecule drugs such as biologics now in the clinical and pre-clinical development pipeline. Biologics are expected to account for 17.5% of total projected global drug sales in 2015.

 

Due to the protein based structure of biologics, most are fragile in nature. As a result, the vast majority-of-biological drugs is injected into the body and supplied in either a liquid stable or lyophilized form for reconstitution. Due to the specific molecular, formulation and patient requirements of large-molecule drugs including biologics, pharmaceutical companies will often seek to enter into collaborative partnerships with device manufacturers to develop effective drug- device combination products that can enable and enhance their clinical use and commercialization.

 

In addition to the commercial supply of our devices for approved drugs, we believe there are significant opportunities for us to establish collaborative relationships with pharmaceutical companies whereby we can develop delivery devices in parallel with the clinical development of a target pipeline biological drug. Based upon legal reviews of FDA guidance, we believe that the development of devices that are designed or customized to address the specific requirements of the target molecule can generate unique claims for the drug-device combination product that may make it non-substitutable for biosimilar competitors. We are further aware of a number of biologics that are expected to lose patent protection between 2011 and 2015, which may create opportunities for us to collaborate with manufacturers of biologic or biosimilar drugs to develop innovative or differentiated devices that can potentially extend product lifecycles within increasingly competitive therapeutic drug classes.

 

Patient-Self-Administration of Injectable Drugs

 

Increased prevalence of chronic and debilitating diseases such as diabetes, rheumatoid arthritis, multiple sclerosis and cancer, along with increased life expectancies, has created increasing demand for ways to administer treatment outside of healthcare facilities. The self-administration of injectable medication by patients offers several significant benefits including reduced financial and operational constraints on healthcare facilities and improvements in patient care and overall quality of life. Self-injection devices such as prefilled syringes, auto-injectors, subcutaneous infusion systems and pens are among the device categories that enhance and enable the safe, simple and convenient administration of prescription medications. MarketsandMarkets projects the patient self-injection sector to increase to $1.2 billion by 2015.

 

Drug delivery devices that are intuitive to use and have minimal steps of use can increase the overall value of the drug-device combination product. In particular, we believe such devices can help to enhance levels of patient

acceptance to improve adherence to therapy compliance. Such device-related factors can play a significant role in the selection of which drug a physician will prescribe for treatment and its reimbursement. As a result, innovative, patient-friendly devices can help to generate higher numbers of units sold, raise the average selling price per dose, increase levels of market share and generate brand differentiation within competitive therapeutic classes.

 

Our Solutions

 

We have developed a diversified and highly innovative portfolio of advanced drug delivery systems in direct response to the unmet needs of pharmaceutical companies, healthcare workers and patients. We consider our devices to be differentiated by their market-driven design and capacity to be developed to address the specific molecular, formulation, clinical, regulatory, patient and marketing requirements of a target drug. By supporting pharmaceutical companies during the clinical development and commercial lifecycles of their drugs, our devices are designed to improve patient care, optimize product lifecycles and generate powerful brand differentiation within competitive therapeutic classes.

 

Proprietary Technology Platforms

 

Our broad platform of primary drug containers and other device technologies has been designed to support the administration of injectable drugs and vaccines, including biologics, supplied in a liquid stable or lyophilized form for reconstitution, across a wide range of therapeutic classes. In our opinion, this technology platform of prefilled syringes, patient-self-injection systems and novel target organ delivery systems represents one of the most diversified and customer-focused device portfolios on the market for use with drugs targeted for administration via common routes such as subcutaneous and intramuscular injection. Our technology platforms cover the following device categories:

 

Unifill: Prefilled Syringes (Primary Drug Containers) with Integrated Safety Features

 

We have developed a full platform of Unifill ready-to-fill (prefilled) syringes that are designed for use with a broad range of liquid stable and lyophilized drugs and vaccines that are targeted for use in a prefilled format. All Unifill products within this proprietary platform utilize our unique automatic retraction safety mechanism enabling operators to control the speed of needle withdrawal directly from the body into the barrel of the syringe. This combination of automatic, operator-controlled needle retraction features fully integrated within the barrel is designed to minimize the risk of infection via potential transmission modes including needlestick injuries, device reuse or aersolization (splatter). All components within the fluid path feature USP-compliant materials, with the devices designed to be supplied to customers for integration into their existing fill-finish systems.

 

The Unifill syringe (see below) sits at the leading edge of this proprietary platform. These devices are manufactured at our FDA-registered facility in York, PA, and available for supply to pharmaceutical companies. Other Unifill ready-to-fill syringes we have developed include primary and multi-container systems featuring either staked (fixed) or interchangeable needles.

 

Unifill Select syringes feature a primary drug container that can either be utilized as a ready-for injection prefilled delivery system for liquid stable drugs, or with a diluent for use with lyophilized drugs supplied in a vial format for reconstitution at the point of delivery. Interchangeable needles of up to 1.5 inches in length can be attached onto Unifill Select products. All Unifill syringes can be customized to address the specific customer, molecular component and patient requirements of a target drug.

 

Clinical (Hypodermic) Syringes

 

We have developed a proprietary range of Unitract safety syringes for use with liquid stable drugs supplied in a vial or ampoule are targeted for common administration routes including subcutaneous and intramuscular injection. All Unitract syringes feature a unique combination of automatic and fully integrated safety features that help to enable intuitive use and convenient disposal by either healthcare workers or patients that self-administer prescription medication. An audible, tactile click signals the automatic (passive) activation of the needle retraction mechanism upon the full injection of the dose. Operators can control the speed at which the needle is withdrawn

directly from the body into the barrel of the syringe by relieving thumb or finger pressure on the plunger. The plunger is then locked to prevent needle re-exposure, product tampering or device reuse.

 

At the leading edge of this platform is the Unitract range of 1mL safety syringes. Product variants including the Unitract Insulin and Tuberculin syringes are approved and available for use within a number of international markets including the U.S., Canada and the European Union. These devices are manufactured at our FDA-registered facility in York, PA.

 

We have also developed an extended range of Unitract syringes from 3mL in size designed for the intramuscular injection of drugs and vaccines that require the attachment of needles up to 1.5 inches in length

 

Self-Injection Systems

 

Auto-Injectors

 

Our Unifill Auto-Injector platform is designed for the self-administration of injectable drugs by patients outside of healthcare facilities. Designed for use with the Unifill ready-to-fill syringes, Unifill Auto-Injectors have been developed in single-use disposable and re-usable configurations, and can be customized to support a range of drug viscosities and patient dexterity requirements.

 

Due to the integrated safety features of the Unifill syringe, Unifill Auto-Injectors are highly compact in size compared to comparable devices to provide easier portability, compact handling and convenient disposal. We believe that because of its utilization with the Unifill syringe, Unifill Auto-Injectors also offer the first true end-of-dose indicator for the patient self-administration of injectable drugs in an auto-injector format. An audible, tactile click signals the injection of the full dose and the automatic activation of the safety mechanism in the Unifill syringe, which retracts the needle directly from the body into the cylinder. This true end-of-dose indicator ensures the operator is able to intuitively and accurately deliver the full volume of prescribed medication to optimize therapy compliance.

 

Unifill Auto-Injectors also utilize fewer components than many comparable devices over an equivalent standard prefilled syringe due to its provision with the Unifill syringe.

 

Auto-Infusors

 

We have developed and filed a patent application for what we consider to be a unique technology platform of single-use wearable subcutaneous infusion pump systems enabling patients to self-administer large-molecule injectable drugs between 3mL and 10mL in volume. Unifill Auto-Infusors are designed to serve as a patient-centric delivery system for a number of emerging therapies including biologics that require higher dose volumes, less frequent dosing regimens, and the formulation of more complex injectable molecules. Our range of Auto-Infusors is designed to be worn by the patient for preset infusion times that can span between minutes and hours in duration based upon the requirements of the pharmaceutical company. After the application of the device on or near the injection site and the pushing of a button by the patient, the delivery of the medication commences. Upon the completion of dose delivery, the patient can remove the system from the body for convenient disposal.

 

Auto-Infusors consist of a primary drug container, the standard fluid path and a drive mechanism that are all modular in design to enable customization to address the specific molecular, viscosity and patient requirements of the target drug. For clinical trial use, our Auto-Infusors can be filled at time of use to eliminate the need for drug compatibility studies. We expect the device will be used in clinical drug trials by pharmaceutical companies scheduled to occur during the 2012 calendar year.

 

Novel Devices for Targeted Organ Delivery

 

We have started working with pharmaceutical companies to develop specialized drug delivery systems to administer biologics and other macro-molecule drugs that require high-precision administration to target organs of the human body. For these projects, this collaboration with the pharmaceutical company can occurs early in the clinical development phase. These close relationships that we build with pharmaceutical companies can help to

create unique drug-device combination products that can contain and administer the dose to the target organ with high-precision and reliability.

 

By addressing the specific device innovation needs in parallel with the development of the target pipeline drug, the specialized organ delivery systems that we develop can help to support successful clinical trial outcomes and the filing of regulatory applications with strong claims for the combination product. As a result, our proprietary organ delivery systems may help to generate powerful brand differentiation for the target drug, to create a competitive advantage of over drugs offered by other manufacturers of branded drugs or biosimilar or generic competitors.

 

Business Strategy

 

Our goal is to become established as a preferred partner to pharmaceutical and biotechnology companies in the development and commercial supply of innovative, differentiated delivery systems for the administration of injectable drugs and vaccines. In the near-term, our primary focus is to supply our lead product, the Unifill syringe to pharmaceutical companies in order for them to commence stability and compatibility studies with target drugs.

 

Over the medium to long-term, we will seek to commercialize a diversified portfolio of advanced drug delivery systems that can help to enable the clinical development and, or enhance the commercial lifecycles of branded, biosimilar and generic drugs across a multitude of therapeutic drug classes. Unlike conventional commodity products marketed by incumbent device manufacturers, it is our goal to develop highly differentiated devices that can be customized to address the specific molecular and patient requirements of a drug and its target patient.

 

We do not intend to enter any market sectors with devices that have equivalent features as conventional products. Our focus is on innovative, high-value devices that will have unique value-adding features over equivalent products. We can also custom-design our devices, where required, to meet specific needs of pharmaceutical companies. Where our proprietary devices need to be developed or customized to meet the specific requirements of a target drug, we will typically enter into a development program with a pharmaceutical company under which they will provide funding before, subject to regulatory approval, entering into long-term contracts for commercial supply. Through this strategy, we hope to develop and commercially supply a diverse range of injectable drug delivery systems that can help to enhance patient care, improve therapy compliance, protect healthcare workers, prevent disease, reduce healthcare costs and generate powerful brand differentiation for brand-name, generic or biosimilar drugs marketed within competitive therapeutic classes.

 

We believe we are well positioned to achieve this goal due to a combination of factors that include:

 

 

 

 

 

Our facilities in York, Pennsylvania have been designed to function as an integrated center for device innovation, pilot and commercial production and quality assurance. 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 in compliance with 21 CRF 210/211 for pharmaceuticals and 21 CFR 820 for medical devices.

 

Our Products

 

Unifill Syringe

 

The Unifill ready-to-fill syringe is the world’s first and only prefilled syringe with automatic safety features fully integrated within the glass barrel. Supplied and designed for integration into fill-finish systems currently used for equivalent conventional prefilled syringes, the Unifill syringe can streamline drug production systems and significantly reduce transport, packaging and storage costs associated with the attachment of ancillary safety products. The Unifill syringe has USP compliant materials within the drug fluid path that are sourced from established pharmaceutical suppliers.

 

The Unifill syringe is designed for safe, simple and convenient use by either healthcare workers or patients that self-administer prescription medication. Upon the injection of the full dose, an automatic safety mechanism is activated, whereby operators can control the speed of needle retraction directly from the body into the barrel of the syringe. The combination of automatic, operator-controlled retraction features within the Unifill syringe can helps to virtually eliminate the risk of infection from needlestick injuries or other potential transmission modes such as aersolization (splatter). The plunger is then automatically locked to prevent the re-use of the device, circumvent product tampering, and encourage its convenient and compact disposal. The Unifill syringe is now being produced at our production facilities in York, Pennsylvania.

 

The Unifill syringe is a primary drug container with automatic safety features that are fully integrated within the glass barrel. We believe it is the only ready-to-fill, or prefilled, syringe with such integrated safety features. Currently, many pharmaceutical companies marketing standard (non-safety) prefilled syringes into markets requiring mandatory compliance with needlestick prevention laws have two options. They can either supply the prefilled syringe without a needle into the market, whereby it becomes the responsibility of the healthcare facility to comply with legislation. More commonly, the pharmaceutical company will attach an ancillary safety product over the prefilled syringe before it is packaged and shipped for use. The Unifill syringe can eliminate the purchase of ancillary safety products and their associated cost to attachment it onto a standard prefilled syringe. The Unifill syringe is also similar in size to an equivalent prefilled syringe and significantly smaller than those with an attached ancillary safety product thereby reducing packaging and transportation costs and storage volumes.

 

As a primary container, all components within the fluid path utilize materials that are USP compliant and can be sourced from established pharmaceutical suppliers. The handling and administration of the Unifill syringe is the

same as injections undertaken with an ordinary prefilled syringe. Upon the delivery of a full dose using the Unifill, a passive retraction mechanism is activated, whereupon operators may control the speed of needle withdrawal directly from the body into the barrel of the syringe to virtually eliminate the risk of needlestick injury or aerosol (splatter). The plunger is then automatically disabled to prevent needle re-exposure, and to facilitate compact, convenient disposal.

 

The Unifill syringe has been designed in a staked (fixed) needle format for use with therapeutic drugs which are primarily administered via subcutaneous injection and targeted for use either by healthcare workers or patients that self-administer prescription medication outside of healthcare facilities.

 

The compact size, intuitive use, functionality and automatic safety features of the Unifill syringe compared to other prefilled syringes, including those supplied with an ancillary safety product, may also help pharmaceutical companies optimize product lifecycles, increase levels of market differentiation in competitive therapeutic areas, and expand the marketability of some drugs for convenient self-administration by patients outside of the healthcare setting.

 

We intend to file a Type III Drug Master File for the product with relevant regulatory authorities such as the FDA. It is the ultimate responsibility of the pharmaceutical company to obtain final approval of the combination drug-delivery device.

 

Unitract 1mL Syringes

 

The Unitract 1mL range of safety syringes is primarily designed for the subcutaneous injection of drugs within healthcare facilities and by patients who self-administer prescription medication such as insulin. In addition to insulin and tuberculin, or TB, variants, the Unitract 1mL range also includes the Unitract Safe Syringe which is custom-designed for use by governments that utilize harm reduction (needle exchange) programs to prevent the reuse, sharing and unsafe disposal practices of Injecting Drug Users (IDUs). Unlike the Unifill ready-to-fill syringe, the Unitract 1mL syringes require healthcare workers or patients to draw up the dose from a vial or ampoule immediately prior to the injection.

 

We have received regulatory certification for the marketing and sale of various Unitract 1mL syringe products in the United States, Australia and Canada and have received CE Mark approval in the European Union.

 

Pipeline Products

 

We have also developed additional pipeline products which we intend to commercialize in the future, either independently or in collaboration with pharmaceutical and biotechnology companies. These pipeline products include:

 

Unifill Select

 

The Unifill Select range of ready-to-fill syringes combines the benefits of automatic, fully integrated safety features with the ability to attach interchangeable needles of up to 1 and 1/2 inches in length. Unifill Select syringes facilitate the use of injectable drugs and vaccines between 0.2 and 1.5mL in volume that are supplied in either a liquid stable form or lyophilized for reconstitution. Unifill Select delivery systems are designed to be supplied for integration into fill-finish systems used for equivalent conventional 1mL standard, 1mL long or larger prefilled syringes. As primary drug containers with USP class 6 compliant materials within the drug fluid path, Unifill Select products are similar in size to equivalent prefilled syringes. They can be supplied ready-for-injection in a kit format with one or more needles for intuitive and convenient administration either directly into the patient or into an IV port.

 

The Unifill Select can either be pre-filled with a liquid stable drug or with a diluent for the reconstitution of lyophilized drugs supplied in a vial. In a liquid stable format, the Unifill Select may be selected for use with drugs and vaccines where it is recommended that the healthcare worker select the length and gauge of a needle based upon the age or size of the patient and other specific delivery requirements of the drug. Vaccines are one common therapeutic class where prefilled syringes are commonly supplied with attachable needles, to facilitate their intramuscular injection to the patient. In addition to its targeted use with drugs supplied in a liquid stable format, the

Unifill Select can also be prefilled with a diluent and packaged with a vial adaptor for use with lyophilized drugs requiring reconstitution. As a unique delivery system for liquid stable drugs targeted for intramuscular injection, or other lyophilized drugs, Unifill Select syringes are ideally positioned to generate brand differentiation for drugs marketed within target competitive therapeutic classes to optimize product lifecycles.

 

Unifill EZMix

 

Unifill EZMix syringes have been developed in direct response to the unmet needs of pharmaceutical companies seeking an innovative and convenient delivery system for the reconstitution and administration of lyophilized drugs and vaccines. Unifill EZmix syringes feature two or more primary drug containers within a single delivery system to store a combination of liquid stable or lyophilized drugs along with up to 1mL of diluent for reconstitution.

 

In addition to being the world’s first and only known dual or multi-chamber prefilled syringes with automatic (passive) safety features fully integrated within the delivery system, the Unifill EZMix syringe offers minimal steps of use for healthcare workers and patients alike. The end-user simply advances the plunger to mix the lyophilized powder with the diluent, before swirling the device to complete reconstitution. An audible, tactile click signals the injection of the full dose and the activation of a passive safety system that allows operators to control the speed of needle retraction directly from the body into the barrel. The Unifill EZMix syringe has been designed for development in either a fixed (staked) needle for drugs indicated for subcutaneous injections, or with attachable needles of up to 1 and 1/2 inches in length.

 

Unifill Auto-Injectors

 

The Unifill range of auto-injectors has been designed for the accurate, intuitive and convenient administration of injectable drugs by patients outside of healthcare facilities. Developed for use in conjunction with Unifill prefilled syringes, Unifill Auto-Injectors are highly compact in size, and enable patients to inject a measured dose of medication with the simple push of a button. Unlike conventional auto-injector technologies that are used with standard prefilled syringes, we believe the incorporation of the Unifill syringe with its integrated safety features gives Unifill Auto-Injectors several significant market advantages including a relatively small diameter and a true end-of-dose indicator.

 

The Unifill Auto-Injector platform has been designed to accommodate devices targeted for use in either single-use disposable or re-usable configurations for use across a wide spectrum of therapeutic drug classes. The devices can be custom-designed to support a range of drug viscosities and patient dexterity requirements. With the increasing standardization of many injectable drugs across a number of therapeutic classes in both a stand-alone prefilled syringe format and supplied with an auto-injector, the combination of the Unifill syringe and a compact, accurate auto-injector under one best-in-class technology platform can streamline the pathway to commercial launch and generate powerful brand differentiation during the product lifecycle.

 

We believe that because of its utilization with the Unifill syringe, Unifill Auto-Injectors also offer the first true end-of-dose indicator for the patient self-administration of injectable drugs in an auto-injector format. An audible, tactile click signals the injection of the full dose and the automatic activation of the safety mechanism in the Unifill syringe, which retracts the needle directly from the body into the cylinder. This true end-of-dose indicator ensures the operator is able to intuitively and accurately deliver the full volume of prescribed medication to optimize therapy compliance. Unifill Auto-Injectors also utilize fewer components than many comparable devices over an equivalent standard prefilled syringe due to its provision with the Unifill syringe.

 

Auto-Infusors

 

We have developed our proprietary range of single-use, disposable subcutaneous infusion systems for the patient self-injection of drugs between 3mL and 10mL in volume. Our Auto-Infusors are designed to serve as a wearable delivery system for a number of emerging therapies that require large dose volumes, less frequent dosing regimens, and the formulation of more complex injectable molecules. Our Auto-Infusors can be readily attached and conveniently worn by the patient for pre-set infusion times that may span either minutes or hours in duration

depending upon the requirements of the target drug. After the application of the device onto the injection site and the pushing of a button by the patient, the measured delivery of the medication occurs over a designated period of time.

 

Our Auto-Infusors consist of a primary drug container, the standard fluid path and a drive mechanism that are all modular in design to enable customization to address the specific molecular, viscosity and patient requirements of the target drug. Upon administration of the full dose, the patient can conveniently dispose of the device. For clinical trial purposes, the AutoInfuser can either be filled at the time of use for the convenience of pharmaceutical companies, or supplied in a prefilled format.

 

Unitract Clinical Range

 

In addition to the commercially available Unitract 1mL syringes, we have developed other hypodermic variants with barrel sizes of 3mL or larger for use with drugs and vaccines supplied in a vial or ampoule and targeted for intramuscular injection. The technology platform behind the Unitract Clinical Range can be used with either a fixed (staked) needle configuration or with attachable needles up to 1 and 1/2 inches in length. A range of attachable needle configurations has been developed, including one Unitract variant suitable for use with standard luer slip or luer lock cannulas (needles).

 

As with all Unitract 1mL or Unifill prefilled syringes, the Unitract Clinical Range to be available in 3mL barrel sizes or larger will include automatic and fully integrated safety features. An audible-tactile click will signal the automatic activation of the safety mechanism and the delivery of the full dose. Operators can control the speed at which the needle is withdrawn directly from the body into the barrel of the syringe by relieving thumb or finger pressure on the plunger. Upon the full retraction of the needle into the barrel, the plunger is locked in place to enable convenient disposal and to prevent syringe reuse, product tampering or needle re-exposure.

 

Novel Device for Targeted Organ Delivery

 

Unilife has also developed its first novel, specialized device for the administration of a drug to a target organ. Unilife is collaborating with a pharmaceutical company to develop this device for use with a target drug scheduled to enter clinical trials during the 2012 fiscal year. Unilife may also develop other novel devices for targeted organ delivery in conjunction with pharmaceutical companies.

 

Commercial Relationships

 

Sanofi

 

We started to collaborate with Sanofi in 2003 for the development of the Unifill syringe as a next-generation drug delivery safety device. Sanofi is a large, global pharmaceutical company, whose products span multiple therapeutic areas, including cardiovascular diseases, thrombosis, oncology, metabolic diseases, internal medicine and vaccines. We believe that Sanofi is currently the world’s largest purchaser of prefilled syringes.

 

We have signed an exclusive licensing agreement with Sanofi. Under the exclusive licensing agreement, we have granted Sanofi an exclusive license to certain of our intellectual property in order and solely to develop, in collaboration with us, the Unifill syringe for use in and sale to the prefilled syringe market within those therapeutic areas agreed upon between us, and a non-exclusive license outside those therapeutic areas that are exclusive to Sanofi or after the expiration of the exclusive license with Sanofi.

 

We and Sanofi have agreed on a list of therapeutic drug classes that are exclusive to Sanofi. These areas include the full therapeutic classes of antithrombotic agents and vaccines and an additional four smaller subgroups that fall within other therapeutic classes that we believe represent new market opportunities in the pharmaceutical use of prefilled syringes. Sanofi will retain the exclusive right to negotiate to purchase the product within these designated therapeutic drug classes until June 30, 2014, subject to the extension described below.

 

Pursuant to the exclusive licensing agreement, Sanofi paid to us a 10.0 million euro upfront one-time fee in 2008. The exclusive license granted thereunder has an initial term expiring on June 30, 2014. If, during the term of the exclusive license, Sanofi has purchased the Unifill syringe for use with a particular drug product, Sanofi will receive a ten-year extension of the term of the exclusive license within the therapeutic sub-class in which that drug is

marketed. The extension will be reduced to five years if Sanofi does not sell a minimum of 20 million units of the product in any of the first five years of such ten-year extension period.

 

Under the exclusive licensing agreement, we are not precluded from using certain of our intellectual property to develop, license and sell any products in any market other than the ready-to-fill syringe market, or from entering into licensing or other business arrangements with other pharmaceutical companies for the ready-to-fill syringe market outside those therapeutic areas that are exclusive to Sanofi, or after the expiration of the exclusive license with Sanofi. If we grant a license to a third party in respect of the ready-to-fill syringe market, then we are required to pay Sanofi 70% of any access, license or other upfront fee received from such third party for access to purchase the products until our payments to Sanofi have totaled 10.0 million euros, following which we are required to pay 30% of such fees we receive through the end of the initial exclusivity period. We are also required to pay Sanofi an annual royalty payment of 5% of the revenue generated from any sale of the Unifill syringe to third parties, up to a maximum amount of 17.0 million euros in such royalty payments.

 

On June 30, 2009, we signed an industrialization agreement with Sanofi. The industrialization agreement sets forth the terms for the collaboration between the parties to design, develop, scale up and industrialize the Unifill syringe, including the timetable and milestones for the industrialization program. Under the industrialization agreement, Sanofi agreed to make payments of 17.0 million euros to us based on milestones we achieved in our industrialization program. The industrialization program began in July 2008 and was completed in June 2011, with the initial supply of the Unifill syringe to Sanofi in July 2011.

 

The supply agreement, if completed, will provide that Sanofi and its affiliates will purchase the final product exclusively from us, and the industrialization agreement provides that we are not required to commit more than 30% of our expected installed production capacity to Sanofi and its affiliates for the 12 months following the receipt of a purchase order. Orders from Sanofi, that will exceed the 30% capacity limit will require up to a maximum of 24 months lead time before we are required to commence delivery of that order.

 

Pursuant to the industrialization agreement, if we agree to, or propose to agree to, a change of control with a third party, we must give written notice to Sanofi, who will be entitled, within five business days, to make an offer on at least equivalent terms. In the absence of an improved change of control proposal, we must accept the matching offer of Sanofi subject to shareholder approval. If we receive an improved change of control offer from the third party, then we must give further notice to Sanofi for it to make a further matching offer. In addition, if during the term of the industrialization agreement, a change of control that does not involve Sanofi, or its affiliates, obtaining control of the company (i) is not recommended by our board of directors, (ii) will cause harm to Sanofi, as defined in the agreement or (iii) under which Mr. Alan Shortall, our CEO and director, is not to continue in such capacities for at least two years after the change of control, then Sanofi will have the right to terminate the industrialization agreement within ten business days after receiving a notice from us, or after it otherwise becomes aware of the change of control. Pursuant to the industrialization agreement, a change of control means, in general terms, a change in the ownership of 50% or more of our shares or the power to determine the majority composition of our board of directors or any other event that our board determines to be a change of control event.

 

Other Pharmaceutical Relationships

 

We are seeking to establish relationships with a number of pharmaceutical and biotechnology companies regarding the supply and use of the Unifill syringe with their injectable drugs outside of those therapeutic classes retained by Sanofi. These relationships 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.

 

We are also engaging in active discussions with many pharmaceutical and biotechnology companies regarding the development and use of other proprietary devices within our portfolio of advanced drug delivery systems. These devices include other primary drug containers within our Unifill family of ready-to-fill syringes, as well as other patient-self injection systems, drug reconstitution systems and target organ delivery devices. We expect to enter into development programs with some of these pharmaceutical companies to design, develop and supply devices for initial use in scheduled clinical trials for target pipeline drugs. Subject to the commercial approval of these drug-device combination products by regulatory agencies, we intend to enter 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.

 

As of September 1, 2011, Unilife had commenced the supply of the Unifill syringe to one additional U.S. based pharmaceutical company. In addition, we have developed a novel device for targeted organ delivery that has already been selected by a large global pharmaceutical company for use in upcoming clinical trials in conjunction with a pipeline biologic.

 

Manufacturing

 

Our center of operations is a state-of-the-art manufacturing facility located in York, Pennsylvania. This state-of-the-art 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 FDA-registered site 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. The facility gives us the capacity to meet the immediate requirements of our pharmaceutical companies, 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.

 

Due to an initial requirement for only limited production volumes of components which comprise the Unifill syringe, we currently receive a majority of components, such as rubber seals and glass barrels, from a single-source supplier. To support the industrialization program for this product and further strengthen our supply chain in the long-term, we intend to establish, wherever feasible, a dual-source strategy for the production of key components, raw materials and related services. The companies we expect to appoint for the production and supply of items and related services pertaining to the Unifill syringe all have an established presence in the international drug delivery market, with the majority having facilities in North America and/or Europe. It is our intention to utilize United States made components whenever possible.

 

All of our proprietary devices are assembled by us at our York, PA facility utilizing pilot or commercial assembly systems. The automated assembly system used to manufacture our Unitract 1mL syringes has an optimum capacity of up to 30 million units per year, and was fully designed, developed, built and qualified by our in-house team. The development of the automated assembly lines used to manufacture the Unifill syringe was outsourced to Mikron Assembly Technology, an established industry specialist. The automated assembly system supplied to us by Mikron and now located at our York, PA facility can support the commercial production of up to 60 million units per year of the Unifill syringe. Additional assembly lines, which will be ordered in line with customer demands, are targeted to have an annual manufacturing capacity of approximately 150 million units per year.

Sales and Marketing

 

Our primary target customers are pharmaceutical and biotechnology companies which utilize our advanced drug delivery systems to contain injectable drugs and vaccines supplied in a liquid stable or lyophilized form for reconstitution at the point of delivery. These devices are targeted for use within healthcare facilities or by patients that self-administer prescription medication. We are at various stages of discussion with a number of pharmaceutical companies related to entering commercial contracts regarding the development, commercial supply and exclusive use of a variety of our devices.

 

For the Unifill syringe, we expect the supply of initial production batches to pharmaceutical companies, will be utilized for compatibility and stability studies with target drugs and vaccines. These compatibility and stability studies seek to determine that materials within the device fluid path are compatible with the designated drug to attain a shelf-life of two years or more. This data is utilized in the filing of regulatory applications by the pharmaceutical companies seeking approval of the drug-device combination product. We expect to enter into supply agreements with pharmaceutical companies relating to the use of the Unifill syringe with specific drugs and vaccines during the course of compatibility and stability studies to facilitate the building of product inventory in anticipation of commercial launch of the drug-device combination product.

 

For other pipeline drug delivery devices in our portfolio, we expect to enter into development agreements with a pharmaceutical company under which they will provide funding to support its industrialization or customization for use with a target drug or vaccine.

 

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 novel (brand-name) drugs and vaccines. However we may also enter into relationships with pharmaceutical manufacturers of generic or biosimilar drugs, which also recognize the commercial opportunities of utilizing our proprietary devices to generate market differentiation against either the brand-name, other generic or biosimilar competition.

 

We expect the pharmaceutical company to be 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 may also enter into agreements for the supply of the Unitract 1mL syringes directly to pharmaceutical companies for use with injectable drug products which are supplied in a vial and marketed in a kit format. We also distribute our Unitract 1mL syringes within the United States via distributors which specialize in target markets such as long-term and acute care healthcare facilities. We are also examining opportunities to enter into relationships for our Unitract 1mL syringes with group purchasing organizations, or GPOs, which secure competitive pricing for items such as syringes on behalf of members such as acute-care hospitals. Over the past decade, many GPOs have introduced programs that encourage the expedient evaluation and selection of innovative products developed by smaller companies. However, we do not expect to fully penetrate the acute-care hospital market until we complete the line of Unitract Clinical Range of larger sizes and access a larger network of customer support representatives and sales agents.

 

Outside of the United States, we have distributors to sell our Unitract 1mL syringes in India, China, Japan and Taiwan where they are applying for regulatory approval. We also expect to appoint other distributors within other international healthcare markets such as Western Europe and the Asia-Pacific region. Furthermore, we intend to review opportunities to collaborate with governments seeking to examine the use of our Unitract 1mL syringes as a means of helping to prevent the re-use, sharing and unsafe disposal of non-sterile syringes by IDUs.

 

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 enquiries 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 also rely on a combination of trade secrets and manufacturing know-how to protect our intellectual property. We hold numerous patents and patent applications covering our products and technologies. Our focus is to safeguard the intellectual property surrounding our devices, manufacturing processes and other related technologies to protect not only our position, but that of our strategic partners and customers.

 

As of July 2011, we had 45 issued patents relating to our safety syringe and primary drug container platforms across 19 countries including the United States and China. We have filed 66 patent applications in 23 jurisdictions, including Europe, where the applications are reviewed by the 30 countries that participate under the Madrid Protocol. We have filed a significant number of patent applications that are now pending in other countries covered under the Patent Cooperation Treaty.

 

Our patents relating to our safety syringe technologies expire at various dates between 2018 and 2030. Patents relating to the Unifill syringe are expected to expire by 2030. We also enter into non-disclosure agreements with certain vendors and customers. It is also our policy to have employees sign confidentiality, non-compete and intellectual property assignment agreements.

 

We classify our patents and patent applications as they relate to particular product categories including 1mL insulin and safe syringes with an attached needle; clinical syringes which include larger sizes and interchangeable luer needles; and our Unifill syringe. Many of the features claimed in the insulin and safe syringes patents, such as the mechanism allowing automatic and controlled needle retraction within an integrated medical device, also apply to our other safety syringe products, including the Unifill syringe. Some key patents covering countries such as Australia, the United States and Europe, as well as some of our international patent applications, are described below:

 

 

 

We have registered trademarks including Unilife, Unitract and Unifill 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 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 clinical ranges of syringes, including our Unitract 1mL syringe, are Class II devices. Our Unifill syringe 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.

 

We received 510(k) clearance for our Unitract 1mL insulin syringe in October 2008 that covered the production of the device by a contractor outside the United States. We received 510(k) clearance for the production of our Unitract 1mL insulin syringe at our Pennsylvania manufacturing facility in March 2010. We received 510(k) clearance for the production of our Unitract 1mL turberculin syringe at our Pennsylvania manufacturing facility in September 2010.

 

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:

 

 

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:

 

 

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. Compliance establishes the presumption of conformity with the essential requirements for CE Marking. In July 2009, we received our ISO 13485:2003 quality system certification. Our certification includes the design, development, production and distribution or sterile syringes and insulin syringes.

 

We have successfully completed a Notified Body audit to allow our Unitract syringes to bear the CE mark resulting in CE certification for our Unitract insulin and tuberculin 1mL syringes.

 

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. US 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 USA-manufactured product in Australia. Our only product that is included on the ARTG is our Unitract 1mL syringe that was previously manufactured for us in China. During June 2010, we received our CE certification for U.S.-manufactured stock of this product. We are currently completing the necessary registration and listing documents for sale of this product in Australia.

 

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 environmental 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, B. Braun, Gerresheimer Bünde GmbH (“Gerresheimer”), Terumo, West Pharma, Ypsomed and Owen Mumford. 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 companies. 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 advanced 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.

 

Hypodermic Clinical Syringes Used with Vials

 

The global market for hypodermic clinical (non-pre-filled) syringes is highly competitive, with at least 50 manufacturers located across North America, Europe and the Asia-Pacific. The market for clinical safety syringes is relatively less competitive, yet highly concentrated. We believe BD is the largest global supplier of clinical safety syringes. Other companies which compete in this market sector include Retractable Technologies, Inc, Covidien and Smiths Medical. All of these companies offer a full range of clinical safety syringes, operate a strong sales, distribution and customer support network, and have existing supply relationships with major healthcare buying groups.

 

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.

 

Subcutaneous Pump Infusion Systems

 

The global market for subcutaneous drug infusion systems 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, 2011 and 2010, we invested approximately $9.6 million and $10.9 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.

 

Employees

 

As of September 1, 2011, we had 129 employees and associates, of whom 100 are engaged in operations activities including research and development, quality assurance and manufacturing activities, 7 are engaged in sales, marketing and clinical activities and 22 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 Radnor, 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 Suite 3, Level 11, 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.

 

Financial Information about Geographical Areas

 

See note 3 to our consolidated financial statements for information regarding our sales by geographic area.

 

Available Information

 

We maintain an internet website at www.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.

 

 

Biographical Summaries

 

Slavko James Joseph Bosnjak.  Mr. Bosnjak has served as a director of UMSL since February 2003 and of Unilife Corporation since November 2009 and as Chairman of the board of UMSL since April 2006 and of Unilife

Corporation since November 2009, 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, and has an indirect interest through the family company Bosnjak Investment Group Pty Ltd, of Chiron Commercial Vehicles Pty Ltd and its subsidiaries, situated in Malaysia, a company which manufactures bus bodies for export to Australia. Mr Bosnjak was a director of Bosnjak Holdings Pty Ltd and its subsidiaries including Westbus Pty Ltd. from 1975 to 2001 and the chairman of Westbus Pty Ltd, between 1990 and 2001. 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 Chief Executive Officer and director of UMSL since September 2002 and of Unilife Corporation since July 2009. Mr. Shortall founded Unilife in July 2002 and has guided the growth of Unilife since then. In 2008, the trade magazine Medical Device and Diagnostic Industry named him as one of 100 Notable People in the medical device industry worldwide. Mr. Shortall is the brother of Eugene Shortall, our Senior Vice President of Business Development.

 

John Lund.  Mr. Lund has served as a director of UMSL and Unilife Corporation since November 2009. Mr. Lund has also served as managing partner of M&A Holdings, LLC, a private consulting company since July 2003, and as Vice President Finance and Controller of E-rewards, Inc., an internet market research company since February 2009. Mr. Lund also served as Vice President and Controller of Nexstar Broadcasting Group, Inc., a NASDAQ listed television broadcasting company, from March 2008 to November 2008, Vice President of Finance and Corporate Controller of LQ Management, LLC (LaQuinta) from November 2006 to March 2008, and Corporate Controller of ExcellerateHRO from January 2005 to October 2006. Prior to that, Mr. Lund held Controller and Chief Financial Officer positions for various companies, and was a Manager at KPMG.

 

William Galle.  Mr. Galle has served as a director of UMSL since June 2008 and of Unilife Corporation since November 2009. Mr. Galle was also an independent director of American Marketing Complex in New York City from October 2007 to December 2009. Since 2009, Mr. Galle has been affiliated 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. Mr. Galle is President of Diversified Portfolio Strategies LLC in Washington D.C. since 1993, which provides alternative investment advisory services for institutions and substantial investors. Mr. Galle is a graduate of Columbia University, Rutgers University, and the New York Institute of Finance.

 

Jeff Carter.  Mr. Carter has served as a director of UMSL since April 2006 and of Unilife Corporation since November 2009. 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 of Sydney. Mr. Carter was a Chief Financial Officer of various publicly listed healthcare companies prior to joining UMSL. Also, Mr. Carter was Strategic Planning Manager for Coca-Cola Amatil and Manager Corporate Development International for Santos. He has international experience with these companies and was formerly a Senior Manager of Touche Ross before moving into investment banking with Canadian Imperial Bank of Commerce.

 

Mary Katherine Wold.  Ms. Wold has served as a director of Unilife Corporation since May 2010. Ms. Wold is President and Chief Executive Officer of the Church Pension Group, which provides retirement, health, and life insurance benefits to its clergy and lay employees of the U.S. Episcopal Church. 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 in St. Paul, Minnesota.

 

Marc S. Firestone.  Mr. Firestone has served as a director of Unilife Corporation since July 2010. Mr. Firestone serves as Executive Vice President and General Counsel for Kraft Foods Inc., a Fortune 100 company. Prior to his position at Kraft Foods, Mr. Firestone held senior executive positions for Philip Morris Companies and its subsidiaries, including as Senior Vice President and General Counsel, Philip Morris International, and Senior Vice President of Regulatory Affairs, Phillip Morris Companies. Before joining Philip Morris, he was an attorney with Arnold & Porter in Washington, D.C. He holds a juris doctorate from Tulane University School of Law in New Orleans, and a bachelor’s degree from Washington & Lee University in Virginia.

 

Ramin Mojdehbakhsh.  Mr. Mojdehbakhsh has served as Chief Operating Officer and Executive Vice President since February 2011. Mr. Mojdehbakhsh 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. Mojdehbakhsh received a Ph.D. in Computer Science from the University of Minnesota, Minneapolis, MN and his MBA from 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 M.B.A. from Washington University.

 

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.

 

Stephen Allan.  Mr. Allan has served as Vice President of Marketing and Communications of UMSL since October 2008 and of Unilife Corporation since November 2009. He served as our Director of Communications from November 2007 to October 2008 and our Manager of Communications from July 2002 to November 2007. Prior to joining Unilife, Mr. Allan owned and operated his own Australian public relations firm, which assisted in the management of media relations and government liaison for industry groups in the transport, tourism and economic development sectors. He managed media liaison activities relating to bus transportation during the Sydney 2000 Olympic Games. He also spent five years as a journalist for various Sydney-based newspaper groups. Mr. Allan holds a Bachelor of Communications from Charles Sturt University.

 

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.

 

 

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 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 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, our shares of common stock may suffer dilution. If we are unable to secure additional funding, our ability to continue our product development and commercialization programs would be delayed, reduced or eliminated.

 

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 2011 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, 2011, 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 the Unifill syringe to customers. If we experience problems or delays in securing favorable agreements to supply the Unifill syringe 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 our ability to generate significant revenues will now depend on our ability to negotiate successfully one or more supply agreements for the Unifill syringe with Sanofi and/or other pharmaceutical companies and to begin supplying substantial quantities of the product under such agreements. We cannot predict with certainty if and when we will be able to enter into any supply agreements for the Unifill syringe or what the terms of any such agreements will be. If we are unable to secure favorable supply agreements for the Unifill syringe 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 advanced drug delivery systems. We cannot assure you that we will be able to complete the development of and successfully commercialize these systems.

 

A significant element of our recent strategy focuses on developing advanced drug delivery systems that deliver greater benefits to pharmaceutical companies, healthcare workers and patients. These new advanced drug delivery systems are a response to changes in technologies, industry standards and the needs of pharmaceutical companies. Other device companies, and pharmaceutical companies, are 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 advanced drug delivery systems in order to meet the changing conditions of the marketplace. The development of these advanced 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 negotiate commercial supply agreements for the Unifill syringe and/or we enter into commercial development agreements and commercial supply agreements with our pharmaceutical partners for other advanced drug delivery systems.

 

In addition to the expenses related to the completion of the industrialization program for the Unifill syringe, we have incurred and will continue to incur significant expenses related to the development of other advanced 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 unless we are successful in selling the Unifill syringe and/or developing and commercializing our other advanced drug delivery systems.

 

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.

 

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, we will be required to improve existing, and implement new, operational and financial systems, procedures and controls and expand, train and manage our growing 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 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, Dr. Mojdeh and other key personnel, 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. In addition, we have a limited history of operations under our current officers and directors. Our officers have not worked together for an extensive length of time. If for any reason our management members cannot work efficiently as a team, our business will be adversely affected.

 

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 only one reporting authority.

 

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.

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 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.

 

We are subject to extensive regulation by the FDA pursuant to the FDC Act, by comparable agencies in other countries, and by other regulatory agencies and governing bodies. Our products must receive clearance or approval from the FDA or counterpart non-U.S. regulatory agencies before they can be marketed or sold.

 

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 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.

 

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 received 510(k) clearance that covered the production of our Unitract 1mL syringe 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 advanced drug delivery systems. Obtaining such FDA clearances could result in delays in bringing these new advanced 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.

 

We are subject to 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 regulation by governmental authorities in the United States, Europe and other countries, including the FDA. 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.

 

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 devices for existing products, or to secure approval for pipeline products targeted for use with our devices. If regulation of our customers’ products incorporating our devices increases over time, it is likely that this would adversely affect our sales and profitability.

 

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 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 carries 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 2030. 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 advanced 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:

 

 

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, 2011, we had $13.3 million of goodwill on our balance sheet, which represented 15% 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.

 

Currently, the majority of our revenues have been derived from payments under our industrialization agreement with Sanofi which provides that Sanofi will pay us in euros, while we incur most of our operating expenses in U.S. dollars or Australian dollars. 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.

 

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 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:

 

 

If there are substantial sales of our shares of common stock, our share price could decline.

 

As of September 1, 2011, we had 64,058,508 shares of common stock outstanding. All of those shares of common stock other than 5,204,945 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 the public market perceives that our stockholders might sell a large number of shares, the prices at which our common stock trades could decline significantly.

 

In addition, as of September 1, 2011, 13,069,398 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, it could have an adverse effect on the market price for 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.

 

Our certificate of incorporation, bylaws, the Delaware General Corporation Law and the terms of our industrialization agreement with Sanofi 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 662/3% 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. In addition, our industrialization agreement with Sanofi provides to Sanofi the right to match a change of control proposal and to terminate the industrialization agreement under certain circumstances of a change of control event. See “Business — Commercial Relationships — Sanofi.” 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.

 

 

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 have a short term lease for office space in Radnor, 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.

 

 

In the ordinary course of our business, we may be subject to various claims, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. We are not aware of any material pending legal proceedings to which we or any of our subsidiaries is a party or of which any of our properties is the subject.

 

 

PART II

 

 

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 (commencing February 16, 2010), the high and low closing prices for our CDIs on the ASX (from January 18, 2010 through February 15, 2010) and the high and low closing prices for the ordinary shares of UMSL (prior to January 18, 2010). The prices of our CDIs (and previously ordinary shares of UMSL) have been adjusted to give effect to the six for one exchange ratio and have been converted to U.S. dollars using the exchange rate on the last day of each respective quarter.

 

 

Holders

 

As of September 1, 2011, we had 64,058,508 shares of common stock outstanding, and there were 278 holders of record of our common stock, including Chess Depositary Nominees which held shares of our common stock on behalf of 8,429 CDI holders. The closing sales price for our common stock on September 1, 2011 was $4.34 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.

 

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 (US) and the NASDAQ Health Care Index (US) from February 16, 2010, our first day of trading on the Nasdaq Global Market, through our fiscal 2011 year ended June 30, 2011. 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.

 

 

 

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, 2011. The statements of operations data for the years ended June 30, 2011, 2010 and 2009 and the balance sheet data as of June 30, 2011 and 2010 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 year ended June 30, 2008 and 2007 and the balance sheet data as of June 30, 2009, 2008 and 2007 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.

 

 

 

 

 

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 and manufacturer of a diversified portfolio of advanced drug delivery systems. We collaborate with pharmaceutical and biotechnology companies seeking to optimize drug lifecycles and generate differentiation for their brand in competitive therapeutic markets through the use of innovative devices that can improve patient care, protect healthcare workers and prevent disease. We have developed a broad portfolio of drug delivery systems in direct response to unmet market needs for injectable drugs including macromolecule biologics.

 

Our main product is the Unifill ready-to-fill syringe, which is designed to be supplied to pharmaceutical manufacturers in a form that is ready for filling with their injectable drugs and vaccines. We have a strategic partnership with Sanofi, a large global pharmaceutical company, pursuant to which Sanofi has paid us a 10.0 million euros exclusivity fee and has paid us 17.0 million euros to fund our industrialization program for the Unifill syringe. We are also in discussions with other pharmaceutical companies that are seeking to obtain access to the Unifill syringe.

In addition, we manufacture our Unitract 1mL insulin syringes at our FDA-registered manufacturing facility in Pennsylvania, which are designed for primarily for use in healthcare facilities and by patients who self-administer prescription medication such as insulin.

 

Recent Developments

 

Equipment Lease Agreement

 

On August 15, 2011, we entered into a Master Lease Agreement with Varilease Finance, Inc. (“Varilease”). Under the Master Lease Agreement, Varilease will provide up to $10.0 million of lease financing for production equipment for the Unifill ready-to-fill syringe. We have the option of selling and leasing back existing equipment or using the facility to lease additional equipment.

 

Under the terms of the Master Lease Agreement, we will lease the equipment from Varilease for a two-year base term, and we will pay rent in equal monthly installments of up to $0.4 million over the base term.

 

The Master Lease Agreement contains covenants and provisions for events of default customarily found in lease agreements. We may prepay the monthly rent payments without penalty. At the end of the lease term, we have the option to extend the lease, return the equipment or purchase the equipment, as defined in the agreement.

 

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 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 2011, 2010 or 2009.

 

The Company has one reporting unit. The reporting unit is comprised of our Unitract and Unifill syringe business, the base technology 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 the Company’s fiscal 2011 impairment assessment, management compared the carrying value of our reporting unit to our market capitalization as of June 30, 2011, which is our annual impairment testing date. Our market capitalization of $331.0 million, based on the quoted stock price on the Nasdaq was in excess of our stockholders’ equity of $53.6 million. Management also considered that market capitalization through early September 2011 continued to be in excess of the carrying value.

 

Share-Based Compensation

 

We grant stock options, restricted stock and common stock as compensation 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 Barrier and Monte Carlo option-pricing models. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility.

 

Revenue Recognition

 

We recognize revenue from licensing fees, industrialization efforts and products sales.

 

In June 2008, we entered into an exclusive licensing arrangement to allow Sanofi to use certain of our intellectual property in order and solely to develop in collaboration with us, our Unifill syringe for use in and sale to the pre-filled syringe market. The $10.0 million up-front, non-refundable fee paid for this license is being amortized over the five year expected life of the related agreement. In late fiscal 2009, we entered into an industrialization agreement with Sanofi, under which specific payment amounts and completion dates were established for achievement of certain pre-defined milestones in our development of the Unifill syringe. Revenue 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 the project 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.

 

Results of Operations

 

The following table summarizes our results of operations for the fiscal years ended June 30, 2011, 2010 and 2009:

 

Fiscal Year 2011 Compared to Fiscal Year 2010

 

Revenues.  Revenues decreased by $4.8 million or 42%. Revenues from our industrialization agreement with Sanofi decreased from $6.3 million to $1.4 million due to the achievement of a majority of the related milestones during fiscal 2010. As of June 30, 2011, there was one remaining milestone payment to be recognized which was dependent upon the production of commercially viable units of our Unifill syringe. This remaining milestone was achieved during July 2011 and we received the related 1.0 million euros during September 2011. Revenues from our exclusive licensing agreement with Sanofi decreased from $2.6 million to $2.5 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 decrease resulted from fluctuations in foreign currency translation rates. Revenues from product sales of our contract manufacturing business increased from $2.5 million to $2.8 million, primarily as a result of increased sales to one of our most significant contract manufacturing customers during the first and second quarters of fiscal 2011. We discontinued contract manufacturing activities in December 2010 in order to focus our efforts on the Unifill syringe and our additional drug delivery devices.

 

Cost of product sales.  Cost of product sales increased by $0.1 million or 5%, which was attributable to a higher level of product sales under our contract manufacturing sales activity. Our cost of product sales during fiscal 2011 includes amounts related to the write-off of obsolete inventory.

 

Research and development expenses.  Research and development expenses decreased by $1.3 million. During fiscal 2010, we incurred a charge of $4.3 million in connection with the issuance of 833,333 fully-vested shares of common stock to certain employees in consideration of their transfer to us of certain intellectual property rights. This decrease was partially offset by an increase in expenditures incurred to finalize the product specifications of our Unifill syringe and develop our additional drug delivery devices.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $5.3 million or 20%. During fiscal 2011, we recorded $9.0 million of share-based compensation expense, an increase of $3.3 million compared to fiscal 2010. Our share-based compensation expense during fiscal 2011 relates primarily to restricted stock and stock options issued to new employees, directors and consultants under our 2009 Stock Incentive Plan. Additionally, during fiscal 2010 and the first half of fiscal 2011, we increased the workforce at our York, Pennsylvania facility, and as a result, we incurred payroll expenses and recruiting fees during the fiscal 2011 of $11.0 million, an increase of $3.2 million compared to fiscal 2010. These amounts were partially offset by a decrease of $2.7 million in legal and consulting fees due to significant costs incurred during fiscal 2010 in connection with our redomiciliation to the United States.

 

Depreciation and amortization expense.  Depreciation and amortization expense increased by $1.7 million or 73% which was attributable to $4.0 million of machinery placed into service during October 2009 relating to our 1mL syringe and the completion of construction of our new headquarters and manufacturing facility. Included in this amount is a $0.5 million loss on the disposal of certain pieces of equipment during fiscal 2011. We expect our depreciation and amortization expense to increase in the future as a result of our purchases of machinery for the Unifill syringe.

 

Interest expense.  Interest expense increased by $0.4 million, primarily as a result of interest related to our $18.0 million in debt financing obtained in October 2010 for the construction of our new headquarters and manufacturing facility.

 

Interest income.  Interest income decreased by $0.7 million, primarily as a result of lower cash balances and lower interest rates during fiscal 2011.

 

Other (income) expense.  Other income during fiscal 2011 includes the receipt of a $0.5 million opportunity grant from the Commonwealth of Pennsylvania.

 

Net loss and loss per share.  Net loss for fiscal 2011 and 2010 was $40.7 million and $29.7 million, respectively. Basic and diluted loss per share was $0.70 and $0.64, respectively, on weighted average shares outstanding of 57,891,024 and 46,837,066, respectively. The increase in the weighted average shares outstanding

was primarily due to the issuance of common stock in connection with our October 2009 and December 2010 equity financings.

 

Fiscal Year 2010 Compared to Fiscal Year 2009

 

Revenues.  Revenues decreased by $8.6 million or 43%. Revenues from our industrialization agreement with Sanofi decreased from $13.6 million to $6.3 million due to the nature and timing of milestones achieved during fiscal 2010. 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 the 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 variation in revenues results from fluctuations in foreign currency translation rates. Revenues from product sales of our contract manufacturing business decreased from $3.9 million to $2.5 million principally because most of our efforts were devoted to the development of the Unifill syringe in fiscal 2010.

 

Cost of product sales.  Cost of sales decreased by $1.0 million or 28%. The decrease was attributable to a reduction in product sales under our contract manufacturing sales activity.

 

Research and development expenses.  Research and development expenses increased by $8.7 million, primarily as a result of $4.3 million incurred in connection with the issuance of 833,333 fully-vested shares of common stock to certain employees in consideration of their transfer to us of certain intellectual property rights. The increase was also a result of additional expenditures to finalize the product specifications of our Unifill syringe.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses increased by $12.5 million or 91%. During fiscal 2010, we increased the workforce at our Pennsylvania facility, and as a result, we incurred payroll expenses and recruiting fees during fiscal 2010 of $7.8 million, an increase of $4.1 million compared to fiscal 2009. Additionally, during fiscal 2010, we incurred legal and consulting fees of $6.4 million, an increase of $3.4 million compared to fiscal 2009. The increase was due primarily to expenses we incurred related to our redomiciliation and Nasdaq listing. Additionally, during fiscal 2010, we recorded $5.7 million in share-based compensation expense, an increase of $2.7 million compared to fiscal 2009. Our share-based compensation expense during fiscal 2010 relates primarily to restricted stock and stock options issued to employees and consultants during the year. Our share-based compensation expense during fiscal 2009 included $1.5 million recorded in December 2008 for the issuance of 1.7 million shares of common stock to our Chief Executive Officer.

 

Depreciation and amortization expense.  Depreciation and amortization expense increased by $1.4 million or 153% which was primarily attributable to $1.0 million of property plant and equipment additions placed in service during fiscal 2010. Additionally, during October 2009, we placed $4.0 million of machinery to manufacture our 1mL syringe in service.

 

Interest expense.  Interest expense decreased by $0.1 million, primarily as a result of our lower levels of outstanding debt.

 

Interest income.  Interest income increased by $0.7 million, primarily as a result of higher cash balances during fiscal 2010.

 

Other (income) expense.  Other (income) expense decreased by $0.1 million primarily due to lower foreign exchange losses as a result of the appreciation of the U.S. dollar against the Australian dollar.

 

Net loss and loss per share.  Net loss for fiscal 2010 and 2009 was $29.7 million and $0.5 million, respectively. Basic and diluted loss per share was $0.64 and $0.02, respectively, on weighted average shares outstanding of 46,837,066 and 34,426,353, respectively. The increase in the weighted average shares outstanding was primarily due to the issuance of common stock in connection with our October 2009 equity financing.

 

Liquidity and Capital Resources

 

To date, we have funded our operations primarily from a combination of equity issuances, borrowings under our bank loans and payments from Sanofi under our exclusive licensing and industrialization agreements. As of June 30, 2011, cash and cash equivalents were $17.9 million, restricted cash was $2.4 million and our long-term debt was $22.7 million. As of June 30, 2010, cash and cash equivalents were $20.8 million and our long-term debt

was $2.7 million. During September 2011, we received 1.0 million euros from Sanofi related to the achievement of the final milestone under the industrialization agreement.

 

During October 2010, we secured $18.0 million of external financing from Metro Bank (“Metro”) for the construction of our new manufacturing facility. We used $6.9 million of the proceeds to repay amounts borrowed in August 2010 under our credit agreement with Univest.

 

During December 2010, we received $2.25 million from the Commonwealth of Pennsylvania in low-interest financing for land and the construction of our new corporate headquarters and manufacturing facility.

 

During December 2010 we raised $33.4 million, net of issuance costs, through a private placement and share purchase plan for our Australian and New Zealand stockholders.

 

During August 2011 we entered into an equipment lease which will provide for up to $10.0 million of additional external financing.

 

We believe that our cash and cash equivalents on hand are sufficient to sustain planned operations through the third quarter of fiscal 2012.

 

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern. We anticipate incurring additional losses until such time that we can generate significant revenue from product sales.

 

The following table summarizes our cash flows during the fiscal years ended June 30, 2011, 2010 and 2009:

 

 

Fiscal Year 2011 Compared to Fiscal Year 2010

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities during fiscal 2011 was $28.5 million compared to $12.4 million during fiscal 2010. The decrease in cash flow was primarily due to $10.3 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 2011 was $30.0 million, primarily as a result of construction costs incurred in connection with our new headquarters and manufacturing facility, as well as costs incurred in connection with the purchase of machinery and related equipment.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities during fiscal 2011 was $53.8 million compared to $49.5 million during fiscal 2010. During fiscal 2011, we received $33.4 million from the issuance of common stock in connection with 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. During fiscal 2010, we received $47.1 million in connection with our October 2009 private placement and share purchase plan, as well as $2.3 million upon the exercise of stock options.

Fiscal Year 2010 Compared to Fiscal Year 2009

 

Net Cash (Used in) Provided by Operating Activities

 

Net cash used in operating activities during fiscal 2010 was $12.4 million compared to net cash provided by operating activities of $6.8 million during fiscal 2009. The decrease in cash flow was primarily due to $20.8 million of higher net loss after adding back depreciation and amortization and share-based compensation expense.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities was $18.1 million during fiscal 2010, primarily as a result of $17.6 million of costs incurred in connection with the purchase of machinery related to the lines for our Unifill syringe as well as the purchase of the land and construction costs in connection with our new headquarters and manufacturing facility.

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash provided by financing activities during fiscal 2010 was $49.5 million compared to net cash used in financing activities of $3.3 million during fiscal 2009. During fiscal 2010, we received $47.1 million from the issuance of common stock related to our private placement and share purchase plan, and $2.3 million upon the exercise of stock options. During fiscal 2009, we elected to terminate a licensing agreement that we determined was no longer consistent with our business strategies, and, as a final settlement, we repaid $2.3 million of the $3.0 million that we had originally received in 2008 under the licensing agreement, while retaining $0.7 million to cover related legal fees.

 

Contractual Obligations

 

The following table provides information regarding our contractual obligations as of June 30, 2011:

 

 

Our term loans bear interest at rates ranging from prime (3.25% as of June 30, 2011) plus 1.50% to 6.0%. The future contractual obligations for interest is based upon rates in this range.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as such term is defined in the SEC rules.

 

Recently Issued Accounting Pronouncements

 

In March 2010, the Financial Accounting Standards Board (“FASB’) issued Accounting Standards Update (“ASU”) 2010-17, “Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force (Issue No. 08-9).” (“ASU 2010-17”). ASU 2010-17 provides guidance about the criteria that must be met to use the milestone method of revenue recognition. This ASU is effective for milestones achieved in fiscal years and interim periods within those years, beginning after June 15, 2010. We adopted ASU 2010-17 on July 1, 2010 and its adoption did not have a material impact on our consolidated financial statements.

 

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 removes certain presentation options and requires entities to report components of net income and comprehensive income in either one continuous statement of comprehensive income or two separate but consecutive statements. There is no change to the items that are reported in other comprehensive income. ASU 2011-05 is effective for

annual and interim periods beginning after December 15, 2011. Other than additional presentation of other comprehensive loss outside of the statements of stockholders’ equity and comprehensive loss, the adoption of ASU 2011-05 will not have an impact on our consolidated financial statements.

 

 

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.

 

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.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 in Internal Control-Integrated Framework issued 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, 2011 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, 2011. Their audit report can be found on page 47.

 

 

Alan Shortall

Chief Executive Officer

 

 

R. Richard Wieland II

Executive Vice President and Chief Financial Officer

 

 

Dennis P. Pyers

Vice President, Controller and Chief Accounting Officer

 

September 13, 2011

 

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, 2011, based on criteria established in Internal Control-Integrated Framework issued 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, 2011, based on criteria established in Internal Control-Integrated Framework issued 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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for the years then ended, and our report dated September 13, 2011 expressed an unqualified opinion on those consolidated financial statements. Our report dated September 13, 2011 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.

 

 

Harrisburg, Pennsylvania

September 13, 2011

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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for the years then ended. 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, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, 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 estimates that its existing cash and cash equivalents will last only through the third quarter of fiscal 2012, which raises 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, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 13, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

 

Harrisburg, Pennsylvania

September 13, 2011

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholders

Unilife Corporation

Lewisberry, Pennsylvania

 

We have audited the accompanying consolidated statements of operations, stockholders’ equity and comprehensive loss and cash flows of Unilife Corporation and subsidiaries for the year ended June 30, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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 the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Unilife Corporation and subsidiaries for the year ended June 30, 2009 in conformity with accounting principles generally accepted in the United States of America.

 

 

Perth, Western Australia

September 13, 2011

UNILIFE CORPORATION AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

 

See accompanying notes to the consolidated financial statements.

UNILIFE CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Operations

 

 

See accompanying notes to the consolidated financial statements.

UNILIFE CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Stockholders’ Equity and Comprehensive Loss

 

 

See accompanying notes to the consolidated financial statements.

UNILIFE CORPORATION AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows