griffin securities reiterates unilife corp ($unis) target with $10.50 target

Griffin Securities, Inc., 17 State Street, New York, NY, 10004 www.GriffinSecurities.com 1 Please Review Disclosures on Page 9 of this Research Report

UPDATE REPORTMedical Device Industry May 23, 2011

KEITH A. MARKEY, PH.D., M.B.A. 212-514-7914

[email protected]

UNILIFE CORPORATION (NASDAQGM: UNIS)

Unilife ready to usher in a new era in drug delivery: o Operations adjusted as full commercialization approaches o Shipments of Unifill® syringes to start in July o Long-term strategy centers on high-quality, specialty drug delivery devices o Financial resources in place through fiscal 2012

We reiterate our BUY recommendation and our target price of $10.50 per share.

Unilife Corporation (NasdaqGM: UNIS) is a medical device company with novel technologies for safety syringes with retractable needles. Its devices offer features preferred by the U.S. Occupational Safety & Health Administration, automatic activation of needle retraction and user-controlled rate of retraction. Unilife’s first syringe will have a fixed needle, though another with interchangeable needles is not far behind.

The Company’s most important product line is its Unifill® brand of syringes, which have glass barrels and are designed to be prefilled with injectable drugs by pharmaceutical manufac-turers. Sanofi, the largest user of prefilled syringes in the world, provided $40 million to help set up the manufacturing system in exchange for the right to negotiate for exclusive access to the Unifill® fixed-needle syringe in specific therapeutic areas. That negotiation was completed with Unilife granting Sanofi exclusivity for antithrombotic agents and vaccines, two of

the drug company’s most important revenue sources, as well as four small subgroups in other areas. Validation shipments of one million units in all are set to commence in early fiscal 2012 (begins July 1st), enabling Sanofi to initiate drug stability testing. Supply contracts should follow so that sufficient inventory is available for 2013 commercial launches, just when regulations requiring the use of safety syringes will take effect throughout the European Union.

Unilife has begun talks with other drug companies worldwide. Some may want exclusive rights to Unifill syringes for their own key therapeutic areas to gain a product differentiator and competitive advantage. This strategy seems appropriate for both research-based and large generic drug companies. But exclusivity will come at a premium price, and that will suit Unilife, since its strategy is to become the pharmaceutical industry’s preferred supplier of high-quality drug delivery devices.

Share Price (5/20/11) $5.18 52-Week Price Low / High $3.85 - $7.08 Mkt. Capitalization (issued) $330 million Shares Outstanding (issued) 63.85 million 12-month Target Price $10.50 Website www.unilife.com FY 2011 Loss per share ($0.68) FY 2012 Loss per share ($0.49) Source: BigCharts.com

GRIFFIN SECURITIES EQUITIES RESEARCH 2

Unilife Corporation May 23, 2011

UNILIFE ADJUSTS OPERATIONS TO FOCUS ON COMMERCIALIZATION Management has been actively engaging drug manufacturers in discussions, which have led to several requests for validation shipments. Additional personnel have been hired to enable upper management to focus its attention more on operational issues. And in that regard, Unilife hired Ramin Mojdeh, an experienced executive from Becton, Dickinson to serve as its Chief Operating Officer.

At the end of the March quarter of fiscal 2011 (ends June 30th), management started implementing important initiatives to put the Company into a commercial mode of operation. This necessitated hard choices that eliminated some positions, including the department that set up the Unifill manufacturing system. The corporate reorientation also involved adding marketing expertise to expedite acceptance of the Unifill syringe by the pharmaceutical industry.

The Company began forming product-oriented design groups to serve as the foundation of its R&D program. These groups are comprised of personnel from multiple departments to ensure that all aspects of new projects are addressed from the very earliest stages of design through commercialization. Each team will have a dedicated orientation, either by project type or client. Unilife has already begun working on specific projects for pharmaceutical companies that want to utilize its unique designs as a differentiator for their drugs. The Company intends to work under contract on the development of new products, thereby offsetting its R&D costs and limiting its risks.

In setting up the R&D design groups, Unilife is taking advantage of a trend toward outsourcing by the pharmaceutical industry. But more importantly, the Company is positioning itself to become a preferred provider of premium drug delivery devices. Underpinning this long-term strategy is its extensive patent estate that forms a strong barrier against direct competition. We like this plan because it should maximize the value of its patents, avoids the price-sensitive market of commodity devices, and limits investments in capital equipment, notably the machinery that would be required to compete in the high-volume, generic portion of the needle/syringe market.

VALIDATION SHIPMENTS OF UNIFILL SYRINGES TO START IN JULY Unilife remains on target to deliver its first shipment of Unifill syringes to Sanofi in early July. This is important for several reasons. First, it marks the fulfillment of the industrialization agreement between the two companies through which Sanofi supported the development of the production process for this syringe. Second, it demonstrates once more that Unilife is a reliable partner for pharmaceutical companies – the Company has not missed a single milestone as it first set up operations in a leased facility in Pennsylvania, registered its stock on NasdaqGM, financed an expansion of its infrastructure, and subsequently moved into a new office/manufacturing plant of its own design. But just as important, the validation shipments will open a new era for Unilife and the drug industry. The initial syringes will be used for drug stability testing, a prerequisite to gaining regulatory approval of each drug-device combination. The syringes must be able to hold the drug for two years without a loss of the drug’s potency. This will not be a problem with the Unifill syringes, because the Company had the forethought to ensure all components that come into contact with a drug are already used by the industry and have met the stability requirements of regulators worldwide.

Once the validation shipments have begun, we believe corporate clients will engage in serious negotiations for commercial supply contracts, since it will take time for both parties to build inventory in preparation for launch. Sanofi should be among the first to arrive at the bargaining table, though they may not necessarily be the first to sign a contract. That’s because they already have exclusive rights to their two most important therapeutic areas, at least through mid-2014 as long as they commercialize products in those areas by that time. Accordingly, other companies that are seeking access to Unilife’s technology in their own areas of interest may have a greater motivation to sign exclusive supply agreements ahead of their competitors. We believe Unilife will announce the deals in a timely manner, but it is possible that their new clients will demand anonymity for competitive reasons. Similarly, we may not learn which drugs will be supplied in Unifill syringes upon the completion of the contracts. The Company has already indicated that discussions with potential clients have included both drugs that are already on the market



and others that are under development. (Note that there is a large number of biological agents in R&D pipelines that must be injected.) Thus, near-term demand will depend heavily on which type of product is involved in a supply contract and what geographic market(s) the drug-device combination will enter. Since the European Union’s requirement for safety syringes goes into effect in 2013, we would not be surprised if many of the earliest deals, entailing drugs available in prefilled syringes, will involve Unifill syringes destined for Europe. As shown in the following chart, there are 83 drugs (left scale: number of drugs) approved or in R&D pipelines at 19 companies in the pharmaceutical industry that are now available or are suitable for subcutaneous administration via a prefilled Unifill syringe.

Chart 1. Potential Target Drugs for the Unifill Syringe

FINANCIAL RESOURCES IN PLACE THROUGH FISCAL 2012 The operational changes that recently took place resulted in one-time severance costs and extra stock-based compensation in the third fiscal quarter. With these expenses and the cost of moving into the new headquarters/manufacturing complex in the prior period now behind the Company, we are looking for operating costs to decline in the fourth fiscal quarter and then increase gradually as infrastructure expands to satisfy clients’ demands for outsourced R&D support and for syringe production. (See pages 6 and 7 for income statements by quarter and fiscal year, respectively.) These estimates are consistent with the announced $12 million cost-reduction achieved with the recent operational reorganization.

The cost savings should reduce Unilife’s cash burn through the end of fiscal 2012. Indeed, the Company has stated that a recent $12 million credit line for equipment financing that will yield $8 million initially (for equipment in place), plus the cash that it already has on its balance sheet (see page 4) will fund operations through the next fiscal year. Nonetheless, Unilife has filed a registration statement that will enable it to raise additional funds through an equity or debt offering. This flexibility is important, especially for a young company that is entering into contract negotiations with larger clients because it promotes a more even-handed discussion.

0

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Immunosuppresants

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HormoneTherapy

Diabetes

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BALANCE SHEET# (FISCAL YEAR ENDS JUNE 30TH.) # All data are in thousands.

INCOME STATEMENTS Our near-term revenue estimates reflect several assumptions. We’ve included the final milestone payment from the Sanofi industrialization agreement in the fourth quarter of this fiscal year and made a small provision for sales of the plastic Unitract syringe through distributors. More importantly, we’ve assumed that Unilife will ship the first 1 million syringes produced to Sanofi in two installments, one in each of its first two quarters of fiscal 2012. The price of these syringes was set at a significant premium in the industrialization agreement, probably to cover the absorption of start-up costs and a relatively low, initial production volume, so revenues will be disproportionately high. Our estimates for the second and subsequent periods of fiscal 2012 also reflect validation shipments to other drug companies, as well as modest revenue from outsourced R&D contracts (on the Industrialization fee line). (Note that the estimates in this report are presented using Unilife’s current fiscal year, rather than the calendar-year presentation of the last report, dated March 10, 2011.)

We believe the premium price of the syringes shipped to Sanofi will result in reasonable gross margins. Thereafter, our estimates reflect an assumption that efficiencies are achieved as production volume grows. Nonetheless, we have not provided for gross margins on syringes to reach optimal levels until fiscal 2014, when a production line with an annual capacity of 150 million units is operating near its peak volume. By 2015, the launch of a client-dedicated delivery device should help to raise gross profitability even further.

ASSETS 3/31/2011 6/30/2010

Current Assets

Cash & equivalents 30,188 20,750

Accounts Receivable 6 1,556

Inventory 564 797

Other 430 637

Total Current Assets 31,188$ 23,740$

Property & equipment 53,562$ 29,972$

Intangible assets 12,959 10,832

Other 489 273

Total Assets 98,198$ 64,817$

LIABILITIES

Current Liabilities

Accounts payable 3,559$ 6,044$

Debt due 2,297 1,648

Accrued expenses 3,060 2,911

Deferred revenue 2,633 2,188

Total Current Liabilities 11,549$ 12,791$

Long-term debt 19,362$ 1,093$

Deferred revenue 5,924 6,563

Total Long-Term Liabilities 25,286$ 7,656$

Shareholders Equity

Common stock 636 548

Additional paid-in-capital 166,918 122,397

Accumulated Deficit (109,787) (79,650)

Accum. Comprehensive Income 3,596 1,075

Total Shareholders Equity 61,363$ 44,370$

Total liabilities & equity 98,198$ 64,817$



Operating expenses are projected to trend upward as the Company expands its infrastructure to meet its contractual obligations for the supply of syringes and client-dedicated devices. Depreciation/amortization related to syringe manufacturing/shipping is included in cost of goods sold starting in 2012 when syringe shipments commence; the remainder is booked as an operating expense. We believe Unilife will at some point expand its technology base via licensing deals and/or acquisitions, but we have not included such opportunities in our projections. Moreover, provisions for income taxes have been made for financial accounting purposes, even though the Company will be able to limit its cash liabilities in its early years of profitability through net operating loss carryforwards.

Finally, our share net estimates do not provide for additional external financings, since the timing and size of such activity is uncertain. However, we have allowed for stock-based compensation and the conversion of options/warrants in estimating the number of shares outstanding.

VALUATION OF UNIS SHARES Our 12-month target price is based on the following calculation: We multiplied our 2015 projected earnings of $1.12 per share by a P/E ratio of 22, resulting in a future price of $22.64, and then discounted that back three years at an annual rate of 33% to get a 12-month price target of $10.50.

Investors should be aware that validation shipments of syringes and the signing of commercial supply agreements will likely provide ample near-term milestones to stimulate interest in Unilife. Accordingly, we believe UNIS shares merit a BUY rating and that they are suitable for growth-oriented investment portfolios.



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ANNUAL INCOME STATEMENT# (FISCAL YEAR ENDS JUNE 30TH.)

# All figures are in thousands, except per-share data. Estimates are shown in italics. Fiscal 2010 R&D costs exclude a one-time charge of $4.3 million (paid in stock) for the acquisition of patents pertaining to safety-syringe technology.

2010 2011 2012 2013 2014 2015Industrialization fees 6,318$ 2,050$ 2,250$ 2,300$ 2,400$ 2,400$Licensing fees 2,566 2,490 2,560 2,750 3,000 3,250Product sales & other 2,538 2,860 22,000 114,396 241,987 340,236

Total Revenues 11,422$ 7,400$ 26,810$ 119,446$ 247,387$ 345,886$

Cost of products sold 2,471 2,475 17,200 64,399 122,934 163,810Gross Profit 8,951$ 4,925$ 9,610$ 55,047$ 124,452$ 182,076$

Operating expensesR&D expense 4,195 7,345 9,300 9,300 9,500 10,000SG&A expense 28,696 33,485 29,550 30,000 31,000 32,000Deprec. & amortization 2,314 3,320 1,000 1,000 1,000 1,000Total operating costs 35,205 44,150 39,850 40,300 41,500 43,000

Operating profit/(loss) (26,254)$ (39,225)$ (30,240)$ 14,747$ 82,952$ 139,076$

Interest expense (125) (540) (1,150) (1,150) (1,150) (1,150)Interest income 1,066 530 400 450 450 500Other income/(expense) (135)

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Income taxes 4,514 31,636 52,982Net profit/(loss) (25,448)$ (39,235)$ (30,990)$ 9,533$ 50,616$ 85,444$

Earnings/(loss) per share (0.54)$ (0.68)$ (0.49)$ 0.13$ 0.67$ 1.12$Shares outstanding 46,837 57,975 63,125 75,000 75,500 76,000



INVESTMENT CONCERNS AND RISKS For a complete description of risks and uncertainties related to Unilife Corporation’s business, see Unilife’s Annual Reports, which can be accessed directly from the Company’s website, www.unilife.com. Potential risks include:

Stock risk and market risk: There is a limited trading market for the Company’s common stock, partly because it trades on both the NasdaqGM and Australian bourses. There can be no assurance that an active and liquid U.S. trading market will develop or, if developed, that it will be sustained, which could limit one’s ability to buy or sell the Company’s common stock at a desired price. Indeed, the shares may trade at prices on the two exchanges that differ by more than would be determined by foreign exchange rates alone. Investors should also consider technical risks common to many small-cap or micro-cap stock investments, such as small float, risk of dilution, dependence upon key personnel, and the strength of competitors that may be larger and better capitalized.

Competitive risk: The medical device market continues to evolve, and research and development are expected to continue. Other companies are already established players in the needle & syringe market and are actively engaged in the development of new safety devices that may directly or indirectly compete with those being pursued by Unilife. These companies may have substantially greater research and development capabilities, as well as significantly greater marketing, financial, and human resources than Unilife.

Products still in development phases: The Company’s ready-to-fill syringes and many other models are still at a pre-commercialization stage. Such products may appear to be promising, but may not reach commercialization for various reasons, including failure to achieve regulatory approvals with customers’ drugs, reliability concerns, and/or the inability to be manufactured at a reasonable cost. And even if its products are commercialized, there can be no assurance that they will be accepted, which may prevent the Company from becoming profitable.

Funding requirements: It is difficult to predict Unilife’s future capital requirements. The Company may need additional financing to continue funding the development of its products and their production. There is no guarantee that it can secure the desired future capital or, if sufficient capital is secured, that current shareholders will not suffer significant dilution.

Regulatory risk: There is no guarantee that Unilife’s products will be approved by the U.S. Food and Drug Administration (FDA) or international regulatory bodies for marketing in the U.S. or abroad.

Patent risk: The medical device industry is one in which patents have not always provided sufficient protection against competition. Moreover, the sector has had sizable patent disputes that have resulted in large settlement awards. There can be no assurance that Unilife’s patents will provide sufficient protection against competitors and that patent litigation will not become a financial burden.



DISCLOSURES ANALYST(s) CERTIFICATION: The analyst(s) responsible for covering the securities in this report certify that the views expressed in this research report accurately reflect their personal views about Unilife Corporation. (the “Company”) and its securities. The analyst(s) responsible for covering the securities in this report certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in this research report.

MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describes stocks that we expect to appreciate by more than 20%. HOLD describes stocks that we expect to change plus or minus 20%. SELL describes stocks that we expect to decline by more than 20%. SC describes stocks that Griffin Securities has Suspended Coverage of this Company and price target, if any, for this stock, because it does not currently have a sufficient basis for determining a rating or target and/or Griffin Securities is redirecting its research resources. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NR describes stocks that are Not Rated, indicating that Griffin Securities does not cover or rate this Company.

DISTRIBUTION OF RATINGS: Currently Griffin Securities has assigned BUY ratings on 93% of companies it covers, HOLD ratings on 7%, and SELL ratings on 0%. Griffin Securities has provided investment banking services for 11% of companies in which it has had BUY ratings in the past 12 months and 20% for companies in which it has had HOLD, NR, or no coverage in the past 12 months or has suspended coverage (SC) in the past 12 months.

MARKET MAKING: Griffin Securities does not maintain a market in the shares of this Company or any other Company mentioned in the report.

FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the “Risk Factors” section in the SEC filings available in electronic format through SEC Edgar filings at www.SEC.gov on the Internet.

DISCLOSURES FOR OTHER COMPANIES MENTIONED IN THIS REPORT: To obtain applicable current disclosures in electronic format for the subject companies in this report, please refer to SEC Edgar filings at www.SEC.gov. In particular, for a description of risks and uncertainties related to subject companies’ businesses in this report, see the “Risk Factors” section in the SEC filings.

PRICE CHART – 2-year

Source: Big Charts.com

Initial Coverage (Australian exchange): 8/19/2009; share price, A$0.59; rating, BUY; 12-month price target, A$3.65. Update report: 1/29/2010; share price, A$1.45; rating, BUY; 12-month price target, A$2.75. Update report (NasdaqGM): 3/31/2010; share price, $5.93; rating, BUY; 12-month price target, $15.00; Update report: 3/10/2011, share price, $4.25; rating, BUY; 12-month price target, $10.50; 5/20/11; share price: $5.18; rating, BUY; 12-month price target, $10.50.

BUY

BUYBUY



The price chart for UNIS shares trading on the NasdaqGM market merits a brief discussion. Because investors who held the original Australian equity had to ask to receive the U.S. listed stock, there were relatively few shares available for trading in the month of February 2010. As a result, the price was unusually volatile. By March, a larger number of shares were available for trading on the NasdaqGM, and the volatility subsided, even though trading activity was uneven.

COMPENSATION OR SECURITIES OWNERSHIP: The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of Griffin Securities, including profits derived from investment banking revenue. The analyst(s) that prepared the research report did not receive any compensation from the Company or any other companies mentioned in this report in connection with the preparation of this report. Keith A. Markey the analyst responsible for covering the securities in this report, currently owns common stock in the Company, and in the future the analyst(s) may from time to time engage in transactions with respect to the Company or other companies mentioned in the report. Griffin Securities from time to time in the future may request expenses to be paid for copying, printing, mailing and distribution of the report by the Company and other companies mentioned in this report. Griffin Securities expects to receive, or intends to seek, compensation for investment banking services from the Company in the next three months.

GENERAL: Griffin Securities, Inc. (“Griffin Securities”) a FINRA (formerly known as the NASD) member firm with its principal office in New York, New York, USA is an investment banking firm providing corporate finance, merger and acquisitions, brokerage, and investment opportunities for institutional, corporate, and private clients. The analyst(s) are employed by Griffin Securities. Our research professionals provide important input into our investment banking and other business selection processes. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Griffin Securities may from time to time perform corporate finance or other services for some companies described herein and may occasionally possess material, nonpublic information regarding such companies. This information is not used in preparation of the opinions and estimates herein. While the information contained in this report and the opinions contained herein are based on sources believed to be reliable, Griffin Securities has not independently verified the facts, assumptions and estimates contained in this report. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information and opinions contained in this report.

The information contained herein is not a complete analysis of every material fact in respect to any company, industry or security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of clients of Griffin Securities. It does not take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Certain transactions - including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information contained in this report is subject to change without notice and Griffin Securities assumes no responsibility to update the report. In addition, regulatory, compliance, or other reasons may prevent us from providing updates.

griffin securities reiterates unilife corp ($unis) target with $10.50 target

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