High Risk Report Update: Unilife Pulls the Plug
In the world of medtech, the road to commercial innovation is paved with good intentions.
Unilife Corp. had an attractive market opportunity, and innovative technology. But despite being poised for growth, cash burn and operating expenses posed financial challenges that couldn’t be overcome.
When first profiled in our High Risk Report series, Unilife Corp.’s bankruptcy probability was high.
Today’s post looks at the specific reasons Unilife filed for bankruptcy on April 12. What can we learn from their financial distress, to empower future credit decisions and avoid loss?
See the warning signs we highlighted before the bankruptcy filing:
Read the Unilife Corp. High Risk Report
Medical devices feeling the pinch
Healthcare has been in the news quite a bit this year. Although reform remains a big question, this trillion-dollar industry continues to grow.
But despite growth in healthcare spending, the medical device industry faces a unique set of market challenges. Bringing new medical technology to market is an expensive proposition -- resource intensive, with high regulatory costs and special excise taxes -- and price ceilings limit revenue growth. Some companies struggle to survive.
As of April, 2017, industry-wide bankruptcy risk is at an all time high, +109% compared to before the last recession — and rising.
What factors were behind Unilife’s troubles?
Despite promising technology, Unilife was far riskier than its industry peers. In the end, the combination of operating expense, debt, and cash burn was too much to overcome.
These are the warning signs we first highlighted in our High Risk Report:
- Inability to generate positive returns, despite revenue growth
- A string of operating and net losses
- Cash flow in the red for five consecutive quarters, interest coverage worsens
- Deteriorating debt and leverage ratios all indicate heightened risk
- Bottom quartile performance for key financials, compared to industry peers
- A FRISK® score deep in the red zone, which other metrics (like the payments-based DBT Index) completely missed.
A close look at the financials signalled Unilife's coming bankruptcy. Read the full High Risk Report on Unilife Corp., to see all the warning signs.
The perils of a payment-based score
As is often the case, Unilife’s DBT index remained unaffected despite deepening financial problems. A trade credit manager looking at that metric would have missed the risk.
For a full explanation of why some financial risk scores are more accurate than others for spotting public company credit risk, read One Way Credit Portfolios Get Blindsided: The Wrong Credit Risk Metric. It explains why -- due to capital markets -- public companies can continue to pay counterparties, often up to the day they file for bankruptcy.
To avoid ending up on the hook, it’s essential to have a timely warning of financial distress for the public companies in your portfolio.
Stay ahead of risk, don’t get blindsided
A CreditRiskMonitor subscriber recently summed up the benefits of an early warning this way:
“With the CreditRiskMonitor service, we were able to avoid a $100K loss. Because we received timely information and updates on finances, we placed a large company on credit hold long before they filed bankruptcy. Had we not used this service, we would've continued to releases orders without realizing the risk”. -- Credit Manager of a $5 Billion Enterprise
As our Accuracy Scorecard shows, we predicted 98.6% of public company bankruptcies in 2015 and 2016. For help managing your public company risk, get in touch.
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At the core of CreditRiskMonitor’s service is its 96% accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z” score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $135 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.