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Why did Unilife Corporation rocket up 43% in the past 2 months?

Healthcare and pharmaceutical companies can be great investments due to their usually high profit margins from their proprietary IP and patent protection. They also require a lot of product development and testing to get approvals before selling, so the initial costs can make investors concerned until revenue starts rolling in.

Unilife Corporation (ASX: UNS) is listed on the ASX, but is based in the US. Over the past two months the stock has gone up 43%, from about $0.55 to its current $0.79, so what seems to be driving the stock recently?

The company develops and supplies injectable drug delivery systems, such as pre-filled syringes with automatic needle retraction, auto-injectors and targeted delivery systems. It distributes its products in both the US and Australia.

It has been developing this technology since 2002. Since it first turned a profit in 2009, the following years up until 2013 have all seen growing losses, with 2013 producing a net loss of $68.1 million. However, in that time it has been developing its products, and initial investments sometimes take time to pay off.

What really set the stock off was the 21 November announcement that it had signed an agreement with Hikma Pharmaceuticals. The agreement means it will receive US$44 million for upfront and milestone payments, and globally supply Hikma for 15 years with injectable syringes using its Unifill platform.

Initially, 20 generic drugs will be using the injectable syringes. The agreement is for a minimum unit volume of 175 million annually, after which it ramps up from the 2014 start.

The CEO of Unilife, Alan Shortall, said, “This strategic partnership with Hikma enables us to rapidly penetrate the large and fast-growing market for generic injectables. Hikma is one of the world’s fastest growing pharmaceutical companies and a top three supplier by volume in the $7 billion U.S. market for generic injectables. Together with our recently announced long-term supply contract with Sanofi, this partnership with Hikma instantly positions Unilife to become one of the largest suppliers of prefilled syringes in the world.”

Foolish takeaway

Last week the company also announced that it would be supplying Novartis, a Swiss private multinational pharmaceutical company, with its syringes for use in one of Novartis’ targeted early-stage pipeline drugs.

The company is gaining traction on its earlier investment and development and working with multi-national pharmaceutical companies will give it wide exposure in new markets with the successful roll-out of new products. We will have to see where the stock goes from here, but the new supply agreement with Hikma is seen to be the driver of this recent 43% surge.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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