Since we last wrote about UBI it has emerged in the new year...

Since we last wrote about UBI it has emerged in the new year that Johnson &
Johnson’s diabetes care business LifeScan Inc, is up for sale, with Chinese bidders
circling and a US$4bn price mooted. This is important for UBI because it puts on ice
for the time being at least, any deal to sell its blood glucose diagnostic strips joint
venture to LifeScan. At the current run-rate, this deal could have been worth well over
US$50m (A$64m), which is material to say the least for UBI.
UBI is a blood diagnostics specialist whose technology is based on multilayer test
strips with proprietary electrochemical sensing system to measure blood sugar and
coagulation factors. The company owns the rights to commercialise the IP and not the
technology itself, which LifeScan owns.
The LifeScan deal is for its diabetes diagnostic strips and is a royalty type agreement
where UBI receives US1.25c for the first 500m strips sold each year and then
US0.75c for each strip after that. Now that its revenues or “quarterly service fees”
have exceeded US$45m, LifeScan can buy-out the agreement for effectively three
times the QSFs achieved in CY2018, which are projected to be about US$17.5m. If
it wants to take up this option it has been able to do this from now on, but the funds
won’t be received until 2019.
Although any deal is with LifeScan is off for the time being there is no doubt that UBI
is an impressive company because it is minimising its cash burn and maximising the
possibilities for capitalising on its R&D. The company also generates revenue from a
manufacturing agreement with the German giant Siemens involving its coagulation
diagnostic strip, and it has three more products in the pipeline with Siemens and one
on its own.
RADAR RATING: The company held cash of $26.3m at 31 December, but of more
concern is the $19m in debt it holds, which is in US dollars. The debt plus the
potential of a big cash windfall moving into never never territory leads us to the
conclusion that this speculative play was a bad decision. SELL.