Note J - Tarsa

6 Months Ended

Jun. 30, 2011

Related Party Transactions Disclosure [Text Block]

NOTE J - TARSA

In October 2009, we licensed our Phase III oral calcitonin program (“the Program”) to Tarsa Therapeutics, Inc. (“Tarsa”), a new company formed by a syndicate of three venture capital funds specializing in the life sciences:  MVM Life Science Partners, Quaker BioVentures and Novo A/S.  Simultaneously, Tarsa announced the closing of a $24 million Series A financing from the investor syndicate.

In consideration for our sale to Tarsa of an exclusive license for the Program, we received from Tarsa approximately $8,993,000 in cash and 9,215,000 shares of common stock in Tarsa, which initially represented a 26% ownership on a non-diluted basis (please see below).  The cash consideration was derived based upon the expenses we had incurred for the Program.   We valued the common stock at $0.23 per share or a total of $2,119,000 with the assistance of an outside valuation firm. These shares are pledged as security under the Victory Park loans.

Tarsa will be solely responsible for the future costs of the global Phase III clinical trials of the Program that was initiated in 2009 and completed in the first quarter of 2011.  We are eligible to receive up to $3,000,000 in milestone payments based on the achievement of certain sales benchmarks, as well as royalties, at rates in the single digits, on product sales.  We have no further cash or non-cash obligations to Tarsa under the Program.

As of the effective date of the agreement, Tarsa is responsible for all expenses incurred related to the Program, thus no additional expenses will be incurred by us related to the clinical study, except as agreed upon in subsequent statement of works.  Furthermore, we note there is no joint development or steering committee between us and Tarsa related to the manufacturing and development of Phase III and future product.  Any additional involvement by Unigene requires a separate statement of works to be negotiated and executed.

As we have no commitment to fund the losses of Tarsa, our full-year 2009 operations include a loss of $2,119,000, which represents our proportionate share of Tarsa’s loss of $3,795,000 up to the amount of our investment in Tarsa.  The loss reduced our investment in Tarsa to zero and we therefore discontinued the equity method of accounting for our investment in Tarsa at December 31, 2009.

We recognized $636,000 and $302,000 of revenue, respectively, for development, testing and other services performed for Tarsa under statements of work in the first six months of 2011 and 2010.

On March 24, 2011, we announced that statistically significant top-line results from Tarsa’s Phase 3 ORACAL study of oral calcitonin for postmenopausal osteoporosis validate our proprietary oral peptide drug delivery technology.  The ORACAL study achieved its primary endpoint that was agreed with the FDA through a formalized Special Protocol Assessment (“SPA”) process.

On April 8, 2011, along with the founding investors of Tarsa, we entered into an agreement to purchase $1,518,000 in convertible promissory notes and warrants (the “Purchase Agreement”) from Tarsa to help fund Tarsa’s business operations into the first half of 2012.  After recording this investment in Tarsa, we recognized Tarsa’s prior years’ losses up to our $1,518,000 investment, again reducing our investment in Tarsa to zero.  This investment maintains our fully-diluted ownership of Tarsa at 20% (26% non-diluted), taking into account a prior financing in 2010 (in which we did not participate) as well as outstanding stock options.  In addition, pursuant to the Purchase Agreement, Tarsa’s three founding investors may elect to purchase additional convertible promissory notes and warrants from Tarsa in one or more closings to occur between the April 8, 2011 closing date and December 2011 (the “Subsequent Closings”).  If we do not purchase our pro rata portion of such additional securities in those Subsequent Closings, our outstanding principal and accrued interest under the note we purchased in April 2011 will mandatorily, automatically convert into shares of Tarsa common stock at the then current conversion price for the Series A Preferred Stock set forth in Tarsa’s certificate of incorporation, as amended from time to time.  Therefore, on July 8, 2011, we entered into another Purchase Agreement and we invested an additional $1,301,000 in Tarsa convertible promissory notes and warrants.  Subject to the prior approval of our Board of Directors and the consent of Victory Park, we will have the right to purchase additional convertible promissory notes with an aggregate original principal amount of $650,571 and additional warrants to purchase up to an aggregate of 67,435 shares of Series A Preferred Stock at a Subsequent Closing on the date the three founding investors may elect for the closing to occur, if any.

We also announced that in April 2011 Tarsa had selected Unigene to conduct the stability testing for its oral calcitonin and has agreed to pay Unigene $1.04 million for these services.  The stability testing results will be included in Tarsa’s new drug application (NDA) to the FDA that Tarsa expects to file before the end of 2011.  In addition, Tarsa plans to submit a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) in the first half of 2012.