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Note 2 - Liquidity
12 Months Ended
Dec. 31, 2011
Liquidity Disclosure [Policy Text Block]
2. Liquidity

At December 31, 2011, we had cash and cash equivalents of $4,682,000, a decrease of $7,519,000 from December 31, 2010.  We have incurred annual operating losses since our inception and, as a result, at December 31, 2011, had an accumulated deficit of approximately $182,000,000.

As of December 31, 2011, the Company’s total principal debt was approximately $75,000,000, including accrued interest.  Under the restated financing agreement with Victory Park Management, LLC (together with its affiliates, Victory Park),  (see Note 8), we must maintain a cash balance equal to at least $2,500,000 and our cash flow (as defined in the restated financing agreement) must be at least $2,000,000 in any fiscal quarter or $7,000,000 in any three consecutive quarters. These default provisions were temporarily waived under a forbearance agreement executed in December 2010, which expired upon the termination of the amended GSK license agreement in December 2011. In the event the Company is not now able to achieve management’s projected cash flow forecasts, it may be in violation of its covenants with Victory Park.   Any such default could result in the Company’s long term debt owed to Victory Park becoming currently due.

Based upon management’s projections, we believe our current cash should be sufficient to support current operations through the end of 2012.   However, our ability to meet these projections will require us to maintain or generate cash proceeds from Fortical sales and royalties, fee-for-service feasibility studies, milestone payments from existing agreements or upfront licensing fees from new agreements or from fund raising activity.

The global credit crisis that began in 2007 was further exacerbated by events occurring in the financial markets in the fall of 2008, and has continued into 2012.  These events have negatively impacted the ability of corporations to raise capital through equity financings or borrowings. The credit crisis may continue for the foreseeable future.  In addition, uncertainty about current and future global economic conditions may impact our ability to license our products and technologies to other companies and may cause consumers to defer purchases of prescription medicines, such as Fortical, in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, future demand for our product could differ from our current expectations.

Due to our limited financial resources, any further significant decline in Fortical sales and/or royalties, or delay in achieving milestones under our existing license agreements, or in signing new license, feasibility or distribution agreements for our products or technologies or loss of patent protection, ability to sell additional shares of our common stock, or ability to not violate our covenants with Victory Park could have a material adverse effect on our cash flow and operations (see Notes 10, 22 and 23).

If we are unable to achieve significant milestones or sales under our existing agreements and/or enter into a new significant revenue generating license or other arrangement, at a certain point we would need to either secure another source of funding in order to satisfy our working capital needs and to remain in compliance with covenants in our financing agreement with Victory Park (see Note 8) or significantly curtail our operations. Should the funding we require to sustain our working capital needs be unavailable or prohibitively expensive, the consequence would be a material adverse effect on our business, operating results, financial condition and prospects. We believe that satisfying our cash requirements over the long term will require the successful commercialization of one or more of our biotechnologies or our licensees’ oral or nasal calcitonin products, our oral PTH product, the obesity program or another peptide product in the U.S. and/or abroad. However, it is uncertain whether any of these products other than Fortical will be approved or will be commercially successful. The amount of future revenue we will derive from Fortical is also uncertain.

In December 2011, we announced a restructuring plan that included a reduction in workforce and expenses to improve operational efficiencies and to better match resources with market demand. Under the comprehensive plan, we are continuing Fortical production and maintaining all of our core programs and partnered activities while decreasing cash expenditures. Since we currently maintain an adequate inventory of calcitonin and enzyme to support Fortical, we are continuing to suspend manufacturing of those materials at our Boonton facility. However, we are maintaining the cGMP status of the facility and the ability to manufacture peptides at that location. Implementation of the plan resulted in an immediate company-wide workforce reduction of approximately 25%. Our cash requirements in 2012 to operate our research and peptide manufacturing facilities and develop our products are expected to decrease from 2011 due to our December 2011 restructuring.

In addition to a $4,000,000 milestone payment received from GSK, other cash received during 2011 was primarily from Fortical sales and royalties, as well as from development work and fee-for-service feasibility studies, primarily for GSK and Tarsa. In addition, in 2011 we sold stock to DDF.  Our primary sources of cash have historically been (1) licensing fees for new agreements, (2) milestone and other payments under licensing or development agreements, (3) bulk peptide sales under licensing or supply agreements, (4) loans from our stockholders and Victory Park, (5) the sale of our common stock and (6) since 2005, Fortical sales and royalties.   In 2011, we divested our equity interest in our former China joint venture as well as our SDBG program, which may result in additional sources of cash in the future.  We cannot be certain that any of these cash sources will continue to be available to us in the future. Licensing fees from new collaborations are dependent upon the successful completion of complex and lengthy negotiations. Milestone payments are based upon progress achieved in collaborations, which cannot be guaranteed, and are often subject to factors that are controlled neither by our licensees nor us. Product sales to our partners under these agreements are based upon our licensees’ needs, which are sometimes difficult to predict. Sale of our common stock is dependent upon our ability to attract interested investors, our ability to negotiate favorable terms and the performance of the stock market in general and biotechnology investments in particular. Future Fortical sales and royalties will be affected by competition and continued acceptance in the marketplace and could be impacted by manufacturing, distribution or regulatory issues. We believe that in 2012, we will generate cash to apply toward funding our operations through Fortical sales and royalties; from anticipated receipt of licensing fees and revenue generated from fee-for-service feasibility studies; from other corporate development activities; and from our former China joint venture partner.  We expect to generate cash in the long term on sales and royalties from the sale of Fortical and oral calcitonin, the achievement of milestones under our existing license agreements and revenue from future licensed products and technologies and, possibly, from the sale of common stock. We are actively seeking additional licensing and/or supply agreements with pharmaceutical companies for various oral peptides, including PTH and our obesity peptide, and for our peptide manufacturing technology. In October 2011, we announced our decision to establish a Joint Development Vehicle with Nordic Bioscience (see Note 13).  However, we may not be successful in achieving milestones under our current agreements, in obtaining regulatory approval for our other products or in licensing any of our other products or technologies.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. Unigene’s financial statements have been prepared on a going concern basis and as such do not include any adjustments that might result from the outcome of this uncertainty.