Note 10 - Tarsa

9 Months Ended

Sep. 30, 2012

Related Party Transactions Disclosure [Text Block]

NOTE J - TARSA

In October 2009, we licensed our Phase 3 oral calcitonin program (the “Program”) to Tarsa, a private 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.

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 (see below).  We account for our Tarsa investment under the equity method.  As of September 30, 2012 and December 31, 2011, the carrying amount of our investment in Tarsa was zero due to our proportionate share of losses recognized by Tarsa in prior periods being higher than the book value of our investments.

In April 2011, we announced that Tarsa had selected us to conduct the stability testing for its oral calcitonin and has agreed to pay us $1,040,000 for these services. The stability testing results will be included in Tarsa’s NDA.

We recognized $998,000 and $1,062,000 of revenue for development, testing and other services performed for Tarsa under statements of work in the nine months ended September 30, 2012 and 2011, respectively.

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 from Tarsa to help fund Tarsa’s business operations. After recording this investment in Tarsa, we recognized our proportionate share of Tarsa’s accumulated losses which exceeded the book value of our investment and, as a result, reduced the book value of our investment in Tarsa to zero. In addition, pursuant to the agreement, Tarsa’s three founding investors could elect to purchase additional convertible promissory notes and warrants from Tarsa in one or more subsequent closings to occur between the April 2011 closing date and December 2011. If we did not purchase our pro rata portion of such additional securities in those subsequent closings, our outstanding principal and accrued interest under the notes previously purchased would 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. After recording this investment in Tarsa, we recognized our proportionate share of Tarsa’s accumulated losses and reduced our investment in Tarsa to zero.

In January 2012, we made an additional investment in Tarsa by purchasing convertible promissory notes in the principal amount of $651,000 and warrants to purchase up to an aggregate of 67,435 shares of Series A Preferred Stock. As a result of such investment, in the first quarter of 2012, we recognized a loss on the investment in the amount of $651,000 as the accumulated losses of Tarsa exceeded the carrying value of our investment.

In March 2012, Tarsa announced the closing of a Series B Preferred Stock financing. Prior to such closing, Unigene owned 9,215,000 shares of Tarsa's common stock, three convertible promissory notes in the aggregate principal amount of $3,469,714, and warrants to purchase Tarsa's Series A Preferred Stock. At the time of the closing of the Series B Preferred Stock financing, the convertible promissory notes, including all principal and accrued interest, were converted into 3,662,305 shares of Tarsa's Series A Preferred Stock. Unigene did not acquire any of Tarsa's Series B Preferred Stock in the financing. As a result, following theclosing of Tarsa's Series B Preferred Stock financing, Unigene owned approximately 16% of the outstanding capital stock of Tarsa, on a fully-diluted basis. Unigene's ownership position in Tarsa is subject to potential future dilution, including dilution as a result of a potential second Series B closing. Unigene continues to account for its investment in Tarsa under the equity method as we maintain significant influence over Tarsa.