Note 9 - Tarsa

3 Months Ended

Mar. 31, 2013

Related Party Transactions Disclosure [Text Block]

9. Tarsa

In October 2009, the Company licensed its Phase 3 oral calcitonin program (the Program) to Tarsa, a private company, and acquired an equity interest in Tarsa. As an equity method investment, the Company is required to recognize its proportionate share of Tarsa’s earnings and losses.  The Tarsa equity interest is pledged as security under the Victory Park loans. The Company is 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. The Company has no further cash or non-cash obligations to Tarsa or the Program.

The Company recognized approximately $63,000 and $328,000 of revenue, respectively, for development, testing and other services performed for Tarsa under statements of work in the three months ended March 31, 2013 and 2012, respectively.

On April 8, 2011, along with the founding investors of Tarsa, the Company 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, the Company recognized its proportionate share of Tarsa’s accumulated losses which exceeded the book value of the Company’s investment and, as a result, reduced the book value of the investment in Tarsa to zero.  

In January 2012, the Company made an additional investment in Tarsa by purchasing convertible promissory notes in the principal amount of $650,571 and warrants to purchase up to an aggregate of 67,435 shares of Series A Preferred Stock.  As a result of such investment, the Company recognized a loss on the investment as the accumulated losses of Tarsa exceed the carrying value of the original investment.

Following the closing of Tarsa’s Series B Preferred Stock financing in March 2012 (in which the Company did not participate), 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.  As a result of the Company’s ability to exert influence over Tarsa, the investment in Tarsa will continue to be accounted for as an equity method investment.

During the three months ended March 31, 2013 and 2012, the Company recognized a loss on its investment of Tarsa of zero and $650,571, respectively.

The Company believes that the March 5, 2013 FDA advisory committee recommendations (see Note 1) will have a material adverse impact on its investment in Tarsa.