Note 12 - Nordic Bioscience

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Text Block]

12. Nordic Bioscience

In October 2011, the Company and Nordic Bioscience announced their decision to establish a Joint Development Vehicle (“JDV”) to progress up to three of the Company’s internally developed proprietary calcitonin analogs through Phase 2 proof-of-concept in humans for the treatment of Type 2 diabetes, osteoarthritis and osteoporosis.  In exchange for a 50% ownership interest in the JDV, Unigene and Nordic were to contribute $100,000 and $1,000,000, respectively, towards the incorporation of the JDV as a Swiss GmbH. Pursuant to a First Amendment to the Joint Development Agreement dated August 15, 2012, the initial contributions to be made by Unigene and Nordic were $50,000 and $950,000, respectively. The initial contributions were funded on August 15, 2012. 

In addition to the option for an exclusive, royalty free license grant, it is anticipated that the Company will supply to the JDV, without charge, the analogs selected for development by the JDV for preclinical studies and, thereafter, manufacture sufficient quantities of the selected lead analog for clinical trials. In exchange for a 50% ownership of the JDV, Nordic is responsible for conducting and fully funding all preclinical, toxicology and clinical development through Phase 2 proof-of-concept for the Type 2 diabetes indication.  In August 2012, the Company announced, under the JDV, the preliminary selection of the lead compound for the Type 2 diabetes indication (UGP302) and executed certain agreements ancillary to the Joint Development Agreement dated October 2011.

On October 5, 2011, the Company entered into a Common Stock Purchase and Option Agreement pursuant to which Dr. Claus Christiansen, Chairman of Nordic Bioscience, purchased 1,691,729 shares of the Company’s common stock for an aggregate purchase of $1,500,000, at a purchase price equivalent to the average share price over the previous 30 days, through his Danish foundation, DDF, with an option to purchase an additional $1,500,000 worth of the Company’s common stock on or before March 15, 2012. DDF also had an option to make an additional equity investment of up to $3,000,000 in the Company’s common stock on or before June 30, 2012.  Each of the 2012 common stock purchase options expired unexercised.

The Company and Nordic Bioscience each maintain 50% of the JDV voting rights and all decisions must be pursuant to a unanimous vote and neither party has the ability to overrule the other party in the event of a disagreement. The Company has determined that JDV is a variable interest entity as the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties.  The Company will not consolidate the financial statements of the JDV since the Company is not the primary beneficiary of the entity as a result of the Company not having the ability to direct the activities of the JDV and because the Company has concluded that Nordic Bioscience is more involved in the daily operations of the entity.  As such, the Company will account for its investment in the JDV under the equity method, whereby the initial carrying value of the investment represented the $50,000 cash contribution.  The Company will adjust the carrying value of the JDV investment based on the Company’s 50% share of the earnings or losses of the JDV as well as for the book value of analogs contributed to the JDV.  

As of March 31, 2013, the carrying value of the investment in the accompanying balance sheet is zero since the Company’s share of the JDV’s losses is in excess of its contributions.  The Company’s maximum exposure to loss of the JDV is limited to the value of cash and analogs contributed and the Company does not have any commitment to fund future losses of the JDV.

On May 7, 2013, the Company and Nordic Bioscience entered into an equity transfer agreement pursuant to which Nordic Bioscience agreed to purchase the Company’s entire ownership interest in the JDV in exchange for a payment of $1,000,000, which was received on May 13, 2013.  Also on May 7, 2013, the Company and the JDV entity entered into an exclusive license agreement (see Note 18).