Unigene second quarter revenue decreases to $2.5 million

Aug 8 2011

Unigene Laboratories, Inc. (OTCBB: UGNE) a leader in the design, delivery, manufacture and development of peptide-based therapeutics announced second quarter financial results for the period ended June 30, 2011. The Company highlighted significant progress achieved in the second quarter with the continued execution of its turnaround strategy.

“I am delighted with our continued progress and believe we made great strides during the second quarter towards completing a successful turnaround.”

Second Quarter 2011 Financial Summary

Unigene announced net loss of $0.09 per share for the three months ended June 30, 2011. Cash at June 30, 2011 was $9.1 million. The Company's current cash projections are expected to be sufficient to fund its business operations into the second half of 2012.

Second Quarter 2011 Highlights

• Completed patient enrollment in Phase 2 oral PTH study for the treatment of osteoporosis in postmenopausal women and receipt of $4 million milestone payment from GSK;
• Validated Biotechnologies strategy with signing of Manufacturing and Clinical Supply Agreement with Cara Therapeutics for Phase 1 study of novel kappa receptor agonist and the commencement of several new feasibility studies;
• Monetized non-core asset with the termination of China Joint Venture;
• Presented positive advanced preclinical data for UGP281, a potent orally delivered anorexigenic peptide; and
• Increased support for Tarsa in preparation for oral calcitonin NDA submission with $1.5 million investment.

Ashleigh Palmer, Unigene's President and CEO stated, "I am delighted with our continued progress and believe we made great strides during the second quarter towards completing a successful turnaround." Palmer continued, "In the first half of the year, we laid a solid foundation to ensure the Company is well positioned to realize the full potential of multiple near-term game changing events. Our ongoing goal is to continue the solid execution of our strategy and ensure 2011 will be a transformational year for Unigene."

Unigene Biotechnologies Overview

During the fourth quarter of 2010, the Company launched Unigene Biotechnologies strategic business unit to target and exploit its industry-leading Peptelligence(TM) platform of peptide oral drug delivery and manufacturing assets, expertise and capabilities and build a robust portfolio of strategically partnered opportunities. The Company's business-to-business marketing initiatives and now fully established business development capabilities are generating near-term revenue from multiple ongoing feasibility studies evaluating our ability to orally deliver synthetic and natural peptides that should lay a solid foundation for potential high-value milestone and attractive royalty payments over the next 12-18 months in order to maximize shareholder value in the longer-term.

During the second quarter, the Unigene Biotechnologies strategy was validated by the signing of a Clinical Manufacturing Services Agreement with Cara Therapeutics, Inc. Unigene will provide clinical supply material for Cara's Phase 1 study of investigational drug, CR845, a peripherally acting kappa opioid agonist being developed for the treatment of both acute and chronic pain. Cara's Phase 1 study is expected to begin in the second half of 2011. Financial terms were not disclosed.

Unigene has already received strong validation of its recombinant manufacturing technology via the Company's out-licensing of its proprietary process to manufacture the active pharmaceutical ingredient in Novartis' oral calcitonin product candidate currently in active Phase 3 clinical trials for osteoporosis. Unigene expects that Novartis will announce Phase 3 osteoporosis trial results before year end.

Unigene Therapeutics Overview

Unigene is also focused on advancing its own pipeline of novel, proprietary peptide product candidates focused on metabolic disease and inflammation.

On December 10, 2010, Unigene entered into an amended and restated exclusive worldwide license agreement with GlaxoSmithKline (GSK) to develop and commercialize an oral formulation of a recombinantly produced experimental parathyroid hormone (PTH) analog for the treatment of osteoporosis in postmenopausal women. Under the terms of the amended and restated agreement, Unigene is responsible for the conduct of the Phase 2 study. The Company received an upfront payment of $4 million to cover costs associated with the Phase 2 study as well as an additional $4 million milestone payment described below. Unigene is also entitled to receive approximately $140 million in additional payments based on the achievement of regulatory and commercialization milestones. In addition, Unigene is eligible to receive tiered double-digit royalties in the low-to-mid teens on global sales.

On April 27, the Company announced significant progress in completing patient enrollment of its Phase 2 oral PTH study and, as a result, received a $4 million milestone payment from GSK. Unigene expects to announce top-line Phase 2 results before the end of 2011. Once the Phase 2 study has been completed and based on a review of the data, GSK may elect to assume responsibility for all future development and commercialization of the product.

In 2009, Unigene licensed its late-stage oral calcitonin formulation to Tarsa Therapeutics, a venture financed company founded exclusively to conduct Phase 3 clinical testing and prepare Unigene's proprietary oral calcitonin formulation for commercialization. In February 2011, Tarsa completed the Phase 3 ORACAL study. On March 24, 2011 Unigene announced that the statistically significant top-line results released by Tarsa validate its proprietary oral peptide drug delivery technology. The ORACAL study achieved its primary endpoint and the results support Tarsa's plans for a New Drug Application (NDA) submission to the Food and Drug Administration (FDA) targeted before the end of 2011. The study design and endpoints were agreed to with the FDA through a formalized Special Protocol Assessment (SPA) process. Tarsa also plans to submit a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) in the first half of 2012. The full set of data from the Phase 3 ORACAL trial has been accepted for an oral presentation at the American Society for Bone and Mineral Research (ASBMR) 2011 Annual Meeting in September.

Tarsa reported on July 12, 2011 that patient enrollment in an additional Phase 2 osteoporosis prevention trial has been completed for TAR01-201, a double-blind Phase 2 study comparing oral recombinant salmon calcitonin to placebo in approximately 120 postmenopausal women who have low bone mass (osteopenia) and are at increased risk of fracture. This proof-of-concept study is evaluating the ability of oral calcitonin to prevent osteoporosis and maintain bone mass in this population. Interim six-month data from this trial, which is being conducted entirely in the US, are expected to be available in early 2012.

On April 8, 2011, along with the founding investors of Tarsa Therapeutics, the Company entered into an agreement to purchase $1.5 million in convertible promissory notes and warrants from Tarsa to help fund Tarsa's business operations into the first half of 2012. On July 12, Unigene entered into a subsequent agreement along with the founding investors of Tarsa to purchase a convertible promissory note in the amount of $1.3 million. Unigene therefore maintained its 20% equity position in Tarsa on a fully diluted basis, subject to the potential for further dilution. The Company is also eligible to receive sales-related milestone payments and royalties on worldwide sales excluding China. In addition, Tarsa 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 NDA.

During the first quarter 2011, Unigene announced that it is accelerating the development of its lead proprietary anorexigenic peptide, UGP281, currently in advanced preclinical development. An anorexigenic peptide is one that diminishes or controls appetite and offers potential therapeutic benefit to morbidly obese patients.

During the second quarter, positive advanced preclinical results for UGP281 were presented at the American Diabetes Association (ADA) 71st Scientific Sessions. UGP281 is a peptide hormone analog that shows an acute dramatic reduction in food intake in a rat model at low doses. The peptide has been produced by recombinant expression in E. coli and has also been formulated in enteric-coated capsules for oral delivery. The effect of UGP281 on food intake and body mass has been investigated in several preclinical studies. In a 20 day chronic dosing study, young rats injected daily with UGP281 at doses of 5 ug/kg and 20 ug/kg exhibited an immediate acute dose dependent reduction in food intake of 55% and 84%, respectively and a sustained weight loss relative to placebo of 5.7% and 8.8%, respectively. A placebo-controlled study in Beagle dogs with enteric-coated capsules containing UGP281 demonstrated a sustained weight reduction of >8% compared to placebo for a period of 5 weeks. In comparative studies at comparable concentrations, UGP281 demonstrates greater reductions in body weight than other peptide drugs currently in development. Based on the results to date, UGP281 was well tolerated and offers the potential of a patient friendly orally dosed peptide therapy for the management of obesity.

Unigene's "Peptelligence™" core competence should allow UGP281 to be manufactured and delivered by way of the Company's proprietary recombinant production and oral delivery technologies. Longer term oral studies with UGP281 in dog models are currently ongoing. Unigene expects to file an Investigational New Drug (IND) application with the FDA and initiate Phase 1 clinical studies in the first half of 2012.

Corporate Initiatives

On June 7, 2011, Unigene entered into a Termination Agreement and an Equity Sale and Purchase Agreement under which Unigene will sell its 45% equity interest in Unigene Biotechnology Co., Ltd. (the "China Joint Venture") to China Pharmaceutical Group Limited ("CPG") or one of its affiliates for an aggregate purchase price of up to $1,050,000, payable to Unigene in two installments, subject to the receipt of government approvals and other conditions. CPG and its affiliates are subsidiaries of Shijiazhuang Pharmaceutical Group Corporation ("CSPC"), which holds a leading position in China's pharmaceutical industry. In connection with the Termination Agreement, all technology licenses, sublicenses and other rights granted to the China Joint Venture and CPG have been returned to Unigene. The China Joint Venture was originally formed pursuant to a Joint Venture Contract dated June 15, 2000 between CSPC and Unigene.

Unigene has no further obligations to the China Joint Venture and all disputes previously reported in the Company's Securities and Exchange Commission (SEC) filings in connection with the China Joint Venture have been resolved to both parties' full satisfaction.

Additional Financial Results & Notes

Revenue for the three months ended June 30, 2011 was $2.5 million, compared to $3.0 million for the three months ended June 30, 2010. Revenue for both periods primarily consisted of Fortical sales and royalties which have declined since the launch of competitive products in December 2008.

Operating loss for the three months ended June 30, 2011 increased approximately $0.1 million, or 3%, to $3.1 million from $3.0 million and, for the six months ended June 30, 2011, increased approximately $0.9 million, or 16%, to $6.7 million from $5.8 million for the corresponding periods in 2010, primarily due to decreased Fortical revenue.

Net loss for the three months ended June 30, 2011 increased approximately $4.8 million, or 133%, to $8.4 million from $3.6 million for the corresponding period in 2010. This was primarily due to non-cash items including our loss recognized on the sale of our interest in the China joint venture in the amount of $1.1 million, the Company's write-down of its investment in Tarsa in the amount of $1.5 million, as well as the second quarter of 2010 gain on change in fair value of embedded conversion feature in the amount of $1.9 million.