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Unigene Announces Third Quarter 2012 Corporate Update

Stocks in this article: UGNE

BOONTON, N.J., Nov. 20, 2012 /PRNewswire/ --  Unigene Laboratories, Inc. (OTCBB: UGNE) today provided a corporate review on key development programs and strategic initiatives, including the Company's ongoing progress following the debt financing and forbearance agreement with Victory Park Capital (VPC).

Third Quarter Form 10-Q Filing

The Company previously announced in a Current Report on Form 8-K filed with the SEC on November 9, 2012 that it would delay the filing of its Form 10-Q for the three and nine months ended September 30, 2012 due to the Company's temporary inability to access its corporate headquarters and electronic data as a result of the impact of Hurricane Sandy.  In the process of reviewing the Company's draft Form 10-Q, the Company's external auditors, Grant Thornton LLP, identified a potential issue in the Company's historic methodology of accounting for a non-cash embedded derivative liability related to the Senior Secured Convertible Notes issued on March 16, 2010 which included periods they had previously audited.  The Company and Grant Thornton are in the process of assessing the potential issue and its related impact on the Company's financial statements and until such review is completed, the Company will be unable to finalize and file its Form 10-Q within the extended filing deadline of November 21, 2012.

THIRD QUARTER 2012 CORPORATE UPDATE

On September 21, 2012, Unigene entered into a Forbearance Agreement and First Amendment to Amended and Restated Financing Agreement with affiliates of Victory Park Capital Advisors, LLC, whereby VPC loaned the Company $4.0 million (of which $0.5 million was deposited with VPC for the payment of its fees and expenses) and agreed to forbear from exercising certain rights due to existing events of default through September 21, 2013, subject to the terms and conditions of such agreement. As a result of this transaction, cash and cash equivalents at September 30, 2012 totaled $4.0 million, an increase of $2.3 million from the previous quarter.

Management's cash flow projections at the time of the issuance of the $4.0 million note estimated that cash on hand would be sufficient to fund operations through at least Q2 2013.  This projection was based on the assumption that the Company's Biotechnologies Strategic Business Unit would be able to convert at least one of its ongoing oral peptide drug delivery feasibility partnerships into a definitive license agreement bearing a significant up-front cash payment, on or before December 31st, 2012.  Based on the latest feedback from Unigene's lead feasibility partnerships, as well as delays to our ongoing feasibility and partner sponsored Peptelligenceā„¢ research programs, Management believes it is no longer likely that such a licensing agreement and up-front cash payment will occur this year. The Company now projects that current cash on hand will be insufficient to fund operations through Q2 2013.  The Company will therefore need to secure alternative sources of revenue to fund operations through this period and beyond, as well as obtain significant additional financing to address its debt and restructure its balance sheet.  Management is actively pursuing various alternatives to extend the Company's cash runway. However, in the event that the Company is unable to generate additional revenue, it will not be able to fund operations through the end of Q1 2013 without defaulting on its minimum cash requirement under the VPC debt financing and forbearance agreement. In addition to our need to secure additional sources of revenue to fund operations in the near term, having failed in quarter three to complete the funding of the Founders debt settlement and release agreement, payments amounting to $362,000 become due this quarter under a prior agreement with the Company's founders. The payment of such amount this year would exceed the 10% deviation default threshold for the Q4 2012 forbearance budget previously submitted to Victory Park Capital.

Ashleigh Palmer, Unigene's President and CEO, commented, "Our $4.0 million debt financing and forbearance agreement with VPC was a vital achievement for Unigene in the third quarter.  This initiative almost certainly averted imminent insolvency stemming primarily from the unexpected recommendation made by the European Medicines Agency ("EMA") at the beginning of the quarter calling for the curtailment of calcitonin usage for the treatment of osteoporosis. Prior to the EMA's announcement, we had been making excellent progress towards restructuring our balance sheet and recapitalizing the Company. The impact of the EMA's recommendation represents a devastating setback and has prevented any possibility of us accomplishing our 2012 goal of fundamentally addressing the Company's debt. In particular, we were unable to meet the September 30, 2012 deadline to fund a settlement and release agreement with the Company's founders, which would otherwise have eliminated $23.2 million of outstanding indebtedness upon paying the remaining $7.7 million of an $8.0 million cash payment and issuing 5 million shares of Unigene's common stock." 

Palmer concluded, "I must again thank Victory Park Capital for its timely rescue and ongoing support. Nevertheless, the coming months will be extraordinarily challenging. Despite the catastrophic impact the EMA's recommendation has had on Unigene, we remain resolute and deeply committed to the multiple opportunities we believe exist for Unigene and its pipeline of novel therapeutic peptides and expanding portfolio of Peptelligenceā„¢ oral peptide drug delivery partnerships."

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