Back to GetFilings.com
FORM 10K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
Commission file number 0-16005
Unigene Laboratories, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2328609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Little Falls Road, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 882-0860
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value as of February 28, 1997: $125,130,663
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. Common Stock, $.01 Par Value--
36,377,424 shares as of February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
NONE.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or activities of the Company, or industry results, to be materially different
from any future results, performance or activities expressed or implied by such
forward-looking statements. Such factors include: general economic and business
conditions, the financial condition of the Company, competition, the Company's
dependence on other companies to commercialize, manufacture and sell products
using the Company's technologies, the uncertainty of results of preclinical and
clinical testing, the risk of product liability and liability for human clinical
trials, the Company's dependence on patents and other proprietary rights,
dependence on key management officials, the availability and cost of capital,
the availability of qualified personnel, changes in, or the failure to comply
with, governmental regulations, the failure to obtain regulatory approvals of
the Company's products and other factors discussed in this Form 10-K.
Item 1. Business.
Unigene Laboratories, Inc. ("Unigene" or "Company"), incorporated under the laws
of the State of Delaware in 1980, is a health-care oriented biotechnology
company which is engaged in research and production of current Good
Manufacturing Practice ("cGMP") Calcitonin and is planning to engage in the
production and marketing of pharmaceutical grade Calcitonin in bulk or finished
form. Certain statements under this caption constitute "forward-looking
statements" under the Reform Act. See "Special Note Regarding Forward-Looking
Statements." The Company's current business focus has shifted toward
pharmaceutical production and drug delivery from its prior emphasis on basic
pharmaceutical research. The Company has succeeded in combining its proprietary
amidation process with bacterial recombinant DNA technology to develop a peptide
hormone production process. The Company believes that its proprietary amidation
process will be a key step in the more efficient and economical commercial
production of certain peptide hormones with diverse therapeutic applications.
Many of these hormones cannot be produced at a reasonable cost in sufficient
quantities for clinical testing or commercial use by currently available
production processes. Using its proprietary process, Unigene has produced
laboratory-scale quantities of seven such peptide hormones: human Calcitonin,
salmon Calcitonin, human Growth Hormone Releasing Factor, human Calcitonin
Gene-Related Peptide, human Corticotropin Releasing Factor, human Amylin and a
human Magainin. During 1991, a study commissioned by the Company was prepared by
a professor of chemical engineering at the Massachusetts Institute of
Technology. The study evaluated the economics for producing multi-kilogram
quantities of Calcitonin and indicated that the Company's process for producing
Calcitonin should reduce the cost and time required for commercial production by
up to 95%.
The Company's strategy is to develop proprietary products and processes with
applications in human health-care, independently or in conjunction with
pharmaceutical and chemical companies, in order to generate revenues from
license fees, royalties and product sales in bulk. Generally, the Company seeks
sponsors and licensees to provide research funding and assume responsibility for
obtaining appropriate regulatory approvals, clinical testing, production and
marketing of products derived from Unigene's research activities. It has
concentrated most of its efforts on one product - Calcitonin for the treatment
of osteoporosis. The Company has built a production facility and plans to
undertake production of pharmaceutical grade calcitonin and will assume
responsibility for the clinical testing and/or applying for regulatory approval
for certain Calcitonin products.
Since 1992, the Company has been producing and from time to time selling small
quantities of research-grade salmon Calcitonin. The Company has constructed a
cGMP facility for the production of pharmaceutical-grade calcitonin in leased
premises located in Boonton, New Jersey. The facility began producing salmon
calcitonin according to cGMP regulations in 1996. The facility will also produce
Unigene's proprietary amidating enzyme for use in producing Calcitonin. The
current production capacity of the facility is between 0.5-1.0 kilogram of bulk
Calcitonin per year.
The design of the facility is intended to allow for substantial increases in
Calcitonin production utilizing the existing equipment with no additional
capital expenditures or personnel. In March 1997, the Company announced that an
improvement to its proprietary production process had been developed that can
boost the Company's annual production of Calcitonin by at least fourfold.
Although the facility will initially be exclusively devoted to Calcitonin
production, it would be suitable for producing other peptide hormone products in
the future. The Company is undertaking steps to secure Food & Drug
Administration ("FDA") validation of the facility which would allow it to
manufacture Calcitonin for human pharmaceutical use. The facility has begun
producing Calcitonin in accordance with cGMP regulations, but there is no
assurance that the facility will be approved by the FDA. Furthermore, there can
be no assurance that the facility will be able to achieve its production goals,
that production at this facility will be profitable to the Company, that others
will not develop processes and products superior to, or otherwise precluding the
Company from commercial utilization of the Company's products and processes,
that there will be a market for the Company's products produced by the facility,
or that sufficient funds will be available for the Company to produce and market
its products from the facility.
In addition to the validation by the FDA of the new facility, it is necessary to
obtain regulatory approval in each country for human use of the salmon
Calcitonin to be produced in the facility. This will require various human and
animal studies. The Company will then apply to the appropriate regulatory
agencies for approval of the Company's Calcitonin for human use. The Company
recently completed its pivotal clinical trials for its injectable Calcitonin
product. The statistical analysis of the data from this study demonstrated that
its FORTICAL(R) Injection product is bioequivalent to an injectable salmon
Calcitonin product currently on the market. As a result, the Company believes
that the approval process for its injectable form of Calcitonin and possibly for
its other Calcitonin products may be shorter than that typically associated with
a New Drug Application ("NDA") submission. See "Government Regulation". However,
there can be no assurance that such approval will be received in an accelerated
time frame. Expanded consumer acceptance of pharmaceutical-grade Calcitonin may
be dependent on development of a consumer acceptable delivery system. A major
pharmaceutical company received approval in 1995 from the FDA and is marketing a
nasal spray formulation of Calcitonin, which should enlarge the market for
Calcitonin. The Company and others are conducting research on oral delivery
systems for Calcitonin. There can be no assurance that suitable delivery systems
will be developed or that governmental approval of such delivery systems will be
obtained.
The Company is continuing its efforts to develop an oral form of Calcitonin. In
December 1995 and January 1996, the Company successfully tested a proprietary
Calcitonin oral formulation in Phase I clinical trials in the United Kingdom.
These studies indicated that the majority of those who received oral Calcitonin
showed levels of the hormone in blood samples taken during the trials which were
greater than the minimum levels generally regarded as required for maximum
therapeutic benefit. The Company believes that these were the first studies to
demonstrate that significant blood levels of Calcitonin could be observed in
humans following oral administration of the hormone. In April 1996, the Company
successfully conducted a third Phase I clinical trial in the United Kingdom
which utilized lower Calcitonin dosages than in the prior two clinical trials.
The results of this trial indicated that every test subject showed levels of the
hormone in blood samples taken during the trial in excess of the minimum levels
generally regarded as required for maximum therapeutic benefit. However, there
can be no assurance that these results will be replicated in further studies.
The Company has filed a patent application for its oral formulation with the
U.S. Patent & Trademark Office and plans to file a second U.S. patent
application in the Spring of 1997. An Investigational New Drug ("IND")
application is expected to be filed with the FDA later in 1997. There can be no
assurance that any of these applications will be approved as projected or that
the Company will be successful in developing, producing or marketing its
products.
The planned activities of the Company are all subject to obtaining adequate
financing. There can be no assurance that the Company will have sufficient
resources to produce and market its products or to carry on its other projects.
See Part II, "Liquidity and Capital Resources."
In June 1995, the Company entered into a joint venture agreement, effective as
of March 1996, with the Qingdao General Pharmaceutical Company and its Huanghai
factory for the production and marketing of injectable and nasal Calcitonin in
China. Under the agreement, the Chinese partners will finance the project,
including the construction and operation of a dedicated manufacturing facility
in China which will utilize the nonproprietary aspects of the Company's
production technology. Unigene will provide the joint venture with technology
and training as well as the Company's proprietary enzyme at a discounted price.
Unigene will receive a combination of fixed fees and annual royalties based upon
sales of the end product. In 1996, the Company recognized revenues of $300,000
from this agreement. There is no assurance that this joint venture will be
successful or that Unigene will receive significant income from the joint
venture.
The Company is currently engaged in two collaborative research programs. One,
with Rutgers University College of Pharmacy, continues to investigate oral drug
delivery technology for Calcitonin. The second collaboration, performed in
conjunction with Yale University, is investigating novel applications for
certain amidated peptide hormones, including Calcitonin gene-related peptide
("CGRP"). In 1996, the Company reported that CGRP accelerated bone growth and
prevented bone loss in an animal model system. However, there can be no
assurance that CGRP will have the same effect in humans.
At present, the Company has no third party sponsored research agreements in
effect. The Company is currently conducting discussions with major
pharmaceutical companies regarding licensing and/or research agreements. There
can be no assurance that such discussions will result in new research or
licensing agreements or that the Company will be able to obtain adequate funding
for its current or new projects. The Company is dependent on large
pharmaceutical companies, having much greater resources than the Company, for
revenues from sales of product, research sponsorship, joint ventures and
licensing arrangements.
Risks of International Operations
The Company's potential major customers, partners and licensees include foreign
companies or companies with significant international business. The business
operations of such companies and their ability to pay license fees, royalties
and other amounts due and otherwise perform their obligations to the Company
under agreements with the Company may be subject to regulation or approval by
foreign governments. There can be no assurance that required approvals will be
received. The failure to receive required approvals, governmental regulation and
other risks, including political and foreign currency risks, could affect the
ability of the Company to earn or receive payments pursuant to such agreements
and, in such event, may have a material adverse effect on the Company's future
operations.
Government Regulation
The laboratory research and production activities of the Company and its
sponsors, collaborators and licensees and the processes and products which may
be developed by them and the new production facility, are subject to significant
regulation by numerous federal, state, local and foreign governmental
authorities. In addition to obtaining the FDA's validation of the new facility,
it is necessary to obtain FDA approval for human use of the Calcitonin to be
produced in the facility. This will require various human and animal studies.
The Company will then apply to the FDA for approval of the Company's Calcitonin
for human use. The regulatory process for a pharmaceutical product may take a
number of years and requires substantial resources. The Company has completed
pivotal clinical trials in the United States and the United Kingdom for its
injectable form of Calcitonin which, the Company believes, will be sufficient to
satisfy approval requirements in the United States and the European Union. The
Company believes that the approval process for its injectable Calcitonin product
may be shorter than that typically associated with an NDA submission because (i)
the active ingredient is structurally identical to and biologically
indistinguishable from the active ingredient in products already approved by the
FDA and foreign health agencies, (ii) the formulation is essentially similar to
the formulations used in already approved products, (iii) the clinical trial
program that the FDA authorized was relatively brief and involved small numbers
of subjects, so the amount of information that must be reviewed is far less than
would have been compiled for a typical NDA submission and (iv) the clinical
trial established its bioequivalence to currently marketed products. However,
there can be no assurance that such approval will be received in an accelerated
time frame. In the case of the regulatory process for the Company's oral form of
Calcitonin products, the Company believes that it may also be possible to
abbreviate the process. However, there can be no assurance that regulatory
approval will be obtained for the new facility or any of the Company's products.
The inability to obtain, or delays in
obtaining, such approvals would adversely affect the Company's ability to
continue to fund its programs, produce marketable products, or to receive
revenue from product sales or royalties. Furthermore, the extent of any adverse
governmental regulation which may arise from future legislative and
administrative action cannot be predicted.
The Company's production facility may, from time to time, be audited by the FDA
to ensure that it is operating in compliance with cGMP guidelines, which require
that the production operation be conducted in strict compliance with, among
other things, the Company's written protocols for reagent qualification, process
execution, data recording, instrument calibration and quality monitoring. The
FDA is empowered to suspend production operations if, in its opinion,
significant and/or repeated deviations from these protocols have occurred. Such
a suspension could have a material adverse impact on the Company's future
operations.
Competition
The Company's primary business activity to date has been biotechnology research.
In 1997, the Company expects to manufacture cGMP Calcitonin for use in finished
pharmaceutical products. Biotechnology research is highly competitive,
particularly in the field of human health-care. Unigene competes with
specialized biotechnology companies, major pharmaceutical and chemical
companies, universities and other non-profit research organizations, many of
which can devote considerably greater financial resources to research
activities.
In the manufacture and sale of amidated peptide hormones, the Company and its
licensees, if any, will be competing with contract laboratories and major
pharmaceutical companies, many of which can devote considerably greater
financial resources to manufacturing and selling activities. However, the
Company believes that its patented hormone manufacturing process will enable it
to greatly reduce manufacturing time and costs in order to successfully compete
with these companies. The Company believes that success in competing with others
in the biotechnology industry will be based primarily upon scientific expertise
and technological superiority, the ability to identify and pursue scientifically
feasible and commercially viable opportunities and to obtain proprietary
protection for research achievements, the availability of adequate funding and
success in developing, testing, protecting, producing and marketing products and
obtaining timely regulatory approval. There can be no assurance that others will
not develop processes or products which are superior to, or otherwise preclude
the commercial utilization of, processes or products developed by the Company.
Human Resources
On March 1, 1997, the Company had 65 full-time employees, of whom 26 were
engaged in research, development and regulatory activities, 28 were engaged in
production activities and 11 were engaged in general and administrative
functions. Ten of the Company's employees hold Ph.D. degrees. The Company's
employees have expertise in molecular biology, including DNA
cloning, synthesis, sequencing and expression; protein chemistry, including
purification, amino acid analysis, synthesis and sequencing of proteins;
immunology, including tissue culture, monoclonal and polyclonal antibody
production and immunoassay development; chemical engineering; pharmaceutical
production; quality assurance; and quality control. None of the Company's
employees is covered by a collective bargaining agreement.
Research and Development
The Company has established a multidisciplinary research team to adapt current
genetic engineering technologies to the development of proprietary products and
processes. Approximately 80% of the Company's employees are directly engaged in
activities relating to production activities, regulatory activities and research
and development of new, and improvement of existing, products and processes.
During the years ended December 31, 1996, 1995 and 1994, approximately
$8,298,000, $6,876,000 and $5,137,000, respectively, were spent on these
activities.
Patents and Proprietary Technology
The Company has filed applications for U.S. patents relating to the proprietary
amidation and immunization processes and an oral Calcitonin formulation invented
in the course of its research. To date, the following two patents have issued:
Immunization By Immunogenic Implant, a process patent, and Alpha-Amidation
Enzyme, a process and product patent. Other applications are pending. Filings
relating to the amidation process have also been made in selected foreign
countries and numerous such foreign patents have issued. There can be no
assurance that any of Unigene's pending applications will issue as patents or
that Unigene's issued patents will provide the Company with significant
competitive advantages. Furthermore, there can be no assurance that others will
not independently develop or obtain similar or superior technologies. Although
the Company believes its patents and patent applications are valid, the
invalidation of its patents or the failure of certain of its pending
applications to issue as patents could have a material adverse effect upon the
Company's business. Although one of the Company's U.S. amidation patent
applications currently is the subject of an interference proceeding, the Company
does not believe that an adverse ruling would have a material adverse effect on
the business of the Company or its prospects. Another interference proceeding
involving a second U.S. amidation patent application has been settled on terms
deemed by management to be mutually beneficial to the involved parties.
Difficulties in detecting and proving infringement are generally greater with
process patents than with product patents. In addition, the value of a process
patent may be reduced if the products that can be produced using such process
have been patented by others. Under such circumstances, the cooperation of these
patent holders or their sub-licensees would be needed for the commercialization
of the aforementioned patented products in countries where these companies hold
valid patents.
Product Liability
Product liability claims relating to the Company's technology or products may be
asserted against the Company. There can be no assurance that the Company will
have sufficient resources to defend against or satisfy any such liability.
Although the Company has obtained product liability insurance coverage, product
liability or other judgments against the Company in excess of insurance limits
could have a material adverse effect upon the Company's business and financial
condition.
Executive Officers of the Registrant
Served in Such
Position or Office
Name Age Continually Since Position(1)
- ---- --- ----------------- -----------
Dr. Warren P. Levy(2)(3) 45 1980 President (Chief
Executive Officer)
Dr. Ronald S. Levy(2)(4) 48 1980 Vice President
and Secretary
Jay Levy(2)(5) 73 1980 Treasurer
NOTES:
(1) Each executive officer's term of office is until the first meeting
of the Board of Directors of Unigene following the annual meeting of
stockholders and until the election and qualification of his successor. Officers
serve at the discretion of the Board of Directors.
(2) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the
sons of Mr. Jay Levy.
(3) Dr. Warren P. Levy, a founder of the Company, has served as
President, Chief Executive Officer and Director of the Company since its
formation in November 1980. Dr. Levy holds a Ph.D. in biochemistry and molecular
biology from Northwestern University and a bachelor's degree in chemistry from
the Massachusetts Institute of Technology.
(4) Dr. Ronald S. Levy, a founder of the Company, has served as Vice
President and Director of the Company since its formation in November 1980, and
as Secretary since May 1986. Dr. Levy holds a Ph.D. in bioinorganic chemistry
from Pennsylvania State University and a bachelor's degree in chemistry from
Rutgers University.
(5) Mr. Jay Levy, a founder of the Company, has served as Chairman of
the Board of Directors and Treasurer of the Company on a part-time basis since
its formation in November 1980. He also served as Secretary from 1980 to May
1986. Mr. Levy devotes approximately 15% of his time to the Company. From 1985
through February 1991, he served as the principal financial advisor to The
Nathan Cummings Foundation, Inc., a large charitable foundation. From 1968
through 1985, he performed similar services for the late Nathan Cummings, a
noted industrialist and philanthropist.
Item 2. Properties
In 1983, Unigene completed the construction of a one-story office and laboratory
facility consisting of approximately 12,500 square feet. The facility is located
on a 2.2 acre site in Fairfield, New Jersey which the Company purchased in 1982.
The Company's 32,000 square foot cGMP facility, of which 18,000 square feet can
be used for the production of pharmaceutical-grade Calcitonin and other peptide
hormones, was constructed in a building located in Boonton, New Jersey, that is
being leased under a 10-year agreement which began in February 1994. The Company
has two 10-year renewal options as well as an option to purchase the facility.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company has not declared or paid any cash dividends since inception, and
does not anticipate paying any in the near future.
The Company's Common Stock began trading on August 12, 1987 in the
over-the-counter market with the NASDAQ symbol UGNE. The Company's Class B
Warrants began trading on May 28, 1991 in the over-the-counter market with the
NASDAQ symbol UGNEZ and expired on September 10, 1996. There were 578 Common
Stockholders of record as of February 28, 1997. The Company's Common Stock is
listed on the NASDAQ National Market System. The prices below represent high and
low sale prices and are as reported to the Company by the National Association
of Securities Dealers, Inc.
1996
--------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High-Low High-Low High-Low High-Low
-------- -------- -------- --------
Common Stock 2 13/16-1 5/16 4 13/16-2 1/16 3 5/16-1 7/8 3 - 1 13/16
Class B Warrants 5/8-5/32 1 7/32-7/16 15/16 - 1/32(1) --
1995
-------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High-Low High-Low High-Low High-Low
------------ --------------- ------------- -------------------
Common Stock 2 7/8-1 1/2 2 1/8 - 1 2 1/8-1 9/32 2 1/16-1 3/16
Class B Warrants 7/8-5/16 11/16-1/4 9/16-1/4 15/32 - 5/32
(1) Expired September 10, 1996
RECENT SALES OF UNREGISTERED SECURITIES
In October 1996, the Company completed a private placement (the "BT Private
Placement") of 4,218,804 detachable units (the "Units") at a price of $1.75 per
Unit. Each Unit consists of (i) one share of Common Stock, (ii) one quarter of a
Class C warrant, (each whole Class C warrant is exercisable immediately to
purchase one share of Common Stock) and (iii) one quarter of a Class D warrant,
(each whole Class D warrant is exercisable immediately to purchase one share of
Common Stock). The Class C and Class D warrants are referred to together as the
"Warrants". The Warrants have an initial exercise price of $3.00 per share and
expire on October 11, 1999, except
that the expiration date of the Class C warrants may be accelerated under
certain circumstances. In addition, the Warrants contain certain adjustment and
antidilution provisions which, upon the occurrence of certain events, may
require the Company to adjust the exercise price of the Warrants and to issue
additional shares of Common Stock upon the exercise thereof.
As compensation for its services as placement agent for the BT Private
Placement, the Company issued to BT Securities Corporation an additional 296,935
Units. In addition, the Company agreed to register for resale the shares of
Common Stock comprising the Units and the shares of Common Stock issuable upon
exercise of the Warrants.
The BT Private Placement was effected under an exemption from registration
pursuant to Section 4(2) of the Securities Act of 1993, as amended, the
"Securities Act" and Rule 506 promulgated thereunder. The Company filed with the
Securities and Exchange Commission a notice on Form D with respect to the
Private Placement.
In the fourth quarter of 1996, the Company issued (i) 952,319 shares of Common
Stock upon the conversion of $1,066,600 in principal amount of the Company's
9.5% Senior Secured Convertible Debentures due November 15, 1998, and (ii)
345,426 shares of Common Stock upon the conversion of $600,000 in principal
amount and $36,423 of accrued interest thereon of the Company's 10% Convertible
Debentures due March 4, 1999. See "Liquidity and Capital Resources". All of such
shares were issued by the Company without registration pursuant to Section
3(a)(9) of the Securities Act.
Item 6. Selected Financial Data
(In thousands, except per share data)
Years Ended December 31 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
Research and development
contracts and licensing fees $ 308 $ 8 $ 258 $ 12 $ 10
Research and development
expenses ................... $ 8,298 $ 6,876 $ 5,137 $ 3,357 $ 2,998
Net loss .................... $(10,597) $ (9,435) $ (6,319) $ (3,739) $ (3,019)
Net loss per share .......... $( .38) $ ( .44) $ ( .32) $ ( .19) $ ( .16)
At December 31
Working capital (deficiency) $ 2,954 $ (4,061) $ (1,907) $ 11,380 $ 16,936
Total assets ................ $ 17,169 $ 13,332 $ 14,211 $ 15,665 $ 19,286
Long-term debt .............. $ 2,788 $ 3,955 $ -- $ -- $ --
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Revenues for 1996 included a license fee of $300,000 from the Company's joint
venture in China. Revenues for each of 1996, 1995 and 1994 from hormone and
enzyme sales were approximately $8,000. Revenues in 1994 included $250,000 from
a final payment from a prior research agreement.
Research and development, the Company's largest expense, increased 21% in 1996
to $8,298,000 from $6,876,000 in 1995, after increasing 34% in 1995 from
$5,137,000 in 1994. The increases were primarily related to the Company's oral
and injectable Calcitonin clinical trials and regulatory documentation
preparation fees. Expenditures for the sponsorship of collaborative research
programs were $411,000, $483,000 and $301,000 in 1996, 1995 and 1994,
respectively.
General and administrative expenses decreased 2% in 1996 to $2,115,000 from
$2,158,000 in 1995, after increasing 29% in 1995 from $1,671,000 in 1994. The
1996 decrease as well as the 1995 increase were primarily due to legal and other
expenses in 1995 associated with the Company's financing activities. The 1996
decrease was partially offset by the issuance of warrants as non-cash
compensation.
Interest and other income increased $162,000 or 237% in 1996 from 1995 after
decreasing $163,000 or 70% in 1995 from 1994. The 1996 increase was due to
increased interest income earned on the proceeds of financings which provided
additional funds to be invested, as well as gains on settlement of debt. The
1995 decrease was due to a reduction in total monies available to be invested.
Interest expense increased $245,000 or 51% in 1996 from 1995, after increasing
$476,000 in 1995 from 1994. These increases were due to increased borrowings by
the Company.
During 1996, the Company conducted clinical trials for its oral and injectable
forms of Calcitonin and continued its scale-up and production of cGMP Calcitonin
as well as its ongoing collaborative research projects, which together increased
research and development expenses. In addition, there were increased financings
causing an increase in interest expense. These increases were partially offset
by revenue from its joint venture in China as well as increased interest income
from the investment of the proceeds from the aforementioned financings. As a
result, the net loss increased $1,162,000 for the year ended December 31, 1996
from the prior year.
During 1995, the Company concentrated on internally-sponsored research programs
and collaborations, and post-research development programs, including the
scale-up and production of research grade Calcitonin and the development of an
oral formulation of Calcitonin. Therefore, operating expenses increased and cash
decreased, causing a decrease in interest income. In addition, increased
borrowings in 1995 increased interest expense. As a result, the net loss
increased $3,115,000 for the year ended December 31, 1995, from the prior year.
As of December 31, 1996, the Company had available for income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$44,300,000, expiring from 1997 through 2011, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has investment tax credits and research and development
credits in the amounts of $64,000 and $1,454,000, respectively, which are
available to reduce the amount of future federal income taxes. These credits
expire from 1997 through 2011.
The Company follows Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes". Given the Company's past history of
incurring operating losses, any deferred tax assets that are recognizable under
FASB 109 have been fully reserved. As of December 31, 1996 and 1995, under FASB
109, the Company had deferred tax assets of approximately $19,200,000 and
$15,100,000, respectively, subject to valuation allowances of $19,200,000 and
$15,100,000, respectively. The deferred tax assets were generated primarily as a
result of the Company's net operating losses and tax credits generated.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of", beginning in 1996. This statement requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is recognized if the sum of the expected future cash flows is less than the
carrying amount of the asset. The implementation of SFAS No. 121 has not had a
material impact on the Company's financial position or results of operations,
due to Management's assumptions regarding successful commercialization of the
Company's product and the signing of licensing/joint venture agreements with
pharmaceutical companies.
SFAS No. 123, "Accounting for Stock-based Compensation", issued in October 1995,
established financial accounting and reporting standards for stock-based
employee compensation plans. These plans include all arrangements by which
employees receive shares of stock or other equity investments of the employer or
the employer incurs liabilities to employees in amounts based on the price of
the employer's stock. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. The Company has elected the disclosure requirements only of SFAS
No. 123 beginning in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company completed construction of its peptide production
facility in Boonton, New Jersey. The facility was constructed in a shell
building that is being leased under a 10-year net lease which began in February
1994. The Company has two 10-year renewal options as well as an option to
purchase the facility. The total cost of leasehold improvements and process
equipment for this facility, including current validation costs, totalled
approximately $11.9 million. The improvements and equipment have been primarily
financed from the remainder of the $17 million of proceeds received as a result
of the exercise by the warrant holders of the Company's Class A Warrants in 1991
and the proceeds of $2.2 million from the sale of stock in 1994. There are
currently no material commitments for capital expenditures relating to either
the Boonton facility or the Company's facility in Fairfield.
The Company, at December 31, 1996, had cash and cash equivalents of $4,491,000,
an increase of $4,233,000 from December 31, 1995. In March 1996, a secured
$3,300,000 loan was exchanged for 9.5% Senior Secured Convertible Debentures of
an equal principal amount. These Debentures mature November 15, 1998 and are
convertible into shares of the Company's Common Stock. The initial conversion
rate was $1.15 per share, subject to certain reset provisions. In October 1996,
the conversion rate was reset to $1.12 per share. Through December 31, 1996,
$2,016,600 of principal amount of these debentures have been converted into
approximately 1,778,000 shares of Common Stock.
From January through March 1996, the Company sold in private placements an
aggregate of 371,000 shares of Common Stock, receiving net proceeds of $340,000.
In March 1996, the Company completed a private placement of $9.08 million of 10%
Convertible Debentures. All interest is payable at maturity or convertible into
Common Stock upon conversion of the debentures. The Company received net
proceeds of approximately $8.1 million as a result of this placement. These
debentures mature March 4, 1999. The 10% Debentures are convertible into shares
of Common Stock at a conversion rate determined by dividing the principal amount
to be converted, plus accrued interest, by the lower of $2.00 or 85% of the
average closing bid price as reported on Nasdaq for the ten trading days
immediately preceding the date of conversion. Through December 31, 1996,
$8,230,000 of principal amount of these debentures, plus $270,000 of accrued
interest, had been converted into approximately 4,404,000 shares of Common
Stock. The placement agent, in connection with the issuance of these debentures,
received a five-year warrant to purchase 454,000 shares of the Company's common
stock at $2.10 per share as partial compensation for services rendered.
In October 1996, the Company completed a private placement of 4,218,804 Units at
a price of $1.75 per Unit. Each Unit consists of (i) one share of Common Stock,
(ii) one quarter of a Class C warrant, (each whole Class C warrant is
exercisable immediately to purchase one share of Common Stock) and (iii) one
quarter of a Class D warrant, (each whole Class D warrant is exercisable
immediately to purchase one share of Common Stock). The Class C and Class D
warrants are referred to together as the "Warrants".The Warrants have an initial
exercise price of $3.00 per share and expire on October 11, 1999, except that
the expiration date of the Class C warrants may be accelerated under certain
circumstances. In addition, the Warrants contain certain adjustment and
antidilution provisions which, upon the occurrence of certain events, may
require the Company to adjust the exercise price of the Warrants and to issue
additional shares of Common Stock upon the exercise thereof. The fee paid to the
placement agent consisted of an additional 296,935 units in lieu of cash
compensation. The net proceeds to the Company were approximately $7 million.
The aforementioned sales of stock and convertible debentures all represented
significant dilution to existing stockholders. However, because of the limited
capital sources available to the Company, Management believes that it was in the
best interests of the Company and its stockholders to continue to raise money in
this manner in order to continue operations.
The Company's ability to generate additional cash from operations depends
primarily upon signing research or licensing agreements, achieving defined
benchmarks in such agreements, receiving regulatory approval for its products,
and marketing hormones and enzyme products. The Company has one joint venture
agreement in effect which contributed $300,000 to 1996 revenues. However, there
is no assurance that any additional revenues will be recognized or received
under this agreement.
The Company's cash requirements have increased by approximately $2.5-$3 million
per year with the opening of its peptide manufacturing facility. In addition,
the Company will face debt and interest obligations over the next several years.
However, because of the conversion prices of each of the issues of debentures, a
substantial portion of such debentures has been, and a substantial portion of
the remainder is expected to be, converted into Common Stock. Management
believes that the Company has sufficient financial resources to sustain its
operations at the current level through at least the second quarter of 1997. The
Company will require additional funds through financing or licensing agreements
to ensure continued operations beyond that time. Management is actively seeking
licensing and/or supply agreements with pharmaceutical companies. The Company is
currently developing two Calcitonin products (an oral version and an injectable
version) for which it is seeking licensing partners. The signing of one or more
agreements will be necessary to fund operations and to repay its loans and
interest thereon when due. In the absence of or the delay in signing such
agreements, obtaining adequate financing would be necessary. However, there is
no assurance that sufficient funds will be obtained. The Company believes that
the implementation of a licensing transaction will satisfy the Company's
liquidity requirements over the short-term. Satisfying the Company's long-term
liquidity requirements will require the successful commercialization of one or
more of its Calcitonin products.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Related Information
(1) Financial Statements:
Independent Auditors' Report
Balance Sheets at December 31, 1996 and 1995
Statements of Operations for the three years
ended December 31, 1996
Statements of Stockholders' Equity for the
three years ended December 31, 1996
Statements of Cash Flows for the three
years ended December 31, 1996
Notes to Financial Statements
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Independent Auditors' Report
The Stockholders and Board of Directors
Unigene Laboratories, Inc.:
We have audited the financial statements of Unigene Laboratories, Inc. as listed
in the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unigene Laboratories, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has suffered recurring losses from operations
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 13. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG PEAT MARWICK LLP
New York, New York
March 13, 1997
UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
1996 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................. $ 4,491,386 $ 258,627
Prepaid expenses and other
current assets .......................... 983,089 434,159
------------ ------------
Total current assets ................. 5,474,475 692,786
Property, plant and equipment-net of
accumulated depreciation
and amortization (Note 4) ................. 10,356,070 11,513,019
Patents and other assets ..................... 1,338,691 1,125,828
------------ ------------
$ 17,169,236 $ 13,331,633
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................... $ 1,025,136 $ 2,859,264
Accrued expenses .......................... 685,568 644,663
Notes payable - stockholders (Note 3) ..... 810,000 1,250,000
------------ ------------
Total current liabilities ............ 2,520,704 4,753,927
Notes payable - stockholders (Note 3) ........ 655,000 655,000
9.5% convertible debentures (Note 5) ......... 1,283,400 --
10% convertible debentures (Note 5) .......... 850,000 --
Note payable - other (Note 6) ................ -- 3,300,000
Stockholders' equity (Note 8):
Common stock-par value $.01 per share,
authorized 48,000,000 shares, issued
and outstanding 35,352,824 shares in 1996
and 23,813,171 shares in 1995 ........... 353,528 238,132
Additional paid-in capital ................. 55,829,641 38,110,512
Accumulated deficit ........................ (44,322,006) (33,724,907)
Less: Treasury stock, at cost,
7,290 shares ........................... (1,031) (1,031)
------------ ------------
Total stockholders' equity ........... 11,860,132 4,622,706
------------ ------------
$ 17,169,236 $ 13,331,633
============ ============
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------ ------------ ------------
Licensing and other revenue $ 308,070 $ 7,531 $ 258,393
------------ ------------ ------------
Operating expenses:
Research and
development ......... 8,298,056 6,876,253 5,137,011
General and
administrative ...... 2,115,081 2,157,777 1,670,502
------------ ------------ ------------
10,413,137 9,034,030 6,807,513
------------ ------------ ------------
Operating loss ......... (10,105,067) (9,026,499) (6,549,120)
------------ ------------ ------------
Other income (expense):
Interest/other income .. 229,665 68,133 230,686
Interest expense ....... (721,697) (476,505) (1,055)
------------ ------------ ------------
(492,032) (408,372) 229,631
------------ ------------ ------------
Net loss .................. $(10,597,099) $ (9,434,871) $ (6,319,489)
============ ============ ============
Net loss per share ........ $ (.38) $ (.44) $ (.32)
============ ============ ============
Weighted average number
of shares outstanding .... 27,942,903 21,657,549 19,730,246
============ ============ ============
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Common Stock
------------- Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
------------ ------------ ------------ ------------ ------------ ------------
Balance,
January 1, 1994 19,628,149 $ 196,281 $ 32,988,202 $(17,970,547) $ (1,031) $ 15,212,905
Sales of
stock .......... 1,135,000 11,350 2,198,586 -- -- 2,209,936
Exercise of
stock options .. 155,250 1,553 212,685 -- -- 214,238
Net loss ......... -- -- -- (6,319,489) -- (6,319,489)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1994 20,918,399 209,184 35,399,473 (24,290,036) (1,031) 11,317,590
Sales of
stock ......... 2,802,022 28,020 2,561,044 -- -- 2,589,064
Exercise of
stock options 92,750 928 149,995 -- -- 150,923
Net loss ....... -- -- -- (9,434,871) -- (9,434,871)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1995 23,813,171 238,132 38,110,512 (33,724,907) (1,031) 4,622,706
Sales of
Stock ........... 4,887,029 48,870 7,338,621 -- -- 7,387,491
Conversion of 10%
Debentures ...... 4,403,838 44,038 7,578,173 -- -- 7,622,211
Conversion of 9.5%
Debentures ...... 1,778,401 17,784 1,988,316 -- -- 2,006,100
Exercise of
warrants ........ 330,000 3,300 460,250 -- -- 463,550
Exercise of
Stock Options ... 140,385 1,404 173,769 -- -- 175,173
Issuance of
warrants as
compensation .... -- -- 180,000 -- -- 180,000
Net Loss ......... -- -- -- (10,597,099) -- (10,597,099)
------------ ------------ ------------ ------------ ------------ ------------
Balance
December 31, 1996 35,352,824 $ 353,528 $55,829,641 $(44,322,006) $ (1,031) $ 11,860,132
============ ============ ============ ============ ============ ============
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................... $(10,597,099) $ (9,434,871) $ (6,319,489)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Non-cash compensation ........................ 180,000 -- --
Depreciation and amortization ................ 1,487,356 1,445,596 573,830
(Increase) decrease in prepaid
expenses and other current assets ........ (548,930) (39,606) 182,021
Increase (decrease) in operating accounts
payable and accrued expenses ............. (663,805) 1,457,187 981,835
------------ ------------ ------------
Total adjustments ................................ 454,621 2,863,177 1,737,686
------------ ------------ ------------
Net cash used for
operating activities .......................... (10,142,478) (6,571,694) (4,581,803)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold improvements ........ (614,479) (939,947) (5,746,782)
Purchase of furniture and equipment ........... (560,987) (635,198) (2,681,814)
Increase in patents and other assets .......... (134,034) (131,532) (40,184)
Maturity of marketable securities ............. -- -- 3,000,000
------------ ------------ ------------
Net cash used in
investing activities .......................... (1,309,500) (1,706,677) (5,468,780)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of stock, net of related expenses ....... 7,387,491 2,589,064 2,209,936
Issuance of debt, net of related expenses .... 8,098,523 8,205,000 --
Repayment of debt ............................. (440,000) (3,000,000) --
Exercise of stock options and warrants ........ 638,723 150,923 214,238
------------ ------------ ------------
UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
(continued)
Years Ended December 31,
------------------------------------------------
1996 1995 1994
------------ ------------ ------------
Net cash provided by
financing activities .......................... 15,684,737 7,944,987 2,424,174
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ............................... 4,232,759 (333,384) (7,626,409)
Cash and cash equivalents at
beginning of period ............................ 258,627 592,011 8,218,420
------------ ------------ ------------
Cash and cash equivalents at
end of period ................................. $ 4,491,386 $ 258,627 $ 592,011
============ ============ ============
Supplemental cash flow information:
Interest paid .................................... $ 316,000 $ 240,000 $ 1,000
Exchange of notes ................................ $ 3,300,000 -- --
Conversion of convertible debentures and accrued
interest, net of related offering expenses into
common stock .................................. $ 9,628,311 -- --
See accompanying notes to financial statements.
UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
1. Description of Business
Unigene Laboratories, Inc. (the "Company"), a health-care oriented biotechnology
company, was incorporated in the State of Delaware in 1980. The Company is in
the process of changing its primary business from a research oriented business
to a pharmaceutical production business. The Company has concentrated most of
its efforts to date on one product - calcitonin, for the treatment of
osteoporosis. The Company's calcitonin products require clinical trials and
approvals from regulatory agencies as well as acceptance in the marketplace.
Although the Company believes its patents and patent applications are valid, the
invalidation of its patents or the failure of certain of its pending patent
applications to issue as patents could have a material adverse effect upon its
business. The Company competes with specialized biotechnology companies, major
pharmaceutical and chemical companies and universities and research
institutions. Many of these competitors have substantially greater resources
than does the Company.
2. Summary of Significant Accounting Policies & Practices
Property, Plant and Equipment- Property, plant and equipment are carried at
cost. Depreciation is computed using the straight-line method. Amortization of
leasehold improvements is computed over the remaining life of the lease using
the straight-line method. The cost of maintenance and repairs is charged to
expense as incurred. Significant renewals and betterments are capitalized.
Research and Development- Research and development contract revenues are accrued
based upon the successful completion of various benchmarks as set forth in the
individual agreements. Research and development expenditures are expensed as
incurred.
Patents- Patent costs are deferred pending the outcome of patent applications.
Successful patent costs are amortized using the straight-line method over the
lives of the patents. Unsuccessful patent costs are expensed when determined
worthless. As of December 31, 1996, two of the Company's patents had issued in
the U.S. and numerous have issued in various foreign countries. Various other
applications are still pending.
Stock Option Plan- Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of- The
Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
Net Loss per Share- Net loss per share is computed using the weighted average
number of shares outstanding during the period. Stock options and warrants have
not been included in the calculation since the inclusion of such shares would be
anti-dilutive.
Cash Equivalents- The Company considers all highly liquid securities purchased
with an original maturity of three months or less to be cash equivalents.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Related Party Transactions
In connection with loans made to the Company by certain stockholders in 1984 and
1985, which loans were repaid in 1989, the former lenders received options to
purchase 400,950 shares of the common stock of the Company, at prices ranging
from $1.37 to $1.65 per share. During 1994, options to purchase 145,800 shares
of common stock were exercised and options to purchase 72,900 shares of common
stock expired. During 1995, options to purchase 80,750 shares of common stock
were exercised and the remaining options to purchase 101,500 shares of common
stock expired.
During 1994, the Company's stockholders approved the adoption of a stock option
plan for outside directors. This plan replaced a plan previously adopted in
1991. As a result, the outside members of the Board of Directors at that time
were granted options, expiring in 2004, except if the individual is no longer a
director, to purchase shares of the Company's common stock at $3.00 per share.
New outside directors will automatically receive stock options for 30,000 shares
of common stock upon their election to the Board of Directors at a price equal
to the fair market value on the date of grant. At December 31, 1996, options
representing 60,000 shares were outstanding, all of which were exercisable;
however, none have been exercised. In January 1997, a new outside director was
added to the Board of Directors and received options to purchase 30,000 shares
of common stock at an exercise price of $2.81 per share.
Notes payable - stockholders. During 1995, members of the Levy family loaned to
the Company $1,905,000 of which $1,250,000 was classified as current and
$655,000 was classified as long term as of December 31, 1995. The notes
evidencing these loans were issued to Warren P. Levy, Ronald S. Levy and Jay
Levy, officers and directors of the Company, who in the aggregate own 11% of the
Company's outstanding common stock, and a member of their family. These notes
bear interest at the Merrill Lynch Margin Loan Rate plus .25% (8.625% at
December 31, 1996) and $1,850,000 of the aggregate is collateralized by
subordinated security interests in the Company's Fairfield plant and Boonton
equipment. Notes for $1,255,000 were originally payable on demand but in any
event not later than February 10, 1997. Another note for $650,000 was originally
due on February 10, 1997. Under an agreement entered into with the holders of
the 9.5% Senior Secured Convertible Debentures (see Note 5), while any amounts
are outstanding under these debentures, an aggregate of only $1,250,000 of these
loans may be repaid by the Company over time based upon the achievement of
certain corporate benchmarks. The benchmarks and their associated repayments
include $250,000 payable upon the occurrence of each of the following: (1)
achievement of GMP status for the peptide production facility, (2) the filing of
an injectable calcitonin IND and (3) the filing of an oral calcitonin IND. In
addition, there is a $500,000 repayment associated with the signing of a
contract with a strategic marketing partner. The first two benchmarks were
achieved during 1996, and a total of $440,000 of these loans were repaid. Since
management expects the remaining two benchmarks to be achieved during 1997,
$810,000 of these loans has been classified as short-term as of December 31,
1996. The repayment schedule for the remaining $655,000 in notes is subject to
negotiation after the signing of a contract with a strategic marketing partner.
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31, 1996
and 1995:
Estimated
Depreciable
1996 1995 Lives
---------- ---------- -----------------------
Building and
improvements $ 1,373,975 $ 1,373,975 25 years
Leasehold improvements 8,452,630 8,437,674 Remaining Life of Lease
Manufacturing equipment 3,522,364 3,420,757 10 years
Laboratory equipment 2,466,591 2,332,272 5 years
Other equipment 466,523 466,523 10 years
Office equipment and
furniture 244,428 179,574 5 years
----------- -----------
16,526,511 16,210,775
Less accumulated
depreciation and
amortization 6,291,608 4,818,923
----------- -----------
10,234,903 11,391,852
Land 121,167 121,167
----------- ----------
$10,356,070 $11,513,019
=========== ===========
Depreciation and amortization expense on property, plant and equipment was
$1,473,000, $1,437,000 and $531,000 in 1996, 1995 and 1994, respectively.
5. Convertible Debentures
In March 1996, a secured $3,300,000 loan (see Note 6) was exchanged for 9.5%
Senior Secured Convertible Debentures of an equal principal amount. These
debentures mature November 15, 1998 and are convertible into shares of Common
Stock. The initial conversion rate was $1.15 per share, subject to certain reset
provisions. In October 1996, the conversion rate was reset to $1.12 per share.
Through December 31, 1996, $2,016,600 of principal amount of these debentures
had been converted into approximately 1,778,000 shares of Common Stock.
In March 1996, the Company completed a private placement of $9.08 million
aggregate principal amount of 10% Convertible Debentures. The Company received
net proceeds of approximately $8.1 million as a result of this placement. These
debentures mature March 4, 1999. The 10% Debentures are convertible into shares
of Common Stock at a conversion rate determined by dividing the principal amount
to be converted, plus accrued interest, by the lower of $2.00 or 85% of the
average closing bid price as reported on Nasdaq for the ten trading days
immediately preceding the date of
conversion. Through December 31, 1996, $8,230,000 of principal amount of these
debentures, plus $270,000 of accrued interest, had been converted into
approximately 4,404,000 shares of Common Stock. The placement agent, in
connection with the issuance of these debentures, received a five-year warrant
to purchase 454,000 shares of the Company's common stock at $2.10 per share as
partial compensation for services rendered.
6. Note Payable - Other
Represents a $3.3 million debt financing received in November and December 1995
from two unrelated third parties. A total of $2.2 million was used to pay off
other short-term debt plus accrued interest. This note was secured by all of the
Company's assets and accrued interest at the rate of 9.5% per annum. The note
was due in February, 1996. However, on March 6, 1996 the note was exchanged for
Senior Secured Convertible Debentures with interest at the rate of 9.5% per
annum, secured by all of the Company's assets, maturing in 1998. See Note 5.
7. Lease
The Company is obligated under a 10 year net-lease which began in February 1994
for its manufacturing facility located in Boonton, New Jersey. The Company has
two 10-year renewal options as well as an option to purchase the facility. Total
future minimum rentals under this noncancelable operating lease as of December
31, 1996 are as follows:
YEAR RENT
---- ----
1997 $ 185,323
1998 185,323
1999 185,323
2000 185,323
2001 185,323
Thereafter 386,086
-------
$1,312,701
==========
Total rent expense for 1996, 1995 and 1994 was $185,000, 185,000, and $140,000,
respectively.
8. Stockholders' Equity
In October 1994, the Company entered into an agreement with a consultant whose
compensation for its services included the issuance of warrants, exercisable at
$3.00 per share, for the purchase of 1,000,000 shares of Common Stock. During
1995, these warrants were sold by the consultant to an unrelated third party. No
proceeds were received by the Company in connection with this transaction. These
warrants were to expire in April 1997, but have been extended to October 1998.
During 1996, another consultant's compensation included warrants to purchase a
total of 400,000 shares of Common Stock at exercise prices ranging from $1.63 to
$3.50 per share. These warrants expire in April 2001. Compensation expense
recognized as a result of the above was $180,000.
In October 1996, the Company completed a private placement of 4,218,804 Units at
a price of $1.75 per Unit. Each Unit consists of (i) one share of Common Stock,
(ii) one quarter of a Class C warrant, (each whole Class C warrant is
exercisable immediately to purchase one share of Common Stock) and (iii) one
quarter of a Class D warrant, (each whole Class D warrant is exercisable
immediately to purchase one share of Common Stock). The Class C and Class D
warrants are referred to together as the "Warrants". The Warrants have an
initial exercise price of $3.00 per share and expire on October 11, 1999, except
that the expiration date of the Class C warrants may be accelerated under
certain circumstances. In addition, the Warrants contain certain adjustment and
antidilution provisions which, upon the occurrence of certain events, may
require the Company to adjust the exercise price of the Warrants and to issue
additional shares of Common Stock upon the exercise thereof. The fee paid to the
placement agent in the transaction consisted of an additional 296,935 Units in
lieu of cash compensation. The net proceeds to the Company were approximately $7
million.
During 1996, an aggregate of $10.2 million in convertible debentures, plus
$270,000 of accrued interest, was converted into approximately 6.2 million
shares of Common Stock. See Note 5.
In connection with the issuance of stock and of debt during 1995 and 1996, the
Company issued an aggregate of 4,539,000 stock purchase warrants, expiring from
1999 to 2001, exercisable at prices ranging from $1.38 to $3.00 per share. These
warrants are in addition to the 1,400,000 warrants discussed above. The exercise
prices of the warrants were at or above the fair market value of the common
stock at their dates of issue.
From January through March 1996, the Company sold in private placements an
aggregate of 371,000 shares of Common Stock, receiving net proceeds of $340,000.
The Company previously had outstanding 5,594,069 Class B Warrants, exercisable
to purchase 7,982,177 shares of Common Stock, which expired unexercised on
September 10, 1996.
9. Stock Option Plans
Under the Unigene Laboratories, Inc. 1984 Non-Qualified Stock Option Plan for
Selected Employees (the "1984 Plan"), 2,916,000 shares of Common Stock were
reserved for issuance upon the exercise of options granted. Each option granted
expires no later than the tenth anniversary of the date of its grant. The 1984
Plan terminated in November 1994; however, 236,150 options previously granted
continue to be outstanding and exercisable under that plan.
During 1994 the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company are
eligible to participate in the 1994 Plan, including executive officers
and directors who are employees of the Company. The 1994 Plan is being
administered by the Employee Stock Option Committee which selects the employees
to be granted options, fixes the number of shares to be covered by the options
granted and determines the exercise price and other terms and conditions of each
option. A maximum of 1,500,000 shares of Common Stock is reserved for issuance
under the 1994 Plan. Options granted under the 1994 Plan will continue in effect
for a maximum of ten (10) years from the date granted. The purchase price of the
shares issuable upon the exercise of each option cannot be less than the fair
market value of the Common Stock at the time the option is granted. The 1994
Plan will terminate on June 16, 2004, unless earlier terminated.
Transactions under the plans are as follows:
Option
Options Price
Outstanding Per Share
----------- -----------
January 1, 1994 471,250 $1.00-$5.00
----------- ------------
1994: Granted 447,350 $2.38-$3.25
Cancelled ( 9,750)
Exercised ( 9,450) $1.19-$2.75
----------- ------------
December 31, 1994 899,400 $1.00-$5.00
----------- ------------
1995: Granted 582,750 $1.44-$2.69
Cancelled (590,750)
Exercised (12,000) $1.50
----------- ------------
December 31, 1995 879,400 $1.00-$3.00
----------- ------------
1996: Granted 818,500 $1.88-$3.13
Cancelled ( 58,200)
Exercised (140,385) $1.00-$1.63
----------- ------------
December 31, 1996 1,499,315 $1.00-$3.00
----------- ------------
As of December 31, 1996, options to purchase 72,750 shares were available for
grant under the 1994 Plan and options for 963,065 shares were exercisable under
the 1994 and 1984 plans.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation", and applies APB Opinion No. 25 in
accounting for its plans and, accordingly, has not recognized compensation cost
for stock options in its financial statements. Had the Company determined
compensation cost based on the fair value at the grant date consistent with the
provisions of SFAS 123, the Company's net income would have been changed to the
pro forma amounts indicated below:
1996 1995
------------ ------------
Net loss - as reported $(10,597,099) $( 9,434,871)
Net loss - pro forma $(12,054,647) $(10,050,222)
Net loss per share - as reported $ (.38) $ (.44)
Net loss per share - pro forma $ (.43) $ (.46)
The fair value of the stock options granted in 1995 and 1996 is estimated at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1995 and 1996; dividend yield of 0%; expected
volatility of 62%; a risk-free interest rate of 6.5%; and expected lives of 6
years.
During 1993, a consultant received options to purchase 5,000 shares of the
Company's common stock at $4.56 per share, all of which options are currently
exercisable. During 1995, the Company granted to a consultant a stock option to
purchase 10,000 shares of the Company's Common Stock exercisable at $1.44 per
share. None of these options have been exercised. In addition, another
consultant will receive 10,000 shares of the Company's common stock when certain
conditions are met.
In addition, at December 31, 1996, there were 60,000 options outstanding and
shares reserved under agreements referred to in Note 3.
10. Income Taxes
As of December 31, 1996, the Company had available for income tax reporting
purposes net operating loss carryforwards in the amount of approximately
$44,000,000, expiring from 1997 through 2011, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has investment tax credits and research and development
credits in the amounts of $64,000 and $1,454,000, respectively, which are
available to reduce the amount of future federal income taxes. These credits
expire from 1997 through 2011.
The Company follows Statement of Financial Accounting Standards No. 109 (FASB
109), "Accounting for Income Taxes." Given the Company's past history of
incurring operating losses, any deferred tax assets that are recognizable under
FASB 109 have been fully reserved. As of December 31, 1996 and 1995, under FASB
109, the Company had deferred tax assets of approximately $19,200,000 and
$15,100,000, respectively, subject to valuation allowances of $19,200,000 and
$15,100,000, respectively. The deferred tax assets were generated primarily as a
result of the Company's net operating losses and tax credits generated.
11. Employee Benefit Plan
The Company, in 1989, implemented a deferred compensation plan covering all
full-time employees. The plan allows participants to defer a portion of their
compensation on a pre-tax basis pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended, up to a maximum for each employee of $9,500
for 1996 and $9,240 for both 1995 and 1994.
12. Research and Licensing Revenue
In September 1989, the Company executed a letter of intent with Berlex
Laboratories, Inc., a subsidiary of Schering A.G. The letter of intent was
terminated in June 1990 and a final payment of $250,00 was received and included
in Licensing and Other Revenue in 1994. The Company has no further obligations
under this letter of intent.
In June 1995, the Company entered into a joint venture agreement effective as of
March 1996, with the Qingdao General Pharmaceutical Company and its Huanghai
factory for the production and marketing of Calcitonin in China. Under the
agreement, the Chinese partners will finance the project, including the
construction and operation of a dedicated manufacturing facility in China which
will utilize the non-proprietary aspects of the Company's production technology.
Unigene will provide the joint venture with technology and training as well as
the Company's proprietary enzyme at a discounted price. Unigene will receive a
combination of fixed fees and annual royalties based upon sales of the end
product. In 1996, the Company recognized revenues of $300,000 from this
agreement. There is no assurance that this joint venture will be successful or
that Unigene will receive significant income from the joint venture.
13. Subsequent Events
The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 1996 had an accumulated deficit of $44,300,000. The
Company's cash requirements have increased by approximately $2.5-$3 million per
year with the opening of its peptide manufacturing facility. Management believes
that the Company has sufficient financial resources to sustain its operations at
the current level through at least the second quarter of 1997. The Company will
require additional funds through financing or licensing agreements to ensure
continued operations beyond that time. Managment is actively seeking licensing
and/or supply agreements with pharmaceutical companies. The Company is currently
developing two calcitonin products (an oral version and an injectable version)
for which it is seeking licensing partners. The signing of one or more
agreements will be necessary to fund operations and to repay its loans and
interest thereon when due. In the absence of or the delay in signing such
agreements, obtaining adequate financing would be necessary. However, there is
no assurance that sufficient funds will be obtained. The Company believes that
the implementation of a licensing transaction will satisfy the Company's
liquidity requirements over the short-term. Satisfying the Company's long-term
liquidity requirements will require the successful commercialization of one or
more of its Calcitonin products.
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth information with respect to the six directors of
the Company:
Served
Continuously
Name Age as Director Since
- ---- --- -----------------
Warren P. Levy (1)(2) 45 1980
Ronald S. Levy (1)(3) 48 1980
Jay Levy (1)(4) 73 1980
Robert F. Hendrickson (5) 64 1997
Robert G. Ruark (6) 55 1993
George M. Weimer (7) 78 1984
- ---------------------
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the sons of
Mr. Jay Levy. Drs. Levy and Mr. Levy are the Company's only executive officers.
(2) Dr. Warren P. Levy, a founder of the Company, has served as President, Chief
Executive Officer and Director of the Company since its formation in November
1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from
Northwestern University and a bachelor's degree in chemistry from the
Massachusetts Institute of Technology.
(3) Dr. Ronald S. Levy, a founder of the Company, has served as Vice President
and Director of the Company since its formation in November 1980 and as
Secretary since May 1986. Dr. Levy holds a Ph.D. in bioinorganic chemistry from
Pennsylvania State University and a bachelor's degree in chemistry from Rutgers
University.
(4) Mr. Jay Levy, a founder of the Company, has served as Chairman of the Board
of Directors and Treasurer of the Company since its formation in November 1980.
Mr. Levy is a part time employee of the Company and devotes approximately 15% of
his time to the Company. From 1985 through February 1991, he served as the
principal financial advisor to the Estate of Nathan Cummings and its principal
beneficiary, The Nathan Cummings Foundation, Inc., a large charitable
foundation. For the seventeen years prior thereto, he performed similar services
for the late Nathan Cummings, a noted industrialist and philanthropist.
(5) Mr. Robert F. Hendrickson has been a director since January 1997. Mr.
Hendrickson was Senior Vice President, Manufacturing and Technology, for Merck &
Co., Inc., an international pharmaceutical company, from 1985 to 1990. Since
1990, Mr. Hendrickson has been a management consultant with a number of
biotechnology and pharmaceutical companies among his clients. He is currently
Chairman of the Board of Envirogen, Inc. an environmental biotechnology company,
and a director of Cytogen, Inc. and The Liposome Co., Inc., both of which are
biotechnology companies.
(6) Mr. Robert G. Ruark has been an independent consultant since June 1993.
Prior thereto, he had been employed by Merck and Co., Inc., an international
pharmaceutical company, for 25 years in legal and administrative capacities. Mr.
Ruark, an attorney, has extensive experience in international licensing and
business development. When he retired in 1993, Mr. Ruark was Vice President of
the Merck Human Health Division.
(7) Mr. George M. Weimer has been an independent general partner and director of
Westford Technology Ventures L.P., a venture capital investment company, since
May 1988. For more than 40 years prior thereto, Mr. Weimer worked in various
administrative capacities for divisions and subsidiaries of Merck & Co., Inc.
and E.R. Squibb & Sons, both of which are major international pharmaceutical
companies. When he retired in 1984, Mr. Weimer was Senior Vice
President-Administration for Merck Sharp & Dohme International Pharmaceuticals,
Inc., a position he had held since 1981. Since 1984, he has served as a
pharmaceutical consultant for the Company and, from time to time, for other
corporations.
Information concerning the Executive Officers of the Registrant is included in
Item I of Part I above, in the section entitled "Executive Officers of the
Registrant".
Item 11. Executive Compensation.
REPORT OF THE BOARD OF DIRECTORS ON 1996 EXECUTIVE COMPENSATION
The entire Board of Directors was responsible for determining the 1996
compensation of the three executive officers of the Company. This Report
describes the policies and other considerations used by the Board in
establishing such compensation.
The Board has familiarized itself with various forms and types of remuneration
from reports of other public corporations and their own business experience.
The Board has determined that, because the Company was still in a research and
preproduction phase in 1996, compensation for 1996 for executive officers could
not be related primarily to the performance of the Company's stock or to the
annual profit performance of the Company. A primary consideration for the
compensation of an executive officer of the Company is his leadership effort in
the development of proprietary products and processes, and in planning for
future growth and profitability. Other significant factors considered by the
Board of Directors in determining executive officers' compensation were salaries
paid by other public companies in the health-care related biotechnology field to
comparable
officers, the duties and responsibilities of the executive officers in the past
and as projected, their past performance and commitment to the Company, and
incentives for future performance. The executive officers were also consulted
with respect to their compensation and their plans for compensation for other
personnel in order to coordinate all compensation policies of the Company.
The Board of Directors determined that no bonuses or salary increases should be
paid to executive officers in 1996, primarily on the basis of the Company's
losses and the projected expenses and cash flow required for the further
development and clinical trials for the Company's calcitonin pill as well as the
regulatory expenses and clinical trials for the Company's injectable form of
calcitonin.
The Board also determined that no stock options be awarded to executive officers
for 1996, at the request of such executive officers.
The compensation for the Chief Executive Officer for 1996 was based on the same
policies and considerations set forth above for executive officers generally.
Warren P. Levy
Ronald S. Levy
Jay Levy
Robert G. Ruark
George M. Weimer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation for 1996 was determined by the Board of Directors of the
Company consisting of Messrs. Warren P. Levy, Ronald S. Levy, Jay Levy, Robert
G. Ruark, and George M. Weimer.
Three of the members of the five member Board of Directors, Warren P. Levy,
Ronald S. Levy and Jay Levy, are executive officers of the Company. Jay is the
father of Warren and Ronald Levy. The other directors were outside directors
unrelated to the executive officers.
During 1995, Warren P. Levy, Ronald S. Levy, and Jay Levy, officers and
directors of the Company, and a member of their family loaned a total of
$1,905,000 to the Company of which $1,850,000 was secured by secondary liens on
the Fairfield plant and equipment and the Boonton manufacturing equipment. The
notes bear interest at the Merrill Lynch Margin Loan Rate plus .25% (8.625% at
February 28, 1997). Under the terms of the Company's 9.5% Senior Secured
Convertible Debentures, while any amounts are outstanding under the debentures,
an aggregate of only $1,250,000 of the Levy family loans is payable over time
based upon the achievement of certain corporate benchmarks. $440,000 was repaid
to the Levy family during 1996. See Note 3 to the Financial Statements.
EXECUTIVE COMPENSATION
The following table sets forth for the years 1996, 1995 and 1994 compensation
paid or awarded to the Chief Executive Officer of the Company and to each other
executive officer whose remuneration from the Company exceeded $100,000 during
1996 in all capacities in which they served:
SUMMARY COMPENSATION TABLE
All Other
Annual Compensation Long Term Compensation Compensation(1)
----------------- ----------------------- -------------
Awards Payouts
------ -------
Other Restricted
Name and Annual Stock Options/ LTIP
Principal Position Year Salary Bonus Compensation Award SARs Payouts
- ------------------ ---- ------ ----- ------------ ----- ---- ------- ------------
Warren P. Levy, 1996 $145,454 $-0 $-0- $-0- $-0- $-0- $ 13,806
President, Chief 1995 145,394 -0- -0- -0- -0- -0- 13,811
Executive Officer 1994 145,344 -0- -0- -0- -0- -0- 12,942
and Director
Dr. Ronald S. Levy, 1996 140,889 -0- -0- -0- -0- -0- 16,746
Vice President and 1995 140,829 -0- -0- -0- -0- -0- 16,616
Director 1994 140,716 -0- -0- -0- -0- -0- 13,914
(1) Represents premium on executive split-dollar life insurance.
The Company has installed a split-dollar life insurance program in the
amount of $1,000,000 on the lives of each of Dr. Warren P. Levy and Dr.
Ronald S. Levy. If all actuarial assumptions are correct, there will be
no termination costs to the Company. Should there be a premature death,
there may be a gain realized by the Company.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return of the NASDAQ Market Index and of a peer group index
determined by Standard Industrial Classification (SIC) code.
[GRAPHIC -- GRAPH PLOTTED TO POINTS IN CHART BELOW]
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
UNIGENE LABS INC 100 101.52 60.61 57.58 31.82 49.24
INDUSTRY INDEX 100 82.68 68.63 46.07 89.42 79.54
BROAD MARKET 100 100.98 121.13 127.17 164.96 204.98
The industry index chosen was:
SIC Code 8731 - Commercial Physical & Biological Research
The Broad Market index chosen was:
NASDAQ Market Index
The current composition of the industry index is as follows:
Abiomed Inc. KFX Inc.
AC Nielsen Corp. Kopin Corp.
Affymetrix Inc. Krug Internat Corp
Amerigon Inc. CL A Life Medical Science Inc.
Aura Systems Inc. Lifecell Corporation
Avigen Inc. Liposome Co. Inc.
Cadus Pharmaceutical CP Myriad Genetics Inc.
Catalytica Inc. Neopharm Inc.
Celgene Corp. Neose Technologies Inc.
Cocensys Inc. Neotherapeutics Inc.
Collaborative Clin Res Neurocrine Biosciences
Conductus Inc. Organogenesis Inc.
Core Laboratories N.V. Pacific Biometrics Inc.
Covance Inc. Parexel Internat CP
Cree Research Inc. Pharmaceutical Prod Dev
CV Therapeutics Inc. Pharmacopeia Inc.
Cyclo 3 PSS Corp. Polymer Research of Amer
Ecogen Inc. Primark Corp.
Ecoscience Corp. Protein Polymer Tech
Electronic Designs Inc. Quintiles Transational
Electrosource Inc. Research Frontiers Inc.
Energy Biosystems Corp. Satcon Technology Corp.
Energy Conversn Devices SI Diamond Technol
Excel Technology Inc. Spire Corp.
Fiberchem Inc. Summit Technology Inc.
Genset ADR Superconductor Tech.
Illinois Superconductor Synaptic Pharmaceutical
Incyte Pharmaceuticals Valence Technology Inc.
Innerdyne Inc. Xenova GR PLC ADS
Integrated Process Equip. XXSYS Technologies Inc.
Irvine Sensors Corp.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL STOCKHOLDERS
As of February 28, 1997 the following were the only beneficial owners of the
Company's voting securities known to hold more than 5 percent of the outstanding
shares of Common Stock. The Company has no other class of voting securities
outstanding.
Name and Address of Amount of Beneficial Percentage of
Beneficial Owner Ownership Outstanding Shares
- --------------------- --------------------- -------------------
Warren P. Levy (1) 1,711,700 4.7%
110 Little Falls Road
Fairfield, NJ 07004
Ronald S. Levy (1) 1,726,700 4.8%
110 Little Falls Road
Fairfield, NJ 07004
Loews Corporation (2) 3,000,000 (3) 8.0%
CNA Plaza
Chicago, IL 60685
- -------------------
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy, together with their father, Mr.
Jay Levy whose shares are set forth in the next table, beneficially own
4,078,350 shares of the Company's Common Stock, including shares owned by a
trust in which they have pecuniary interests, or 11% of the outstanding shares.
See also footnotes 1 and 2 to the next table.
(2) Loews Corporation holds in excess of 84% of the equity of CNA Financial
Corporation. CNA Financial Corporation owns 100% of the equity of Continental
Casualty Corporation, which is the direct holder of the securities.
(3) Includes warrants to purchase 1,000,000 shares of the Company's Common Stock
which are exercisable immediately.
SECURITY OWNERSHIP OF MANAGEMENT
On February 28, 1997 the directors listed below and all officers and directors
as a group beneficially owned the following equity securities of the Company,
including options to purchase shares of Common Stock of the Company.
Common Stock of the Company
-----------------------------------
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1) Class
- ---------------- ----------------------- ----------
Warren P. Levy 1,711,700 (2) 4.7%
Ronald S. Levy 1,726,700 (2) 4.8%
Jay Levy 439,950 (2) 1.2%
Robert F. Hendrickson 15,000 -
Robert G. Ruark 30,000 (3) 0.1%
George M. Weimer 30,000 (4) 0.1%
Officers and Directors
as a Group (5 persons) 3,953,350 (2)(5) 10.9%
- -----------------
(1) Unless otherwise noted, all officers, directors and principal stockholders
have sole voting and investment power with respect to securities beneficially
owned by them.
(2) In addition, 200,000 shares of Common Stock, representing approximately .5%
of the total outstanding, is held by a trust. Jay Levy and members of his
immediate family, including his two sons, Warren P. Levy and Ronald S. Levy,
have pecuniary interests in the trust. As a result, each of such persons may be
deemed to be the beneficial owner of shares held by the trust. Warren P. Levy,
his wife and Ronald S. Levy are co-trustees of the trust.
(3) Consists solely of shares of Common Stock which Mr. Ruark has the right to
acquire pursuant to stock options which are exercisable immediately.
(4) Consists solely of shares of Common Stock which Mr. Weimer has the right to
acquire pursuant to stock options which are exercisable immediately.
(5) Includes an aggregate of 60,000 shares of Common Stock which such persons
have the right to acquire pursuant to stock options which are exercisable
immediately.
Item 13. Certain Relationships and Related Transactions.
Information concerning the Executive Officers of the Registrant is included in
Item 11 of Part III above, in the section entitled "Compensation Committee
Interlocks and Insider Participation".
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(2). Financial Statement Schedules.
None.
(b) Exhibits.
See Index to Exhibits which appears on Pages 42 and 43.
(c) Reports on Form 8-K:
October 11, 1996 (completion of sale of units, including a pro
forma balance sheet as of August 31, 1996, showing the
financial effect of the offering).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNIGENE LABORATORIES, INC.
March 27, 1997 /s/ Warren P. Levy
-----------------------------
Warren P. Levy, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
March 27, 1997 /s/ Warren P. Levy
-----------------------------
Warren P. Levy, President,
Chief Executive Officer and
Director
March 27, 1997 /s/ Jay Levy
-----------------------------
Jay Levy, Treasurer,
Chief Financial Officer, Chief
Accounting Officer and Director
March 27, 1997 /s/ Ronald S. Levy
-----------------------------
Ronald S. Levy, Secretary,
Vice President and Director
March 27, 1997 /s/ Robert F. Hendrickson
-----------------------------
Robert F. Hendrickson,
Director
March 27, 1997 /s/ Robert G. Ruark
-----------------------------
Robert G. Ruark, Director
/s/ George M. Weimer
March 27, 1997 -----------------------------
George M. Weimer, Director
INDEX TO EXHIBITS
-----------------
3.1(1) Certificate of Incorporation and Amendments to July 1, 1986.
3.1.1(1) Amendments to Certificate of Incorporation filed July 29, 1986 and
May 22, 1987.
3.2 By-Laws. Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement No. 33-04557 on Form S-3.
4.1.1(1) Amended Proposed Form of Warrant Agreement, Specimen Class A Warrant
and Specimen Class B Warrant.
4.1.2 Warrant Agreement, dated October 11, 1996, among the Company, BT
Securities Corporation and the purchasers named therein
(incorporated by reference to Exhibit 2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
4.2(1) Specimen Certificate for Common Stock, par value $.01 per share.
10.2(3) Lease agreement between the Company and Fulton Street Associates,
dated May 20, 1993.
10.6(1) Agreement between the Company and George M. Weimer dated February
10, 1984.
10.7 1994 Employee Stock Option Plan which is incorporated by reference
to the Company's Definitive Proxy Statement dated April 28, 1994,
which is set forth as Appendix A to Exhibit 28 to the Company's Form
10-K for the year ended December 31, 1993.
10.8 1994 Outside Directors Stock Option Plan which is incorporated by
reference to the Company's Definitive Proxy Statement dated April
28, 1994 which is set forth as Appendix B to Exhibit 28 to the
Company's Form 10-K for the year ended December 31, 1993.
10.9(4) Mortgage and Security Agreement between the Company and Jean Levy
dated February 10, 1995.
10.10(4) Loan and Security Agreement between the Company and Jay Levy, Warren
P. Levy and Ronald S. Levy dated March 2, 1995.
10.11(1) Non-Competition Agreements with Warren P. Levy and Ronald S. Levy
dated May 29, 1987.
10.14(2) Split Dollar Agreement dated September 30, 1992 between Unigene
Laboratories, Inc. and Warren P. Levy.
10.15(2) Split Dollar Agreement dated September 30, 1992 between Unigene
Laboratories, Inc. and Ronald S. Levy.
10.16(4) Loan and Security Agreement between the Company and Dejufra, Inc.
dated March 15, 1995.
10.17 Consulting Agreement, dated October 25, 1994, between the Company
and Broad Capital Associates, Inc., which is incorporated by
reference as Exhibit 1 to the Company's Form 10-Q for the period
ended September 30, 1994.
10.18(4) Amendment to Loan Agreement and Security Agreement between the
Company and Jay Levy, Warren P. Levy and Ronald S. Levy dated March
20, 1995.
10.19(5) Amended and Restated Securities Purchase Agreement dated March 6,
1996 by and among Olympus Securities, Ltd., Nelson Partners and
Unigene Laboratories, Inc.
10.20(5) Regulation S Securities Subscription Agreement.
10.20.1(5) Registration Rights Agreement between the Company and Swartz
Investments, LLC dated March 12, 1996.
10.21(5) Amendment to Loan and Security Agreement between the Company and Jay
Levy, Warren P. Levy and Ronald S. Levy dated June 29, 1995.
10.22(5) Promissory Note between the Company and Jay Levy, Warren P. Levy and
Ronald S. Levy dated June 29, 1995.
10.23 Registration Rights Agreement, dated October 11, 1996, among the
Company, BT Securities Corporation and the purchasers named therein
(incorporated by reference to Exhibit 1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
23 Independent Auditor's Consent
27 Financial Data Schedule
(1) Incorporated by reference to the exhibit of same number to the
Company's Registration Statement No. 33-6877 on Form S-1.
(2) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1993.
(4) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to the exhibit of same number to the
Company's Form 10-K for the year ended December 31, 1995.