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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

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 incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|81 Fulton Street, Boonton, New Jersey    |  | 07005     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code: (973) 265-1100

(Former name, former address and former fiscal year, if changed since last report.)





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 whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files:    Yes   ̈    No   ̈.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition
of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x.

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date:

Common Stock, $.01 Par Value90,262,763 shares as of April 30, 2009









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INDEX

UNIGENE LABORATORIES, INC.



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | PAGE
|PART I. FINANCIAL INFORMATION                                                                 |  |     
|                                                                                              | 
|Item 1. Financial Statements (Unaudited)                                                      |  |     
|                                                                                              | 
|Condensed Balance Sheets March 31, 2009 and December 31, 2008                                 |  | 3   
|                                                                                              | 
|Condensed Statements of Operations Three months ended March 31, 2009 and 2008                 |  | 4   
|                                                                                              | 
|Condensed Statement of Stockholders Deficit Three months ended March 31, 2009                |  | 5   
|                                                                                              | 
|Condensed Statements of Cash Flows Three months ended March 31, 2009 and 2008                 |  | 6   
|                                                                                              | 
|Notes to Condensed Financial Statements                                                       |  | 7   
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 19  
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 26  
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 27  
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |     
|                                                                                              | 
|Item 1 A. Risk Factors                                                                        |  | 27  
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 30  
|                                                                                              | 
|SIGNATURES                                                                                    |  | 31  
|                                                                                              | 
|INDEX OF EXHIBITS                                                                             |  | 32  



2



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

UNIGENE LABORATORIES, INC.

CONDENSED BALANCE SHEETS



|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                                                                                                                      |  | March 31, 2009 |              |   | December 31, 2008 |  
|                                                                                                                                                      |  | (Unaudited)    |              |   |                   |  
|ASSETS                                                                                                                                                |  |                |              |   |                   |   |              |  
|Current assets:                                                                                                                                       |  |                |              |   |                   |   |              |  
|Cash and cash equivalents                                                                                                                             |  | $              | 4,424,479    |   |                   | $ | 8,583,226    |  
|Accounts receivable                                                                                                                                   |  |                | 3,024,864    |   |                   |   | 4,635,036    |  
|Inventory, net                                                                                                                                        |  |                | 3,134,517    |   |                   |   | 3,180,019    |  
|Prepaid interest                                                                                                                                      |  |                |             |   |                   |   | 525,000      |  
|Prepaid expenses and other current assets                                                                                                             |  |                | 3,484,758    |   |                   |   | 1,994,077    |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total current assets                                                                                                                                  |  |                | 14,068,618   |   |                   |   | 18,917,358   |  
|                                                                                                                                                      |  |               
|Noncurrent inventory                                                                                                                                  |  |                | 2,931,208    |   |                   |   | 1,649,690    |  
|Property, plant and equipment, net                                                                                                                    |  |                | 3,970,395    |   |                   |   | 4,023,434    |  
|Patents and other intangibles, net                                                                                                                    |  |                | 2,098,422    |   |                   |   | 2,064,182    |  
|Investment in joint venture                                                                                                                           |  |                | 1,530,302    |   |                   |   | 1,447,418    |  
|Deferred financing costs, net                                                                                                                         |  |                | 350,714      |   |                   |   | 385,787      |  
|Other assets                                                                                                                                          |  |                | 204,638      |   |                   |   | 153,110      |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total assets                                                                                                                                          |  | $              | 25,154,297   |   |                   | $ | 28,640,979   |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                 |  |                |              |   |                   |   |              |  
|Current liabilities:                                                                                                                                  |  |                |              |   |                   |   |              |  
|Accounts payable                                                                                                                                      |  | $              | 748,637      |   |                   | $ | 708,134      |  
|Accrued expenses                                                                                                                                      |  |                | 1,933,851    |   |                   |   | 2,038,902    |  
|Current portiondeferred licensing fees                                                                                                               |  |                | 1,256,756    |   |                   |   | 1,256,756    |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total current liabilities                                                                                                                             |  |                | 3,939,244    |   |                   |   | 4,003,792    |  
|Notes payableLevys                                                                                                                                   |  |                | 15,737,517   |   |                   |   | 15,737,517   |  
|Note payableVictory Parknet of discount of $1,396,872 in 2009 and $1,536,561 in 2008                                                                |  |                | 13,140,334   |   |                   |   | 13,463,439   |  
|Accrued interest  principally to Levys                                                                                                               |  |                | 2,435,843    |   |                   |   | 2,094,973    |  
|Accrued expenses, excluding current portion                                                                                                           |  |                | 277,908      |   |                   |   | 370,544      |  
|Deferred licensing fees, excluding current portion                                                                                                    |  |                | 10,411,879   |   |                   |   | 10,726,069   |  
|Deferred compensation                                                                                                                                 |  |                | 378,163      |   |                   |   | 371,146      |  
|Due to joint venture partner, net of discount of $109,866 in 2009 and $129,043 in 2008                                                                |  |                | 865,134      |   |                   |   | 845,957      |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total liabilities                                                                                                                                     |  |                | 47,186,022   |   |                   |   | 47,613,437   |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Commitments and contingencies                                                                                                                         |  |                |              |   |                   |   |              |  
|Stockholders deficit:                                                                                                                                |  |                |              |   |                   |   |              |  
|Common Stockpar value $.01 per share, authorized 135,000,000 shares, issued and outstanding: 90,262,763 shares in 2009 and 90,195,520
shares in 2008 |  |                | 902,628      |   |                   |   | 901,955      |  
|Additional paid-in capital                                                                                                                            |  |                | 109,673,044  |   |                   |   | 109,457,677  |  
|Accumulated deficit                                                                                                                                   |  |                | (132,607,397 | ) |                   |   | (129,332,090 | )
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total stockholders deficit                                                                                                                           |  |                | (22,031,725  | ) |                   |   | (18,972,458  | )
|                                                                                                                                                      |  |                |              |   |                   |   |              |  
|Total liabilities and stockholders deficit                                                                                                           |  | $              | 25,154,297   |   |                   | $ | 28,640,979   |  
|                                                                                                                                                      |  |                |              |   |                   |   |              |  

See notes to condensed financial statements.



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UNIGENE LABORATORIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                  |  |                              |            |   |      |   |            |  
|----------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                  |  | Three months ended March 31, |           
|                                                                  |  | 2009                         |            |   | 2008 |  
|Revenue:                                                          |  |                              |            |   |      |   |            |  
|Product sales                                                     |  | $                            | 1,309,453  |   |      | $ | 2,652,454  |  
|Royalties                                                         |  |                              | 1,326,155  |   |      |   | 1,138,363  |  
|Licensing revenue                                                 |  |                              | 314,190    |   |      |   | 314,190    |  
|Development fees and other                                        |  |                              | 241,618    |   |      |   | 209,091    |  
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|                                                                  |  |                              | 3,191,416  |   |      |   | 4,314,098  |  
|                                                                  |  |                              |            |   |      |   |            |  
|Operating expenses:                                               |  |                              |            |   |      |   |            |  
|Research, development and facility expenses                       |  |                              | 2,686,717  |   |      |   | 2,124,855  |  
|Cost of goods sold                                                |  |                              | 478,370    |   |      |   | 1,589,794  |  
|General and administrative                                        |  |                              | 2,278,945  |   |      |   | 2,146,093  |  
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|                                                                  |  |                              | 5,444,032  |   |      |   | 5,860,742  |  
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Operating loss                                                    |  |                              | (2,252,616 | ) |      |   | (1,546,644 | )
|                                                                  |  |                             
|Other income (expense):                                           |  |                              |            |   |      |   |            |  
|Interest income                                                   |  |                              | 41,726     |   |      |   | 19,281     |  
|Interest expense                                                  |  |                              | (1,065,298 | ) |      |   | (324,812   | )
|Loss from investment in joint venture                             |  |                              | (65,295    | ) |      |   | (1,091     | )
|Gain on technology transfer to joint venture                      |  |                              | 66,176     |   |      |   |           |  
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Loss before income taxes                                          |  |                              | (3,275,307 | ) |      |   | (1,853,266 | )
|                                                                  |  |                             
|Income tax expense                                                |  |                              |           |   |      |   |           |  
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Net loss                                                          |  | $                            | (3,275,307 | ) |      | $ | (1,853,266 | )
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Loss per sharebasic and diluted:                                 |  |                              |            |   |      |   |            |  
|Net loss per share                                                |  | $                            | (0.04      | ) |      | $ | (0.02      | )
|                                                                  |  |                              |            |   |      |   |            |  
|                                                                  |  |                             
|Weighted average number of shares outstanding - basic and diluted |  |                              | 90,080,066 |   |      |   | 87,753,715 |  
|                                                                  |  |                              |            |   |      |   |            |  

See notes to condensed financial statements.



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UNIGENE LABORATORIES, INC.

CONDENSED STATEMENT OF STOCKHOLDERS DEFICIT

Three Months Ended March 31,
2009

(Unaudited)



|                                                                         |                 |              |           |                          |         |                    |   |             |       |   |              |   |  |   |             |  
|------------------------------------------------------------------------ | --------------- | ------------ | --------- | ------------------------ | ------- | ------------------ | - | ----------- | ----- | - | ------------ | - |  | - | ----------- | -
|                                                                         |                 | Common Stock |           | AdditionalPaid-inCapital |         | AccumulatedDeficit |   |             | Total |  
|                                                                         | Number ofShares |              | Par Value |                          |         |                   
|Balance, January 1, 2009                                                 |                 | 90,195,520   |           | $                        | 901,955 |                    | $ | 109,457,677 |       | $ | (129,332,090 | ) |  | $ | (18,972,458 | )
|                                                                         |                 |              |           |                          |        
|Stock issued in lieu of director fees                                    |                 | 67,243       |           |                          | 673     |                    |   | 38,328      |       |   |             |   |  |   | 39,001      |  
|                                                                         |                 |              |           |                          |        
|Recognition of restricted stock compensation expense                     |                 |             |           |                          |        |                    |   | 57,399      |       |   |             |   |  |   | 57,399      |  
|                                                                         |                 |              |           |                          |        
|Recognition of stock option compensation expenseemployees and directors |                 |             |           |                          |        |                    |   | 111,897     |       |   |             |   |  |   | 111,897     |  
|                                                                         |                 |              |           |                          |        
|Recognition of stock option compensation expenseconsultants             |                 |             |           |                          |        |                    |   | 7,743       |       |   |             |   |  |   | 7,743       |  
|                                                                         |                 |              |           |                          |        
|Net loss                                                                 |                 |             |           |                          |        |                    |   |            |       |   | (3,275,307   | ) |  |   | (3,275,307  | )
|                                                                         |                 |              |           |                          |         |                    |   |             |       |   |              |   |  |   |             |  
|                                                                         |                 |              |           |                          |        
|Balance, March 31, 2009                                                  |                 | 90,262,763   |           | $                        | 902,628 |                    | $ | 109,673,044 |       | $ | (132,607,397 | ) |  | $ | (22,031,725 | )
|                                                                         |                 |              |           |                          |         |                    |   |             |       |   |              |   |  |   |             |  

See notes to condensed financial statements.



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UNIGENE LABORATORIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                            |  | Three months ended March 31, |           
|                                                                            |  | 2009                         |            |   | 2008 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                              |            |   |      |   |            |  
|                                                                            |  |                             
|Net loss                                                                    |  | $                            | (3,275,307 | ) |      | $ | (1,853,266 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |            |   |      |   |            |  
|Amortization of deferred revenue                                            |  |                              | (314,190   | ) |      |   | (395,440   | )
|Recognition of non-cash interest expense                                    |  |                              | 174,762    |   |      |   |           |  
|Non-cash equity compensation                                                |  |                              | 216,039    |   |      |   | 139,413    |  
|Depreciation and amortization of long-lived assets                          |  |                              | 173,238    |   |      |   | 138,023    |  
|Increase in accrued interest-stockholders                                   |  |                              | 340,870    |   |      |   | 315,991    |  
|Increase in deferred compensation                                           |  |                              | 7,017      |   |      |   | 2,513      |  
|                                                                            |  |                             
|Changes in operating assets and liabilities:                                |  |                              |            |   |      |   |            |  
|Decrease (increase) in accounts receivable                                  |  |                              | 1,610,172  |   |      |   | (400,791   | )
|Decrease in prepaid interest                                                |  |                              | 525,000    |   |      |   |           |  
|Increase in inventory                                                       |  |                              | (1,236,016 | ) |      |   | (299,204   | )
|(Increase) decrease in other assets                                         |  |                              | (1,543,091 | ) |      |   | 293,469    |  
|(Decrease) increase in accounts payable and accrued expenses                |  |                              | (138,007   | ) |      |   | 540,102    |  
|Increase in deferred revenue                                                |  |                              |           |   |      |   | 50,000     |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in operating activities                                       |  |                              | (3,459,513 | ) |      |   | (1,469,190 | )
|                                                                            |  |                              |            |   |      |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                              |            |   |      |   |            |  
|Investment in joint venture                                                 |  |                              | (82,001    | ) |      |   |           |  
|Construction of leasehold and building improvements                         |  |                              | (3,208     | ) |      |   | (502,035   | )
|Purchase of equipment and furniture                                         |  |                              | (99,520    | ) |      |   | (666,475   | )
|Increase in patents and other intangibles                                   |  |                              | (51,711    | ) |      |   | (69,766    | )
|Decrease in other assets                                                    |  |                              |           |   |      |   | 4,335      |  
|                                                                            |  |                              |            |   |      |   |            |  
|                                                                            |  |                             
|Net cash used in investing activities                                       |  |                              | (236,440   | ) |      |   | (1,233,941 | )
|                                                                            |  |                              |            |   |      |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                       |  |                              |            |   |      |   |            |  
|Repayment of capital lease obligations                                      |  |                              |           |   |      |   | (11,569    | )
|Repayment on note payableVictory Park                                      |  |                              | (462,794   | ) |      |   |           |  
|                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in financing activities                                       |  |                              | (462,794   | ) |      |   | (11,569    | )
|                                                                            |  |                              |            |   |      |   |            |  
|Net decrease in cash and cash equivalents                                   |  |                              | (4,158,747 | ) |      |   | (2,714,700 | )
|Cash and cash equivalents at beginning of period                            |  |                              | 8,583,226  |   |      |   | 3,677,637  |  
|                                                                            |  |                              |            |   |      |   |            |  
|Cash and cash equivalents at end of period                                  |  | $                            | 4,424,479  |   |      | $ | 962,937    |  
|                                                                            |  |                              |            |   |      |   |            |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                         |  |                              |            |   |      |   |            |  
|Cash payments:                                                              |  |                              |            |   |      |   |            |  
|Cash paid for interest                                                      |  |                              |           |   |      | $ | 2,600      |  
|Cash paid for income taxes                                                  |  |                              |           |   |      |   |           |  

See notes to condensed financial statements.



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UNIGENE LABORATORIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

NOTE ABASIS OF PRESENTATION AND RECENT
ACCOUNTING PRONOUNCEMENTS

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, which are of a normal and recurring nature only, have
been included. Operating results for the three-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, please refer to our
financial statements and footnotes thereto included in Unigenes annual report on Form 10-K for the year ended December 31, 2008.

New
Accounting Pronouncements

In November 2008, the Financial Accounting Standard Board (FASB) ratified the Emerging Issues Task Force
(EITF) Issue No. 08-6, Equity Method Investment Accounting Considerations. EITF 08-6 applies to all investments accounted for under the equity method. It states that an entity shall measure its equity investment
initially at cost. Contingent consideration should only be included in the initial measurement of the equity method investment if it is required to be recognized by specific authoritative guidance other than Statement 141(R). However, if any equity
method investment agreement involves a contingent consideration arrangement in which the fair value of the investors share of the investees net assets exceeds the investors initial cost, a liability should be recognized. An equity
method investor is required to recognize other-than-temporary impairments of an equity method investment and shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment. Any gain or loss to
the investor resulting from an investees share issuance shall be recognized in earnings. We adopted EITF 08-6 effective January 1, 2009 and the adoption did not have a significant effect on our financial statements.

In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active
(FSP 157-3). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. We adopted FSP SFAS No. 157-3 effective January 1, 2009 and the adoption did not have a significant effect on our financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162). The statement is intended to improve financial reporting by
identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles (GAAP). Prior to the issuance of SFAS
No. 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. Unlike SAS No. 69, SFAS No. 162 is directed to the entity rather than the auditor. SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight
Board Auditing amendments to AU Section 411. The adoption of SFAS No. 162 is not expected to have any material impact on the Companys results of operations, financial condition or liquidity.



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In April 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 142-3, Determination of the
Useful Life of Intangible Assets. FSP SFAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets. We adopted FSP SFAS No. 142-3 effective January 1, 2009 and the adoption did not have a significant effect on our financial statements.

In December 2007, the EITF issued EITF Issue No. 07-1, Accounting for Collaborative Arrangements. EITF 07-1 provides guidance concerning: determining
whether an arrangement constitutes a collaborative arrangement within the scope of EITF 07-1; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments
on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. We adopted EITF 07-1 effective January 1, 2009 and the adoption did not have a significant effect on our
financial statements because our historical financial statements are in compliance with EITF 07-1.

In September 2006, the FASB issued Statement 157,
Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements. Accordingly, SFAS 157 does not require any new fair value measurements. However, for some entities, the application of SFAS 157 will change current practice. The changes to current
practice resulting from the application of SFAS 157 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. The provisions of SFAS 157 were effective as of
January 1, 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. However, delayed application of this statement was permitted for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal
years. We adopted the remaining provisions of SFAS No. 157 effective January 1, 2009 and the adoption did not have a significant effect on our financial statements.

NOTE BLIQUIDITY

At March 31, 2009, we had cash and cash equivalents of $4,424,000, a decrease of $4,159,000 from
December 31, 2008, and we had working capital of approximately $10,129,000. On September 30, 2008 we entered into a financing agreement with Victory Park Management, LLC (Victory Park) pursuant to which we borrowed $15,000,000
from Victory Park and, in connection therewith, we issued to Victory Park a three-year senior secured non-convertible term note and 1,125,000 shares of our common stock. We received net proceeds of $14,372,000 after fees and closing expenses. We
have the ability to issue an additional $5,000,000 of term notes to Victory Park, under the same terms as the issued notes, by September 30, 2010 (see Note H). Cash received during 2009 was primarily from Fortical sales and royalties received
under our agreement with Upsher-Smith Laboratories, Inc. (USL). Our primary sources of cash have historically been (1) licensing fees for new agreements, (2) milestone payments under licensing or development agreements,
(3) bulk peptide sales under licensing or supply agreements, (4) stockholder loans, (5) the sale of our common stock and (6) since August 2005, Fortical sales and royalties. We cannot be certain that any of these cash sources
will continue to be available to us in future years. Licensing fees from new collaborations are dependent upon the successful completion of complex and lengthy negotiations. Milestone payments are based upon progress achieved in collaborations,
which cannot be guaranteed, and are often subject to factors that are controlled neither by our licensees nor us. Product sales to our partners under these



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agreements are based upon our licensees needs, which are sometimes difficult to predict. Sale of our common stock is dependent upon our ability to
attract interested investors, our ability to negotiate favorable terms and the performance of the stock market in general and biotechnology investments in particular. Future Fortical sales and royalties will be affected by competition and continued
acceptance in the marketplace and could be impacted by manufacturing, distribution or regulatory issues.

We believe that in the short-term we will
generate cash to apply toward funding our operations primarily through sales of Fortical to USL, royalties on USLs sales of Fortical and the achievement of milestones under our existing license agreements and, in the long-term, on sales and
royalties from the sale of Fortical and other licensed products and technologies. We are actively seeking additional licensing and/or supply agreements with pharmaceutical companies for oral and nasal forms of calcitonin, as well as for other
peptides, for our peptide manufacturing technology and for our site-directed bone growth (SDBG) technology. However, we may not be successful in achieving milestones under our current agreements, in obtaining regulatory approval for our
other products or in licensing any of our other products or technologies.

We are engaged in the research, production and delivery of peptide-related
products. Our primary focus has been on the development of manufacturing processes and delivery technologies for various peptide products for the treatment of osteoporosis, including nasal and oral calcitonin and oral PTH. We are also developing
potential products in the areas of SDBG and food reduction. In general, we seek to develop the basic product or technology and then license the product or technology to an established pharmaceutical, biotechnology or medical device company to
complete the development, clinical trials and regulatory process and to market the product. As a result, we will not control the nature, timing or cost of bringing our products and technologies to market. Each of these products and technologies is
in various stages of completion.



| |  |  | For nasal calcitonin, a license agreement was signed in November 2002 with USL. Fortical was approved by the Food and Drug Administration (FDA) and
launched by USL in August 2005, generating sales and royalties.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For oral calcitonin, we have interests in two ongoing programs. An external program for which we have licensed our calcitonin manufacturing technology to Novartis
is currently in Phase III clinical trials. We would receive royalties on any calcitonin product commercialized by Novartis that utilizes our calcitonin manufacturing technology. The anticipated completion date is outside our control. For our
internal program, we are seeking a licensee to participate in our products development. A small, short-term Phase I human study was initiated and successfully concluded in 2007. In 2008, we initiated and successfully concluded a Phase I/II
clinical study for oral calcitonin. The costs of future clinical trials will most likely be borne by a future licensee. Because additional clinical trials are still necessary for our oral calcitonin product, and we have not yet licensed the product,
it is too early to speculate on the probability or timing of a marketable oral calcitonin product. We have incurred expenses in both 2008 and 2009 related to our upcoming Phase III trial and we need a partner to fund the remaining costs of the
trial.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For oral PTH, we signed a license agreement with GSK in April 2002. A Phase I human trial, which commenced in 2004, demonstrated positive preliminary results. A
small, short-term Phase I human study was initiated in October 2008 and successfully completed using our improved oral delivery technology. PTH is in an early stage of development and it is therefore too early to speculate on the probability or
timing of a marketable oral PTH product. We may incur certain additional development costs. GSK may ultimately purchase, and thereby acquire the rights to, our data from our development activities for a fixed purchase price, but we have no
assurances that they will do so.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Under the terms of various agreements related to a joint venture in China with Shijiazhuang Pharmaceutical Group Corporation (SPG) and China
Pharmaceutical Group Limited (CPG), we are obligated to contribute up to $3,150,000 as our initial capital contribution, consisting of $1,050,000 in cash and the balance in certain technologies and know-how which we are licensing to the
joint venture (see Note I).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For our SDBG program, we have conducted various preclinical studies. This program is in a very early stage of development and, therefore, it is too early to
speculate on the probability or timing of a license agreement for this technology or on a possible commercial product.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to our
limited financial resources, any decline in Fortical sales and/or royalties, or delay in achieving milestones under our existing license agreements, or in signing new license or distribution agreements for our products, or loss of patent protection,
may have an adverse effect on our cash flow and operations. In July 2006, we and USL jointly filed a patent infringement lawsuit against Apotex Inc. and Apotex Corp., its U.S. subsidiary (together, Apotex), for infringement of our nasal
calcitonin patent. In December 2008, the United States District Court for the Southern District of New York entered a preliminary injunction, consented to by defendant Apotex, preliminarily enjoining Apotex from engaging in the commercial
manufacture, use, marketing, distribution, selling, transportation or importation of any Fortical generic equivalent product in the United States. In obtaining the preliminary injunction, Unigene and USL were required to post a bond and, if we do
not prevail in the lawsuit, Unigene would be responsible for paying $1,662,500 to Apotex under the injunction agreement. If we are unsuccessful in our lawsuit, and if Apotex receives FDA approval and is able to launch its generic version of our
product, the launch could have an adverse effect on our cash flow and operations. In December 2008, Apotex and Sandoz launched nasal calcitonin products that are generic to Novartis nasal calcitonin product, but not to Fortical. We do not yet
know the effect on Fortical sales and royalties of the launch of these competing products. It is reasonable to assume that certain providers will substitute these products for Fortical and, in that event, Fortical sales and royalties would decrease.
In addition, any material interruption or failure in manufacturing, marketing or distribution of Fortical will have an adverse effect on our cash flow and operations. Any event that has a material adverse effect on our cash flow and operations could
trigger a default under our note payable to Victory Park (see Note H).

If USL cannot continue to successfully market Fortical, or if we are unable to
achieve significant milestones or sales under our existing agreements and/or enter into a new significant revenue generating license or other arrangement, we would need to either secure another source of funding in order to satisfy our working
capital needs or significantly curtail our operations. Should the funding we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequence would be a material adverse effect on our
business, operating results, financial condition and prospects. We believe that satisfying our capital requirements over the long term will require the successful commercialization of one or more of our oral or nasal calcitonin products, our oral
PTH product, our SDBG program or another peptide product in the U.S. and/or abroad. However, it is uncertain whether or not any of our products other than Fortical will be approved or will be commercially successful.

The global credit crisis that began in 2007 was further exacerbated by events occurring in the financial markets in the fall of 2008. These events have negatively
impacted the ability of corporations to raise capital through equity financings or borrowings. The credit crisis may continue for the foreseeable future. If it continues until that time when we may need additional financing, we may not be able to
raise such capital on reasonable terms, if at all. In addition, uncertainty about current and future global economic conditions may impact our ability to license our products and



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technologies to other companies and may cause consumers to defer purchases of prescription medicines, such as Fortical, in response to tighter credit,
decreased cash availability and declining consumer confidence. Accordingly, future demand for our product could differ from our current expectations.

We
have incurred annual operating losses since our inception and, as a result, at March 31, 2009, had an accumulated deficit of approximately $133,000,000. Our cash requirements to operate our research and peptide manufacturing facilities and
develop our products have increased due to higher spending on internal research projects, including oral calcitonin, oral PTH and SDBG, as well as patent infringement litigation costs.

We need additional cash from sales, royalties, milestones or upfront payments or from financings in order to meet our obligations for the next twelve months. These factors, among others, raise substantial doubt about
our ability to continue as a going concern. The financial statements have been prepared on a going concern basis and as such do not include any adjustments that might result from the outcome of this uncertainty.

NOTE CGLAXOSMITHKLINE AGREEMENT

In April 2002, we signed a licensing
agreement with GSK for a value before royalties, PTH sales and reimbursement for development expenses, of up to $150,000,000 to develop an oral formulation of an analog of PTH currently in clinical development for the treatment of osteoporosis.
Under the terms of the agreement, GSK received an exclusive worldwide license to develop and commercialize the product. GSK will reimburse us for certain development activities during the program, including our activities in the production of raw
material for development and clinical supplies, and will pay us a royalty on its worldwide sales of the product, if commercialized. The royalty rate will be increased if certain sales milestones are achieved. A Phase I human trial, which commenced
in 2004, demonstrated positive preliminary results. An aggregate of $8,000,000 in up-front and milestone payments has been received from inception through March 31, 2009. We have also received an additional $5,000,000 from GSK for PTH sales and
in support of our PTH development activities from inception through March 31, 2009. There were no milestones achieved or PTH sales to GSK during 2009. Bulk product sales to licensees, prior to product approval, are unpredictable and subject to
the needs of the licensee. GSK could make additional milestone payments in the aggregate amount of up to $142,000,000 subject to the progress of the compound through clinical development and through to the market. We have also agreed with GSK that
we will conduct further development including a small Phase I study, which we initiated in 2008 and successfully concluded in 2009. GSK may acquire the data from our development activities for a fixed purchase price. However, there are no assurances
that our development activities will be successful or that GSK will acquire the data. This agreement is subject to certain termination provisions. Either party may terminate the license agreement if the other party (i) materially breaches the
license agreement, which breach is not cured within 60 days (or 30 days for a payment default), (ii) voluntarily files, or has served against it involuntarily, a petition in bankruptcy or insolvency, which, in the case of involuntary
proceedings, remains undismissed for 60 days, or (iii) makes an assignment for the benefit of creditors. Additionally, GSK may terminate the license agreement at any time for various reasons including safety or efficacy concerns of the PTH
product, significant increases in development timelines or costs, or significant changes in the osteoporosis market or in government regulations.

NOTE
DUPSHER-SMITH AGREEMENT

In November 2002, we signed an exclusive U.S. licensing agreement with USL for a value before royalties of $10,000,000 to
market our patented nasal formulation of calcitonin for the treatment of osteoporosis. We are responsible for manufacturing the product and USL packages the product and



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distributes it nationwide. Fortical was approved by the FDA and launched by USL in August 2005. Revenue for the three months ended March 31, 2009
consisted of the recognition of $39,000 of licensing revenue, $1,309,000 in sales to USL and $1,326,000 in royalties from USL. Revenue for the three months ended March 31, 2008 consisted of the recognition of $39,000 of licensing revenue from
USL in addition to $2,652,000 in sales to USL and $1,138,000 in royalties from USL. At March 31, 2009, our accounts receivable from USL for royalties were approximately $2,926,000. From August 2005 through March 2009, we have recognized an
aggregate of $31,227,000 in Fortical sales and $18,482,000 in Fortical royalties. We recognize USL royalty revenue based upon the quarterly USL royalty report. This provides for a reliable measure as well as reasonable assurances of collectibility.
Royalty revenue is earned on sales of Fortical by USL and is recognized in the period Fortical is sold by USL. Future sales and royalties are contingent upon many factors including competition, including generic competition, pricing, promotion and
acceptance in the marketplace and, therefore, are difficult to predict. In December 2008, Apotex and Sandoz launched nasal calcitonin products which are generic to Novartis nasal calcitonin product, but not to Fortical. We do not yet know the
effect on Fortical sales and royalties of the launch of these competing products. It is reasonable to assume that certain providers will substitute these products for Fortical and, in that event, Fortical sales and royalties would decrease. This
agreement may be terminated by either party by mutual agreement or due to breach of any material provision of the agreement not cured within 60 days. We may terminate the agreement in the event of a net sales shortfall. In addition, USL may
terminate the agreement under certain circumstances where USL assigns the agreement and we do not approve the assignment.

NOTE ENOVARTIS AGREEMENT

In April 2004, we signed a worldwide licensing agreement with Novartis for a value before royalties of up to $18,700,000 to allow Novartis to manufacture
calcitonin using our patented peptide production process. We have received an aggregate of $13,700,000 from Novartis under this agreement. For both the three months ended March 31, 2009 and 2008, we recognized $223,000 in licensing revenue.

During 2004, Novartis purchased calcitonin from us for use in their oral calcitonin development program and implemented our patented manufacturing process
at Novartis facilities. Sandoz, a Novartis affiliate, concluded a manufacturing campaign in 2005 based on our process and produced multiple kilograms of calcitonin at a scale that represents a ten-fold increase above our current production capacity.
Calcitonin produced by Sandoz is being used by Novartis in their ongoing clinical trials. We will receive royalties on sales of any existing or future Novartis products that contain calcitonin manufactured by Novartis using our technology. Novartis
will be conducting all future product development and clinical trials for its own oral calcitonin product. Therefore, the anticipated completion date is outside our control and unknown to us. If we and Novartis each successfully develop our oral
calcitonin products, we would be competing in this area. This agreement may be terminated by either party due to a material breach not cured within 60 days or due to insolvency or bankruptcy proceedings not dismissed within 60 days and for other
customary events of default.

We will continue to develop our oral, nasal and injectable calcitonin products. If our oral calcitonin product is
successfully developed, we would purchase calcitonin from Novartis, thereby eliminating our need to construct a second, larger-scale calcitonin manufacturing facility.

NOTE FNOTES PAYABLE  LEVYS

To satisfy our short-term liquidity needs, the Levys from time to time (prior to
2003) made loans to us. At May 10, 2007 the outstanding principal and interest on these loans were $7,095,000 and $8,642,517, respectively, with interest rates ranging from 8.5% to 14.2%. The total owed on May 10,



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2007 aggregated $15,737,517, of which approximately $8,900,000 in principal and interest were in default and was restructured as eight-year term notes, none
of which are in default, with a fixed simple interest rate of 9% per annum. No gain or loss was recognized on the restructuring transaction. Required quarterly payments of principal and interest under these notes begin in May 2010 and continue
over a five-year period, but payments may be made earlier without penalty. Total interest expense on all Levy loans was approximately $341,000 and $316,000, respectively, for the three months ended March 31, 2009 and 2008. As of March 31,
2009, total accrued interest on all Levy loans was $2,424,843 and the outstanding loans by these persons to us, classified as long-term debt, totaled $15,737,517 for an aggregate owed to them of $18,162,360. These loans are collateralized by
secondary security interests in our equipment, real property and certain of our patents.

Outstanding Levy loans consisted of the following at
March 31, 2009 and December 31, 2008 (in thousands):



|                                    |  |      |        |      |   |       
|----------------------------------- |  | ---- | ------ | ---- | - | ------
|                                    |  | 2009 |        | 2008
|Jay Levy long-term loan (1)         |  | $    | 8,319  |      | $ | 8,319 
|Levy Partnership long-term loan (1) |  |      | 7,419  |      |   | 7,419 
|                                    |  |      |        |      |   |       
|                                    |  |      | 15,738 |      |   | 15,738
|Accrued interest                    |  |      | 2,424  |      |   | 2,084 
|                                    |  |      |        |      |   |       
|Total loans and interest            |  | $    | 18,162 |      | $ | 17,822
|                                    |  |      |        |      |   |       



|(1) | These loans, held by Jay Levy and the Jaynjean Levy Family Limited Partnership (the Levy Partnership), resulted from the May 2007 restructuring of notes and accrued
interest. Warren Levy and Ronald Levy are general partners of the Levy Partnership. These loans consist of eight-year term notes with fixed simple interest rates of 9% per annum. Interest expense is calculated using an effective interest
method, at a rate of 7.6%, over the life of the notes due to the deferred payment schedule contained in the notes. Quarterly payments of principal and interest will be made over a five-year period beginning in May 2010. Accrued interest on these
loans at March 31, 2009 was approximately $2,424,000. The Jay Levy loan is collateralized by secondary security interests in certain of our fixed and other assets, including real property. The Levy Partnership loan is collateralized by
secondary security interests in certain of our patents and patent applications. These loans have been subordinated to the Victory Park note as of September 30, 2008 (see Note H).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE GINVENTORY

Inventories consisted of the following as of
March 31, 2009 and December 31, 2008:



|                                                                        |  |      |           |      |   |          
|----------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                        |  | 2009 |           | 2008
|Current Inventory                                                       |  |      |           |      |   |          
|                                                                        |  |     
|Finished goodsnet of allowances of $825,000 and $829,000, respectively |  | $    | 1,516,198 |      | $ | 1,316,039
|Work in process                                                         |  |      |          |      |   | 409,788  
|Raw materialsnet of allowance of $59,000 in 2009 and 2008              |  |      | 1,618,319 |      |   | 1,454,192
|                                                                        |  |      |           |      |   |          
|                                                                        |  |     
|Total                                                                   |  | $    | 3,134,517 |      | $ | 3,180,019
|                                                                        |  |      |           |      |   |          
|                                                                        |  |     
|Noncurrent Inventory                                                    |  |      |           |      |   |          
|                                                                        |  |     
|Finished goods                                                          |  | $    | 1,965,989 |      | $ | 1,001,364
|Work in process                                                         |  |      | 260,467   |      |   |         
|Raw materials                                                           |  |      | 704,752   |      |   | 648,326  
|                                                                        |  |      |           |      |   |          
|                                                                        |  |     
|Total                                                                   |  | $    | 2,931,208 |      | $ | 1,649,690
|                                                                        |  |      |           |      |   |          



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Typically, finished goods and work in process inventory are fully reserved except for the amounts deemed saleable by
management based upon current or anticipated orders, primarily under contractual arrangements. Our reserves for finished goods and raw materials were $884,000 at March 31, 2009, a decrease of $4,000 from December 31, 2008. Based upon
expected future orders, $1,966,000 of our finished goods inventory, $260,000 of our work in process inventory and $705,000 of our raw material inventory were classified as a noncurrent asset at March 31, 2009. We expect this inventory to be
fully recoverable, therefore no reserve was established.

NOTE HNOTE PAYABLE  VICTORY PARK

On September 30, 2008 we entered into a financing agreement with Victory Park pursuant to which we borrowed $15,000,000 from Victory Park and, in connection
therewith, we issued to Victory Park a three-year senior secured non-convertible term note. We received net proceeds of $14,372,000 after fees and closing expenses paid as of September 30, 2008. The term note was purchased by Victory Park at a
3% discount to the face amount. Pursuant to the financing agreement, we also issued to Victory Park 1,125,000 shares of our common stock. These shares are subject to a lock-up agreement prohibiting their sale for one year. The closing price for our
common stock on September 30, 2008 was $1.09 per share, valuing the 1,125,000 shares at an aggregate of $1,226,250. The debt discount of $450,000 and the stock value aggregated $1,676,250 and are being recognized as interest expense over the
three-year term of the note on a straight-line basis which approximates the effective interest rate method. We also incurred legal and due diligence expenses of $420,859 which are shown as deferred financing costs ($350,714 at March 31, 2009)
on our balance sheet. Our expenses incurred related to the Victory Park financing are being amortized over the three-year term of the note to interest expense on a straight-line basis which approximates the effective interest rate method. At
closing, we also prepaid six months of interest on the note in the amount of $1,050,000. During the first quarter of 2009, we repaid approximately $463,000 in principal due to a mandatory prepayment and recognized approximately $700,000 in cash and
non-cash interest expense under this note.

This note bears interest at the prime rate plus 7%, subject to a floor of 14% per annum and a cap of
18% per annum. We have the right to prepay the note without penalty for prepayments up to $5,000,000 and for any prepayments after the first year.

In
conjunction with this financing, loans held by Jay Levy and by the Levy Partnership were subordinated to the Victory Park note. We have pledged all of our assets, including intellectual property, as collateral under the Victory Park note. We have
the ability to issue an additional $5,000,000 of term notes, under the same terms as the issued note, along with 375,000 shares of our common stock, by September 30, 2010.

Beginning October 1, 2008, so long as our note balance is at least $5,000,000, we must maintain a cash balance equal to at least 10% of the principal amount of the notes ($14,537,206 at March 31, 2009) and
our cash flow (as defined in the agreement) must be at least $2,000,000 in any fiscal quarter or $9,000,000 in any three consecutive quarters. The agreement specifies certain events of default including, without limitation: failure to pay principal
or interest; filing for bankruptcy; breach of covenants, representations or warranties; the occurrence of a material adverse effect (as defined in the agreement); if Warren Levy or Ronald Levy shall, at any time for reasons other than health or
without the endorsement of the other Unigene directors, cease to be employed in the same position with similar duties; and any material decline or depreciation in the value or market price of the collateral. Upon any default, among other remedies,
both principal and interest would be accelerated and additional charges would apply. As of March 31, 2009, we were in compliance with all of these covenants.



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Aggregate maturities of all outstanding debt at March 31, 2009 are as follows:



|                      |  |   |            |  
|--------------------- |  | - | ---------- | -
|2009                  |  | $ |           |  
|2010                  |  |   | 2,360,628  |  
|2011                  |  |   | 17,684,709 |  
|2012                  |  |   | 3,147,503  |  
|2013                  |  |   | 3,147,503  |  
|Thereafter            |  |   | 3,934,380  |  
|                      |  |   |            |  
|                      |  |   | 30,274,723 |  
|DiscountVictory Park |  |   | (1,396,872 | )
|                      |  |   |            |  
|                      |  | $ | 28,877,851 |  
|                      |  |   |            |  

Presentation on Balance Sheet:



|                                                        |  |   |           
|------------------------------------------------------- |  | - | ----------
|Notes payableLevys (see Note F)                        |  | $ | 15,737,517
|Note payableVictory Parknet of discount of $1,396,872 |  |   | 13,140,334
|                                                        |  |   |           
|                                                        | 
|                                                        |  | $ | 28,877,851
|                                                        |  |   |           

NOTE ICHINA JOINT VENTURE

In June 2000, we entered into a joint venture agreement with SPG, a pharmaceutical company in the Peoples Republic of China, formally creating a contractual joint venture between the two entities. We own 45% of
the joint venture and have a 45% interest in the entitys profits and losses. In the first phase of the collaboration, SPG contributed its existing injectable calcitonin license to the joint venture, which allowed the entity to sell its
injectable calcitonin product in China. A new drug application (NDA) for injectable and nasal calcitonin products was filed in China in 2003. The approval of the joint ventures NDA in China, and the timing of such approval, is
uncertain. The joint venture began operations and sales of its injectable calcitonin product in 2002 under the aforementioned SPG license. Sales by the joint venture had been used to offset its costs. We account for our investment in the joint
venture under the equity method. Our share of the losses in the joint venture for the three months ended March 31, 2009 and 2008 was approximately $65,000 and $1,000, respectively.

Unigene and SPG expanded the activities of the joint venture in 2008 to allow for the development and marketing of other pharmaceutical products. In April 2008, ground was broken for the global biotechnology park in
the Shijiazhuang Economic and Technology Development Zone of Hebei Province, China that will house the joint venture. The joint venture, named Unigene Biotechnology Co. Ltd., will initially focus on manufacturing and research and development of
salmon calcitonin and non-oral PTH and related products for China and possibly other global markets. Construction of the first building, which will ultimately house the research and development facility of the joint venture, is scheduled for
completion in 2009. Construction also began in 2008 on a manufacturing facility which will be designed for peptide production and manufacture of injectable, oral and nasal final products. The combined capital investment commitment of both parties
for the joint venture is $15,000,000, representing contributions of cash, technology and know-how which we are licensing to the joint venture. Unigenes 45% share is therefore $6,750,000. The technologies and know-how that we have agreed to
license to the joint venture have been assigned a total value of $4,500,000, leaving us with cash obligations of $2,250,000 which are payable in two installments of $1,050,000 ($75,000 of



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which has been paid, leaving a balance of $975,000) and $1,200,000. The cash contribution of $975,000 was payable after the joint venture was officially
registered with the Chinese government, which occurred in May 2008 with the issuance to the joint venture of its certificate of incorporation and after the joint venture established its bank account, which occurred in August 2008. SPG has assigned
its joint venture rights and obligations to its subsidiary, CPG. CPG has agreed to lend us the balance of our initial cash contribution of $975,000 for two years on an interest-free basis. We have therefore increased our investment in the joint
venture balance sheet account by $1,050,000 and we have recorded at March 31, 2009 our repayment obligation at a discounted net present value of $865,134 using an effective interest rate of 9%. The original discount of $160,064 ($109,866 at
March 31, 2009) was credited to additional paid-in capital representing a capital contribution by a related-party. During 2009 we increased our investment in the joint venture by an additional $82,000, representing engineering costs that we
have incurred on behalf of the joint venture. In lieu of cash repayment of our initial cash contribution or future cash capital contributions, we may reduce our equity participation in the joint venture or provide additional technologies, or rights
to products in China, to the joint venture. If we and our joint venture partner agree, in addition to or in lieu of future contributions, if any, by the partners, the joint venture may seek government or third party financing.

In the first quarter of 2009, we recognized a gain of $66,000 on the transfer of technology and know-how to the joint venture. This gain represents the difference
between the fair value of the technology and licenses transferred and to be transferred to the joint venture and the book value of these assets. The joint venture valued these assets at $4,500,000; their book value was $0 representing a gain of
$4,500,000. This gain will be recognized over 17 years, the estimated life of the transferred assets, at approximately $265,000 per year. Our joint venture investment primarily reflects 2008 contributions which is less than our proportionate share
of the joint ventures equity. This is primarily due to our recognition of the gain on the transfer of technology and know-how to the joint venture over seventeen years.

NOTE JSTOCK OPTION COMPENSATION

Compensation expense is calculated each quarter for consultants using the
Black-Scholes option pricing model, until the option is fully vested. Based upon options issued to consultants, we recognized compensation expense of $8,000 in the first quarter of 2009 and we recognized a compensation benefit of $15,000 in the
first quarter of 2008. These amounts are included in research, development and facility expenses.

For the three months ended March 31, 2009, we
recognized share-based compensation cost of $112,000, which consisted of $77,000 in general and administrative expenses and $35,000 in research, development and facility expenses. For the three months ended March 31, 2008, we recognized
share-based compensation cost of $154,000, which consisted of $143,000 in general and administrative expenses and $11,000 in research, development and facility expenses. We did not capitalize any share-based compensation cost.

As of March 31, 2009, there was $700,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the stock
option plans. That cost is expected to be recognized over a weighted-average period of less than 2 years.



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The following table shows the weighted average assumptions we used to develop the fair value estimates:



|                                       |  |                              |   |  |      |  
|-------------------------------------- |  | ---------------------------- | - |  | ---- | -
|                                       |  | Three Months Ended March 31, |  
|                                       |  | 2009                         |   |  | 2008 |  
|Expected volatility                    |  | 51.9                         | % |  | 58.9 | %
|Expected dividends                     |  |                             |   |  |     |  
|Expected term (in years)               |  | 5.3                          |   |  | 5.3  |  
|Risk-free rate                         |  | 1.7                          | % |  | 2.5  | %
|Forfeiture rateemployees              |  | 20                           | % |  | 20   | %
|Forfeiture rateofficers and directors |  | 0                            | % |  | 20   | %

For the three months ended March 31, 2009 and March 31, 2008, we estimated the fair value of each option
award on the date of grant using the Black-Scholes model. We utilized the risk-free interest rate for periods equal to the expected term of the option based upon U.S. Treasury securities in effect at the time of the grant. The Company has no present
intention of declaring any dividends. We based expected volatility on historical volatility. We estimated the expected term of stock options using historical exercise experience.

A summary of option activity as of March 31, 2009 and changes during the three months then ended is presented below:



|                               |  |           |   |  |                               |      |                                          |     |                         |   |        
|------------------------------ |  | --------- | - |  | ----------------------------- | ---- | ---------------------------------------- | --- | ----------------------- | - | -------
|Options                        |  | Shares    |   |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm |     | AggregateIntrinsicValue
|Outstanding at January 1, 2009 |  | 4,864,315 |   |  | $                             | 1.37 |                                          |     |                         |   |        
|Granted                        |  | 92,000    |   |  |                               | 0.59 |                                          |     |                         |   |        
|Exercised                      |  |          |   |  |                               |     |                                          |     |                         |   |        
|Forfeited or expired           |  | (4,000    | ) |  |                               | 1.09 |                                          |     |                         |   |        
|                               |  |           |   |  |                               |      |                                          |     |                         |   |        
|                               |  |           |   | 
|Outstanding at March 31, 2009  |  | 4,952,315 |   |  | $                             | 1.35 |                                          | 5.7 |                         | $ | 288,000
|                               |  |           |   |  |                               |      |                                          |     |                         |   |        
|                               |  |           |   | 
|Exercisable at March 31, 2009  |  | 3,502,065 |   |  | $                             | 1.35 |                                          | 4.3 |                         | $ | 280,000
|                               |  |           |   |  |                               |      |                                          |     |                         |   |        

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2009
and 2008 was $0.28 and $1.07, respectively. The total intrinsic value, which represents the difference between the underlying stocks market price and the options exercise price, of options exercised during both the three months ended
March 31, 2009 and 2008 was $0 as there were no options exercised during these periods. Therefore, cash received from option exercises under all share-based payment arrangements for both the three months ended March 31, 2009 and 2008 was
$0 and no tax benefit was realized.



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NOTE KNET LOSS PER SHARE

We compute and present both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock at the beginning of the period (or as of the date of issuance if issued in the current year)
being reported on, and the effect was dilutive. Our weighted average shares outstanding used for computing diluted loss per share were the same as those used for computing basic loss per share for each of the three-month periods ended March 31,
2009 and 2008 because inclusion of our stock options and warrants (approximately 7,233,000 and 6,330,000 shares of common stock, if exercised, at March 31, 2009 and March 31, 2008, respectively), would be antidilutive. The three months
ended March 31, 2009 includes warrants to purchase an aggregate of 2,121,571 shares of common stock at exercise prices ranging from $1.77 to $4.25 per share, with expiration dates ranging from 2010 to 2015. The three months ended March 31,
2008 includes warrants to purchase an aggregate of 2,371,571 shares of common stock at exercise prices ranging from $0.90 to $4.25 per share, with expiration dates ranging from 2008 to 2015.

Reconciliation between the number of issued shares shown on the balance sheet and the number of shares used to determine EPS:



|                                               |  |            |  
|---------------------------------------------- |  | ---------- | -
|Issued shares per balance sheet                |  | 90,262,763 |  
|Unvested restricted stock-vests April 17, 2009 |  | (178,961   | )
|                                               |  |            |  
|                                               | 
|Shares used in determining EPS                 |  | 90,083,802 |  
|                                               |  |            |  

NOTE LPATENTS AND OTHER INTANGIBLES

During the first quarter of 2009, we wrote-off fully amortized expired patents in the aggregate amount of $744,000.

NOTE
MLEGAL PROCEEDINGS

Fortical, our nasal calcitonin product for the treatment of postmenopausal osteoporosis, is covered by U.S. Patent
No. 6,440,392 (the Fortical Patent). In June 2006, we received a Paragraph IV certification letter from Apotex Inc., a Canadian generic pharmaceutical manufacturer, alleging that this patent is invalid and therefore not
infringed by Apotexs nasal calcitonin product which is the subject of an Apotex pending ANDA. On July 24, 2006, we and USL jointly filed a lawsuit against Apotex in the U.S. District Court for the Southern District of New York for
infringement of our Fortical Patent. Due to our filing of the above-mentioned lawsuit, the Hatch-Waxman Act provided for an automatic stay of FDA approval for Apotexs ANDA of up to 30 months. In December 2008, this stay ended and we and Apotex
entered a preliminary injunction enjoining Apotex from engaging in the commercial manufacture, use, marketing, distribution, selling, transportation or importation of any Fortical generic equivalent product in the United States. The preliminary
injunction will remain in effect until the court renders a final decision on the validity and infringement of Unigenes U.S. Patent. In obtaining the preliminary injunction, Unigene and USL were required to post a bond and, if we do not prevail
in the lawsuit, Unigene would be responsible for paying $1,662,500 to Apotex under the injunction agreement. We are seeking a ruling that Apotexs ANDA and its nasal calcitonin product infringe our Fortical Patent and its ANDA should not be
approved before the expiration date of the Fortical Patent. We are also seeking a permanent injunction to prevent Apotex from commercializing its ANDA product before the expiration of the Fortical Patent and to recover the attorneys fees and



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costs which we and USL incur in connection with these proceedings. However, there is the usual litigation risk that we will not be successful in the suit. In
the event that we do not prevail, then Apotex could be in a position to market its nasal calcitonin product if and when its pending ANDA receives FDA approval. This could have a material adverse impact on our results and financial position.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008,
including the financial statements and notes contained therein.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects. Such forward-looking
statements include those which express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. We have based these forward-looking statements on our current expectations
and projections about future events and they are subject to risks and uncertainties known and unknown which could cause actual results and developments to differ materially from those expressed or implied in such statements. Words such as
expects, anticipates, intends, plans, believes, seeks, estimates, and similar expressions are intended to identify forward-looking statements, but are not the
exclusive means of identifying forward-looking statements. These forward-looking statements include statements about the following: our financial condition, competition, our dependence on other companies to commercialize, manufacture and sell
products using our technologies, the uncertainty of results of animal and human testing, the risk of product liability and liability for human clinical trials, our 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 delay in obtaining or the failure to obtain regulatory approvals for our products and
litigation. Factors that could cause or contribute to differences in our results and outcomes include, without limitation, those discussed in Risk Factors below and in our Annual Report on Form 10-K for the year ended December 31,
2008, such as uncertain revenue levels, rapidly changing technologies, stock price volatility and other factors discussed in our various filings with the Securities and Exchange Commission (SEC).

RESULTS OF OPERATIONS

Introduction

We are a biopharmaceutical company engaged in the research, production and delivery of small proteins, referred to as peptides, for medical use. We have a patented
manufacturing technology for producing many peptides cost-effectively. We also have patented oral and nasal delivery technologies that have been shown to deliver medically useful amounts of various peptides into the bloodstream. We currently have
three operating locations: administrative and regulatory offices in Boonton, New Jersey, a laboratory research facility in Fairfield, New Jersey and a pharmaceutical production facility in Boonton, New Jersey.

Our primary focus has been on the development of calcitonin and other peptide products for the treatment of osteoporosis and other indications. Our revenue for the past
three years has primarily been derived from domestic sources. We have licensed worldwide rights to our manufacturing and



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delivery technologies for oral PTH for the treatment of osteoporosis to GSK. We have also licensed in the U.S. our nasal calcitonin product for the treatment
of osteoporosis, which we have trademarked as Fortical, to USL. Fortical was approved by the FDA in 2005. This is our first product approval in the United States. We have also licensed worldwide rights to our patented manufacturing technology for
the production of calcitonin to Novartis. We have licensed to our Chinese joint venture certain proprietary technologies and know-how to support the research, development and manufacturing of recombinant salmon calcitonin and non-oral PTH, as well
as other possible products, in the Peoples Republic of China.

To expand our product pipeline: we are developing our SDBG technology in conjunction
with Yale University; we have in-licensed technology from Queen Mary, University of London relating to potential therapies for inflammation and cardiovascular disease; and we periodically perform feasibility studies for third parties. Our products,
other than Fortical in the United States, will require clinical trials and/or approvals from regulatory agencies and all of our products will require acceptance in the marketplace. There are risks that these clinical trials will not be successful
and that we will not receive regulatory approval or significant revenue for these products.

We compete with specialized biotechnology and
biopharmaceutical companies, major pharmaceutical and chemical companies and universities and research institutions. Most of these competitors have substantially greater resources than we do. In December 2008, Apotex and Sandoz launched nasal
calcitonin products which are generic to Novartis nasal calcitonin product, but not to Fortical. We do not yet know the effect on Fortical sales and royalties of the launch of these competing products. For the first quarter of 2009, compared
to the first quarter of 2008, Fortical sales to USL decreased 51% while Fortical royalties increased 17%. It is reasonable to assume that certain providers will substitute these products for Fortical and, in that event, Fortical sales and royalties
would decrease. In addition, Apotex has a pending ANDA for a nasal calcitonin product that we claim infringes on our Fortical patent. If we do not prevail in that litigation, then Apotex could be in a position to market its nasal calcitonin product
if and when its pending ANDA receives FDA approval.

We generate revenue through licensing and supply agreements with pharmaceutical companies and by
achieving milestones, product sales and royalties under these agreements. Those agreements, to date, have not been sufficient to generate all of the cash necessary to meet our needs. In addition, there are risks that current collaborations will not
be successful and that future collaborations will not be consummated. We have tried to mitigate these risks by developing additional proprietary technologies and by pursuing additional licensing opportunities but there is no guarantee that these
efforts will be successful.

We have also generated cash from loans, including officer loans, as well as from stock offerings. The loans have added debt to
our balance sheet and, the officer loans, after being restructured in 2007, require repayment over a five-year period beginning in May 2010. The Victory Park loan is due in full in 2011. Our various stock offerings have provided needed cash but it
is uncertain whether we will be able to obtain future financing under favorable terms, or at all.

The current need of major pharmaceutical companies to
add products to their pipeline is a favorable sign for us and for other small biopharmaceutical companies. However, this need is subject to rapid change and it is uncertain whether any additional pharmaceutical companies will have interest in
licensing our products or technologies.



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Revenue

Revenue is
summarized as follows for the three-month periods ended March 31, 2009 and 2008:



|                           |  |      |           |      |   |          
|-------------------------- |  | ---- | --------- | ---- | - | ---------
|                           |  | 2009 |           | 2008
|Product Sales              |  | $    | 1,309,453 |      | $ | 2,652,454
|Royalties                  |  |      | 1,326,155 |      |   | 1,138,363
|Licensing Revenue          |  |      | 314,190   |      |   | 314,190  
|Development Fees and Other |  |      | 241,618   |      |   | 209,091  
|                           |  |      |           |      |   |          
|                           |  | $    | 3,191,416 |      | $ | 4,314,098
|                           |  |      |           |      |   |          

Revenue for the three months ended March 31, 2009 decreased $1,123,000, or 26%, to $3,191,000 from $4,314,000
in the comparable period in 2008. This was primarily due to a decrease in sales to USL. Fortical sales to USL decreased 51% to $1,309,000 for the three months ended March 31, 2009 as compared to $2,652,000 for the three months ended
March 31, 2008. Fortical sales fluctuate each quarter based upon USLs ordering schedule. Fortical royalties for the quarter ended March 31, 2009 increased $188,000, or 17%, to $1,326,000 from $1,138,000 in the comparable period of
2008. Fortical royalties fluctuate each quarter based upon the timing and pricing of USLs shipment to its customers.

Licensing revenue represents
the partial recognition of milestones and up-front payments received in prior years. Licensing revenue was constant from the first quarter of 2008 to the first quarter of 2009.

Development fees and other revenue increased 16% to $242,000 in the first quarter of 2009 from $209,000 in the first quarter of 2008 primarily due to the timing of development work and feasibility studies for various
pharmaceutical and biotechnology companies.

Future sales and royalties are contingent upon many factors including competition, pricing, marketing and
acceptance in the marketplace and, therefore, are difficult to predict. Milestone revenue is based upon one-time events and is generally correlated with the development strategy of our licensees. It is therefore subject to uncertain timing and not
predictive of future revenue. Bulk peptide sales to our partners under license or supply agreements prior to product approval are typically of limited quantity and duration and also not necessarily predictive of future revenue. Additional peptide
sales are dependent upon the future needs of our partners, which we cannot currently estimate. Sales revenue from Fortical in 2009 and future years will depend on Forticals continued acceptance in the marketplace, as well as competition and
other factors. In December 2008, Apotex and Sandoz launched nasal calcitonin products which are generic to Novartis nasal calcitonin product, but not to Fortical. We do not yet know the effect on Fortical sales and royalties of the launch of
these competing products. It is reasonable to assume that certain providers will substitute these products for Fortical and, in that event, Fortical sales and royalties would decrease. Therefore, it is unlikely that Fortical alone will generate
sufficient revenue for us to achieve profitability. In addition, Apotex has a pending ANDA for a nasal calcitonin product that we claim infringes on our Fortical patent. If we do not prevail in that litigation, then Apotex could be in a position to
market its nasal calcitonin product if and when its pending ANDA receives FDA approval.



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Costs and Expenses

Cost of goods sold varies by product and consists primarily of material costs, personnel costs, manufacturing supplies and overhead costs, such as depreciation and maintenance. Cost of goods sold decreased 70% to $478,000 from $1,590,000
for the three months ended March 31, 2009 as compared to the same period in 2008, primarily due to reduced Fortical sales to USL. Cost of goods sold for the first quarter of 2009 and 2008 represented our costs associated with Fortical
production for USL, whose purchases from us fluctuates each quarter. Cost of goods sold as a percentage of sales was 37% and 60%, respectively, for the first quarter of 2009 and 2008. The improvement in 2009 was due to the utilization of calcitonin
produced by our more efficient manufacturing process. Future production related expenses for 2009 and later years are dependent upon the level of future Fortical sales, as well as possible peptide production to meet our partners needs.

Research, development and facility expenses primarily consist of personnel costs, supplies, outside testing and consultants primarily related to our
research and development efforts or activities related to our license agreements, as well as depreciation and amortization expense. All of our production and a portion of our research, development and facility costs are associated with our
manufacturing facility in Boonton, New Jersey, where costs are relatively fixed month-to-month. We allocate such costs to the manufacture of production batches for inventory purposes, to cost of goods sold or to research, development and facility
expenses, based upon the activities undertaken by the personnel in Boonton each period.

Research, development and facilities expense increased $562,000 to
$2,687,000 from $2,125,000 for the three months ended March 31, 2009 as compared to the same period in 2008. The most significant increase was due to expenditures related to our oral PTH program which increased $349,000 in the first quarter of
2009 as compared to the first quarter of 2008. The increase was due to a Phase I clinical trial for PTH that was successfully completed in the first quarter of 2009. In addition, personnel expenses increased $84,000 including higher non-cash equity
compensation. Research and development expenses may continue to increase in 2009, as compared to 2008, due to our continuing expenditures to further develop our oral calcitonin and oral PTH products (possibly including clinical trials) and support
for our SDBG program.

General and administrative expenses increased $133,000, or 6%, to $2,279,000 from $2,146,000 for the three months ended
March 31, 2009 as compared to the same period in 2008. The increase was primarily attributed to an increase of $136,000 in professional fees, including legal expenses related to the Apotex litigation as well as corporate licensing activities.
We expect general and administrative expenses to continue to increase in 2009, as compared to 2008, due to anticipated escalation of legal costs primarily related to Apotex.

Other Income/Expense

Interest income increased $23,000 in the first quarter of 2009 to $42,000 from $19,000 in the
first quarter of 2008. This increase was due to additional funds available for investment during the first three months of 2009.

Interest Expense

Interest expense increased 228% in the first quarter of 2009 to $1,065,000 from $325,000 in the first quarter of 2008. The increase was primarily due to
the $15,000,000 note issued to Victory Park on September 30, 2008. This note bears interest at the prime rate plus 7%, subject to a floor of 14% per annum and a cap of 18% per annum. During the first quarter of 2009 we recognized
$700,000 in



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cash and non-cash interest expense under this note. Interest expense for the remainder of 2009 will therefore be higher than the interest expense incurred
during 2008. In addition, interest expense on the Levy loans increased to $341,000 in the first quarter of 2009 from $316,000 in the first quarter of 2008.

Loss from Investment in Joint Venture

This expense represents our 45% ownership percentage of our China joint ventures profits and
losses. Our share of the first quarter of 2009 loss of the joint venture was $65,000, an increase of $64,000 from the first quarter of 2008. Joint venture activities accelerated in the second half of 2008 due to the joint venture hiring additional
personnel, beginning construction and other activities for its future manufacturing and research facilities. Losses will continue until the joint venture generates sufficient revenue.

Gain on Technology Transfer to Joint Venture

This gain represents the difference between the fair value of the
technology and licenses transferred to the joint venture and the book value of these assets. The joint venture valued these assets at $4,500,000; their book value was $0 representing a gain of $4,500,000. This gain is being recognized over 17 years,
the estimated life of the transferred assets, at approximately $265,000 per year. We began recognizing this gain during the fourth quarter of 2008 due to the significant transfer of know-how and technology.

Net Loss

Net loss for the three months ended March 31, 2009
increased approximately $1,422,000, or 77%, to $3,275,000 from $1,853,000 for the corresponding period in 2008. This was due to a reduction in sales to USL of $1,343,000, as well as an increase in interest expense of $740,000 and an increase in
research, development and facility expense of $562,000. These were partially offset by a decrease in cost of goods sold of $1,111,000 due to reduced Fortical sales to USL, as well as our more efficient manufacturing process. Net losses will continue
unless we achieve sufficient non-deferred revenue from milestones under our GSK and Novartis agreements or sign new revenue generating research, licensing or distribution agreements.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2009, we had cash and cash equivalents of $4,424,000, a decrease
of $4,159,000 from December 31, 2008, and we had working capital of approximately $10,129,000. On September 30, 2008 we entered into a financing agreement with Victory Park pursuant to which we borrowed $15,000,000 from Victory Park and,
in connection therewith, we issued to Victory Park a three-year senior secured non-convertible term note and 1,125,000 shares of our common stock. We received net proceeds of $14,372,000 after fees and closing expenses. We have the ability to issue
an additional $5,000,000 of term notes to Victory Park, under the same terms as the issued notes, by September 30, 2010 (see Note H). Cash received during 2009 was primarily from Fortical sales and royalties received under our agreement with
USL. Our primary sources of cash have historically been (1) licensing fees for new agreements, (2) milestone payments under licensing or development agreements, (3) bulk peptide sales under licensing or supply agreements,
(4) stockholder loans, (5) the sale of our common stock and (6) since August 2005, Fortical sales and royalties. We cannot be certain that any of these cash sources will continue to be available to us in future years. Licensing fees
from new collaborations are dependent upon the successful completion of complex and lengthy negotiations. Milestone payments are based upon progress achieved in collaborations, which cannot be guaranteed, and are often subject to factors that are
controlled neither by our licensees nor us.



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Product sales to our partners under these agreements are based upon our licensees needs, which are sometimes difficult to predict. Sale of our common
stock is dependent upon our ability to attract interested investors, our ability to negotiate favorable terms and the performance of the stock market in general and biotechnology investments in particular. Future Fortical sales and royalties will be
affected by competition and continued acceptance in the marketplace and could be impacted by manufacturing, distribution or regulatory issues.

We believe
that in the short-term we will generate cash to apply toward funding our operations primarily through sales of Fortical to USL, royalties on USLs sales of Fortical and the achievement of milestones under our existing license agreements and, in
the long-term, on sales and royalties from the sale of Fortical and other licensed products and technologies. We are actively seeking additional licensing and/or supply agreements with pharmaceutical companies for oral and nasal forms of calcitonin,
as well as for other peptides, for our peptide manufacturing technology and for our SDBG technology. However, we may not be successful in achieving milestones under our current agreements, in obtaining regulatory approval for our other products or
in licensing any of our other products or technologies.

We are engaged in the research, production and delivery of peptide-related products. Our primary
focus has been on the development of manufacturing processes and delivery technologies for various peptide products for the treatment of osteoporosis, including nasal and oral calcitonin and oral PTH. We are also developing potential products in the
area of SDBG. In general, we seek to develop the basic product or technology and then license the product or technology to an established pharmaceutical, biotechnology or medical device company to complete the development, clinical trials and
regulatory process and to market the product. As a result, we will not control the nature, timing or cost of bringing our products and technologies to market. Each of these products and technologies is in various stages of completion.



| |  |  | For nasal calcitonin, a license agreement was signed in November 2002 with USL. Fortical was approved by the FDA and launched by USL in August 2005, generating
sales and royalties.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For oral calcitonin, we have interests in two ongoing programs. An external program for which we have licensed our calcitonin manufacturing technology to Novartis
is currently in Phase III. We would receive royalties on any calcitonin product commercialized by Novartis that utilizes our calcitonin manufacturing technology. The anticipated completion date is outside our control. For our internal program, we
are seeking a licensee to participate in our products development. A small, short-term Phase I human study was initiated and successfully concluded in 2007. In 2008, we initiated and successfully concluded a Phase I/II clinical study for oral
calcitonin. The costs of future clinical trials will most likely be borne by a future licensee. Because additional clinical trials are still necessary for our oral calcitonin product, and we have not yet licensed the product, it is too early to
speculate on the probability or timing of a marketable oral calcitonin product. We have incurred expenses in both 2008 and 2009 related to our upcoming Phase III trial and we need a partner to fund the remaining costs of the trial.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For oral PTH, we signed a license agreement with GSK in April 2002. A Phase I human trial, which commenced in 2004, demonstrated positive preliminary results. A
small, short-term Phase I human study was initiated in October 2008 and successfully completed using our improved oral delivery technology. PTH is in an early stage of development and it is therefore too early to speculate on the probability or
timing of a marketable oral PTH product. We may incur certain additional development costs. GSK may ultimately purchase, and thereby acquire the rights to, our data from our development activities for a fixed purchase price, but we have no
assurances that they will do so.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Under the terms of various agreements related to a joint venture in China with SPG and CPG, we are obligated to contribute up to $3,150,000 as our initial capital
contribution, consisting of $1,050,000 in cash and the balance in certain technologies and know-how which we are licensing to the joint venture (see Note I).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For our SDBG program, we have conducted various preclinical studies. This program is in a very early stage of development and, therefore, it is too early to
speculate on the probability or timing of a license agreement for this technology or on a possible commercial product.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to our
limited financial resources, any decline in Fortical sales and/or royalties, or delay in achieving milestones under our existing license agreements, or in signing new license or distribution agreements for our products, or loss of patent protection,
may have an adverse effect on our cash flow and operations. In July 2006, we and USL jointly filed a patent infringement lawsuit against Apotex for infringement of our nasal calcitonin patent. In December 2008, the United States District Court for
the Southern District of New York entered a preliminary injunction, consented to by defendant Apotex, preliminarily enjoining Apotex from engaging in the commercial manufacture, use, marketing, distribution, selling, transportation or importation of
any Fortical generic equivalent product in the United States. In obtaining the preliminary injunction, Unigene and USL were required to post a bond and, if we do not prevail in the lawsuit, Unigene would be responsible for paying $1,662,500 to
Apotex under the injunction agreement. If we are unsuccessful in our lawsuit, and if Apotex receives FDA approval and is able to launch its generic version of our product, the launch could have an adverse effect on our cash flow and operations. In
December 2008, Apotex and Sandoz launched nasal calcitonin products that are generic to Novartis nasal calcitonin product, but not to Fortical. We do not yet know the effect on Fortical sales and royalties of the launch of these competing
products. It is reasonable to assume that certain providers will substitute these products for Fortical and, in that event, Fortical sales and royalties would decrease. In addition, any material interruption or failure in manufacturing, marketing or
distribution of Fortical will have an adverse effect on our cash flow and operations. Any event that has a material adverse effect on our cash flow and operations could trigger a default under our note payable to Victory Park (see Note H).

If USL cannot continue to successfully market Fortical, or if we are unable to achieve significant milestones or sales under our existing agreements
and/or enter into a new significant revenue generating license or other arrangement, we would need to either secure another source of funding in order to satisfy our working capital needs or significantly curtail our operations. Should the funding
we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequence would be a material adverse effect on our business, operating results, financial condition and prospects. We believe that
satisfying our capital requirements over the long term will require the successful commercialization of one or more of our oral or nasal calcitonin products, our oral PTH product, our SDBG program or another peptide product in the U.S. and/or
abroad. However, it is uncertain whether or not any of our products other than Fortical will be approved or will be commercially successful.

The global
credit crisis that began in 2007 was further exacerbated by events occurring in the financial markets in the fall of 2008. These events have negatively impacted the ability of corporations to raise capital through equity financings or borrowings.
The credit crisis may continue for the foreseeable future. If it continues until that time when we may need additional financing, we may not be able to raise such capital on reasonable terms, if at all. In addition, uncertainty about current and
future global economic conditions may impact our ability to license our products and technologies to other companies and may cause consumers to defer purchases of prescription medicines, such as Fortical, in response to tighter credit, decreased
cash availability and declining consumer confidence. Accordingly, future demand for our product could differ from our current expectations.



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We have incurred annual operating losses since our inception and, as a result, at March 31, 2009, had an accumulated
deficit of approximately $133,000,000. Our cash requirements to operate our research and peptide manufacturing facilities and develop our products have increased due to higher spending on internal research projects, including oral calcitonin, oral
PTH and SDBG, as well as patent infringement litigation costs.

We need additional cash from sales, royalties, milestones or upfront payments or from
financings in order to meet our obligations for the next twelve months. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements have been prepared on a going concern basis and
as such do not include any adjustments that might result from the outcome of this uncertainty.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

On
September 30, 2008 we entered into a financing agreement with Victory Park whereby Victory Park purchased $15,000,000 of three-year senior secured non-convertible term notes from us. These notes bear interest at the prime rate plus 7%, subject
to a floor of 14% per annum and a cap of 18% per annum. Therefore, beginning in the fourth quarter of 2008, we were exposed to interest rate fluctuations in the near-term and long-term until these notes are repaid in full. We do not employ
specific strategies, such as the use of derivative instruments or hedging, to manage our interest rate exposure. We estimate that, due to the short-term nature of our cash and investments, a change of 100 basis points in interest rates would not
have materially affected their fair value.

The information below summarizes our market risks associated with interest bearing debt obligations as of
March 31, 2009. The table below presents principal cash flows and related interest rates by year of maturity based on the terms of the debt. Given our financial condition described in Liquidity and Capital Resources it is not
practicable to estimate the fair value of our debt instruments.



|                                                          |  |                 |            |      |   |      |  |               |           |      |   |            |  |            |           |  |   |           |  |   |          
|--------------------------------------------------------- |  | --------------- | ---------- | ---- | - | ---- |  | ------------- | --------- | ---- | - | ---------- |  | ---------- | --------- |  | - | --------- |  | - | ---------
|                                                          |  |                 |            |      |   |      |  | Calendar Year |           |      |   |           
|Debt Obligations                                          |  | Carrying Amount |            | 2009 |   | 2010 |  | 2011          |           | 2012 |   | 2013       |  | Thereafter
|Note payableVictory Park Variable interest rate: 14% (1) |  | $               | 14,537,206 |      | $ |     |  | $             |          |      | $ | 14,537,206 |  | $          |          |  | $ |          |  | $ |         
|Notes payablestockholders                                |  |                 | 15,737,517 |      |   |     |  |               | 2,360,628 |      |   | 3,147,503  |  |            | 3,147,503 |  |   | 3,147,503 |  |   | 3,934,380
|Fixed interest rate: 9%                                   |  |                 |            |      |   |      |  |               |           |      |   |            |  |            |           |  |   |           |  |   |          
|                                                          |  |                 |            |      |   |      |  |               |           |      |   |            |  |            |           |  |   |           |  |   |          
|Total                                                     |  | $               | 30,274,723 |      | $ |     |  | $             | 2,360,628 |      | $ | 17,684,709 |  | $          | 3,147,503 |  | $ | 3,147,503 |  | $ | 3,934,380
|                                                          |  |                 |            |      |   |      |  |               |           |      |   |            |  |            |           |  |   |           |  |   |          



|(1) | Prime rate plus 7%, with a floor of 14% and a cap of 18%.
|--- | ---------------------------------------------------------



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|Item 4. | Controls and Procedures
|------- | -----------------------

For the quarterly period ending
March 31, 2009 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the Exchange Act), as of the end of the period covered by this report. Based upon this evaluation,
our principal executive officer and our principal financial officer concluded that, as of March 31, 2009, our disclosure controls and procedures were designed and were being operated in a manner that provides reasonable assurance that the
information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Our management, including the principal executive officer and principal financial officer, does not expect that our internal controls over financial reporting will
prevent all errors and all fraud. A control system, no matter how well designed and operated, cannot provide assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected.

Additionally, our principal executive officer and principal financial officer
determined that there were no changes in our internal control over financial reporting during the quarterly period ended March 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

PART II. OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

We make various statements in this section
which constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended. See Special Note Regarding Forward-Looking Statements in Part 1, Item 2 of this Quarterly Report.

Our performance and financial results are subject to risks and uncertainties including, but not limited to, the specific risks disclosed in Part I, Item 1A, Risk
Factors, in our Annual Report on Form 10-K for the year ended December 31, 2008. Except as noted below, no material changes to the risk factors disclosed in the 10-K have been identified during the three months ended March 31, 2009:

Unigenes operations for 2009 and future years are highly dependent on the successful marketing and sales of Fortical and could be impacted by
generic or other competition.

Fortical is our only product approved by the FDA. Any factors that adversely impact the marketing of Fortical including,
but not limited to, competition, including generic competition, acceptance in the marketplace, or delays related to production and distribution or regulatory issues, will have a negative impact on our cash flow and operating results. For the first
quarter of 2009, compared to the first quarter of 2008, Fortical sales to USL decreased 51% while Fortical royalties increased 17%. In December 2008, Apotex and Sandoz launched nasal calcitonin products which are generic to Novartis nasal
calcitonin product, but not to Fortical. We do not yet know the ultimate effect on Fortical sales and royalties of the launch of these competing products. It is reasonable to assume that certain providers will substitute these products for Fortical
and, in that event, Fortical sales and royalties would decrease. In addition, Apotex has a pending ANDA for a nasal calcitonin product that we claim infringes our Fortical patent. If we do not prevail in that litigation, then Apotex could be in a
position to market its nasal calcitonin product if and when its pending ANDA receives FDA approval.



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We have significant historical losses and may continue to incur losses in the future.

We have incurred annual losses since our inception. As a result, at March 31, 2009, we had an accumulated deficit of approximately $133,000,000. Our gross revenues
for the quarter ended March 31, 2009, and the years ended December 31, 2008, 2007 and 2006 were $3,191,000, $19,229,000, $20,423,000 and $6,059,000, respectively. Our revenues have not been sufficient to sustain our operations. Revenue for
the quarters ended March 31, 2009 and 2008 primarily consisted of Fortical sales and royalties. As of March 31, 2009, we had three material revenue generating license agreements. We believe that to achieve profitability we will require the
successful commercialization of one or more of our products including our oral and nasal calcitonin products, our oral PTH product, our SDBG program or another peptide product in the U.S. and/or abroad.

For the quarter ended March 31, 2009 we had an operating loss of $2,253,000. For 2008, 2007 and 2006 we had losses from operations of $4,950,000, $3,096,000 and
$10,977,000, respectively. Our net loss for the three months ended March 31, 2009 was $3,275,000. Our net losses for the years ended December 31, 2008, 2007 and 2006 were $6,078,000, $3,448,000 and $11,784,000, respectively. We might never
be profitable.

Our independent registered public accounting firm has added an explanatory paragraph to their audit opinion issued in connection with the
financial statements for each of the years ended December 31, 2008, 2007 and 2006 concerning the substantial doubt about our ability to continue as a going concern. Our ability to generate additional revenue or obtain additional funding will
determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We may require additional funding in the near term to sustain our operations and our ability to secure additional funding is uncertain.

We had a cash flow deficit from operations of $3,393,000 for the three months ended March 31, 2009. We had a cash flow deficit from operations of $8,575,000 for 2008. We generated cash flow from operations of
$3,283,000 for 2007. We had a cash flow deficit from operations of $10,962,000 for the year ended December 31, 2006. We believe that we will generate cash to apply toward funding our operations through sales of Fortical to USL, royalties from
USL sales of Fortical, and/or the achievement of milestones under the Novartis and GSK agreements. However, if USL reduces total orders for Fortical for 2009, or substantially reduces Forticals price to meet generic or other competition, or if
we are unable to achieve milestones and sufficient sales on a timely basis, we would need additional funds from new license agreements or from financings in the near term to continue our operations.

We may be unable to raise on acceptable terms, if at all, the substantial capital resources necessary to conduct our operations. If we are unable to raise the required
capital, we may be forced to limit some or all of our research and development programs and related operations, curtail commercialization of our product candidates and, ultimately, cease operations.

There are numerous default provisions under our financing agreement with Victory Park and the entire principal balance of the note comes due in 2011.

Beginning October 1, 2008, under our financing agreement with Victory Park, so long as our note balance is at least $5,000,000, we must maintain a cash balance
equal to at least 10% of the



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principal amount of the notes and our cash flow (as defined in the agreement) must be at least $2,000,000 in any fiscal quarter or $9,000,000 in any three
consecutive quarters. The agreement specifies certain events of default including, without limitation: failure to pay principal or interest; filing for bankruptcy; breach of covenants, representations or warranties; the occurrence of a material
adverse effect (as defined in the agreement); if Warren Levy or Ronald Levy shall, at any time for reasons other than health or without the endorsement of the other Unigene directors, cease to be employed in the same position with similar duties;
and any material decline or depreciation in the value or market price of the collateral. Upon any default, among other remedies, both principal and interest would be accelerated and additional charges would apply. There are no assurances that we
will have sufficient cash from operations or from new financings to re-pay the Victory Park debt when it comes due in 2011, or that new financings will be available on favorable terms.



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|Item 6. | Exhibits
|------- | --------



|       |  |                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------
|Number |  | Description                                                                                   
|31.1   |  | Certification by Warren P. Levy pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    
|       | 
|31.2   |  | Certification by William Steinhauer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|       | 
|32.1   |  | Certification by Warren P. Levy pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    
|       | 
|32.2   |  | Certification by William Steinhauer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES

Pursuant to the requirements 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.
|                   |  | (Registrant)              
|                   |  |                           
|Date: May 11, 2009 |  | By:                        |  | /s/ Warren P. Levy                                            
|                   |  |                            |  | Warren P. Levy, President                                     
|                   |  |                            |  | (Chief Executive Officer)                                     
|                   |  |                           
|                   |  | By:                        |  | /s/ William Steinhauer                                        
|                   |  |                            |  | William Steinhauer, Vice President of Finance                 
|                   |  |                            |  | (Principal Financial Officer and Principal Accounting Officer)



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UNIGENE LABORATORIES, INC.

INDEX TO EXHIBITS



|     |  |                                                             
|---- |  | ------------------------------------------------------------
|No.  |  | EXHIBIT                                                     
|31.1 |  | Section 302 Certification of the Principal Executive Officer
|     | 
|31.2 |  | Section 302 Certification of the Principal Financial Officer
|     | 
|32.1 |  | Section 906 Certification of the Principal Executive Officer
|     | 
|32.2 |  | Section 906 Certification of the Principal Financial Officer



32