Exhibit 10.3

                             SUBORDINATION AGREEMENT

         THIS  SUBORDINATION  AGREEMENT (the  "Agreement")  is entered into this
13th day of July by and among Unigene Laboratories, Inc., a Delaware corporation
(the "Company"),  Jay Levy, a resident of New Jersey, Warren P. Levy, a resident
of New Jersey,  and Ronald S. Levy, a resident of New Jersey (Warren P. Levy and
Ronald S. Levy are referred to herein individually as a "Subordinated  Creditor"
and collectively as the "Subordinated Creditors").

                                   WITNESSETH:

         WHEREAS,  Jay  Levy  and  the  Subordinated  Creditors  jointly  hold a
promissory  note (the  "March 2 Note"),  dated  March 2, 1995,  in the  original
principal amount of $500,000 issued by the Company; and

         WHEREAS,  Jay  Levy  and  the  Subordinated  Creditors  jointly  hold a
promissory  note (the "June 29  Note"),  dated June 29,  1995,  in the  original
principal amount of $700,000 issued by the Company; and

         WHEREAS,  the aggregate  principal  amount  outstanding and owed by the
Company  to Jay Levy  under the March 2 Note and the June 29 Note as of the date
hereof is $60,000 and the aggregate  amount of accrued and unpaid  interest owed
by the Company to Jay Levy under the March 2 Note and the June 29 Note as of the
date hereof is $103,541; and

         WHEREAS, Jay Levy holds a promissory note (the "Restated Note") of even
date herewith in the principal amount of $1,600,000 issued by the Company; and

         WHEREAS,  the  payment  of the  March 2 Note,  the June 29 Note and the
Restated Note are secured by a security  interest in the  Collateral  granted by
the Company to Jay Levy and the  Subordinated  Creditors  pursuant  that certain
Amended and Restated  Security  Agreement of even date herewith by and among the
Company, Jay Levy and the Subordinated Creditors (the "Security Agreement"); and

         WHEREAS, to induce Jay Levy to make certain of the loans to the Company
evidenced by the Restated Note, each of the Subordinated Creditors has agreed to
subordinate his security  interest in the Collateral to the security interest in
the Collateral granted to Jay Levy, all on the terms set forth herein.

         NOW, THEREFORE, in consideration of the mutual promises made herein and
for other good and valuable consideration,  the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1.  Definitions.

         1.1 All terms used  herein  and not  defined  shall  have the  meanings
ascribed to such terms in the Security Agreement.

         1.2 The  following  terms when used  herein  shall  have the  following
meanings:
                  (a) "Senior  Debt" shall mean all  indebtedness,  liabilities,
and  obligations of the Company to Jay Levy under the Restated Note, the March 2
Note and the June 29 Note, including,  without limitation,  principal,  interest
(including  interest  accruing  after the  bankruptcy  of the  Company) and fees
payable thereunder.

                  (b)   "Subordinated   Debt"   shall  mean  all   indebtedness,
liabilities,  and obligations of the Company to the Subordinated Creditors under
the March 2 Note and the June 29 Note, including, without limitation, principal,
interest and fees payable thereunder.

2.  Subordination.  Each  Subordinated  Creditor  hereby agrees that any and all
liens on and  security  interests  in the  Collateral  granted  by the  Company,
whether pursuant to the Security  Agreement or otherwise,  to such  Subordinated
Creditor to secure any Subordinated Debt is hereby  immediately made subordinate
and  junior  to,  and  postponed  in  priority  and  effect to, the liens on and
security  interests  in the  Collateral  granted by the Company  pursuant to the
Security  Agreement to Jay Levy to secure the Senior Debt,  all as if Jay Levy's
security  interests  had  been  perfected  by the  timely  filing  of  financing
statements  or by any other legal means prior to the time the security  interest
with respect to the  Subordinated  Debt was perfected and prior to the filing of
any financing statements in connection with the Subordinated Debt.

3. Rights to Collect Prior to Subordinated Debt. In the event of, and commencing
with the date of, any dissolution,  winding up,  liquidation,  reorganization or
other similar proceeding relating to the Company,  its creditors or its property
(whether  voluntary  or  involuntary,   partial  or  complete,  and  whether  in
bankruptcy,  insolvency or  receivership,  or upon assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of the Company
or any sale of the assets of the Company), the Senior Debt shall be satisfied in
full in cash or otherwise to the reasonable  satisfaction of Jay Levy before the
Subordinated  Creditors  shall be entitled to receive and/or retain any payment,
distribution,  asset  or  other  property  of  the  Company  in  respect  of the
Subordinated  Debt and,  in order to  implement  the  foregoing,  all  payments,
distributions   or  transfers  of  property  of  any  kind  in  respect  of  the
Subordinated  Debt to which any Subordinated  Creditor would be entitled but for
the  provisions of this  Agreement  shall be made directly to Jay Levy (and each
Subordinated   Creditor  hereby  directs  any  person  making  such  payment  or
distribution to make such payment or distribution directly to Jay Levy).
<PAGE>
4. Postponement of Enforcement. Each Subordinated Creditor hereby agrees that he
shall not attempt to assert,  enforce or take any action in  furtherance  of any
rights or remedies granted pursuant to the Security  Agreement in respect of the
Subordinated  Debt unless and until the Senior Debt shall have been satisfied in
full in cash or otherwise to the reasonable  satisfaction of Jay Levy;  provided
that the foregoing  shall not terminate or otherwise  void the rights granted to
the Subordinated Creditors pursuant to the Security Agreement.

5. Further Assurances.  Each Subordinated  Creditor hereby agrees to execute any
and all such  further  agreements,  documents  and  instruments,  and to take or
refrain from taking any further  action,  as Jay Levy  reasonably may request to
carry into effect the intent of this Agreement.

6. Term.  This Agreement  shall remain in full force and effect until all Senior
Debt  has  been  satisfied  in  full  in cash  or  otherwise  to the  reasonable
satisfaction of Jay Levy.

7.  Binding  Effect.  This  Agreement  shall be binding upon the Company and the
Subordinated Creditors and their respective,  heirs, executors,  administrators,
successors and assigns and shall inure to the benefit of Jay Levy and his heirs,
executors, administrators, successors and assigns.

8. Notices.  Unless otherwise  provided,  any notice required or permitted under
this Agreement shall be given in writing and shall be deemed  effectively  given
(i) on the  same  day if  given  by  personal  delivery,  (ii) on the  following
business day if given by telecopier with  confirmation  of receipt,  or (iii) on
the  following  business day if given by  nationally  recognized  overnight  air
courier, in each case addressed to the party to be notified at:

         110 Little Falls Road
         Fairfield, New Jersey, 07004,
         Attention: [Name of Party]
         Facsimile: 973-227-6088

or at such  other  address  as such  party may  designate  by ten days'  advance
written notice given hereunder to any other party.

9. Waiver. No delay or failure on the part of any party in exercising any right,
privilege,  remedy or option  hereunder shall operate as a waiver of such or any
other right, privilege, remedy or option, and no waiver shall be valid unless in
writing and signed by each party and then only to the extent therein set forth.

10.  Modifications  and  Amendments.  This  Agreement  constitutes  the complete
agreement  between the parties  with  respect to the subject  matter  hereof and
supersedes all prior agreements with respect thereto.  This Agreement may not be
changed, modified or amended orally, but only by a writing signed by all parties
hereto.
<PAGE>
         11.  Applicable  Law. This  Agreement  shall be construed in accordance
with and governed by the laws of the State of New Jersey  without  giving effect
to conflicts of laws principles.

         12.  Severability.  If one or more provisions of this Agreement is held
to be unenforceable  under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision  were so excluded  and shall be  enforceable  in  accordance  with its
terms.

         13.  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts,  each of which shall constitute an original and all of which shall
constitute the same instrument.
<PAGE>
                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed on the day and year first above written.

                                            UNIGENE LABORATORIES, INC.

                                            By:
                                              ----------------------------------
                                                Name:
                                                Title:

                                            ------------------------------------
                                            JAY LEVY

                                            ------------------------------------
                                            WARREN P. LEVY

                                            ------------------------------------
                                            RONALD S. LEVY

                                            Prepared by:

                                            -----------------------
                                            T. Thomas Van Dam, Esq.