Exhibit 10.38

                            PATENT SECURITY AGREEMENT

     THIS PATENT SECURITY AGREEMENT (the "Agreement") is entered into as of this
13th day of March,  2001 by and between UNIGENE  LABORATORIES,  INC., a Delaware
corporation,  having its  principal  place of business at 110 Little Falls Road,
Fairfield,  New Jersey  07004 (the  "Company"),  and Jay Levy, a resident of New
Jersey (the "Secured Party").

                                   WITNESSETH:

     WHEREAS,  the  Secured  Party  has  agreed  to loan  the  Company  $300,000
contemporaneously with execution and delivery hereof (the "New Loan"); which New
Loan is evidenced  by a  promissory  note dated the date hereof (the "New Note")
and

     WHEREAS, the Secured Party, in his sole and absolute discretion, may in the
future make additional  loans ("Future  Loans") to the Company which loans shall
be evidenced by promissory notes ("Future Notes"); and

     WHEREAS,  in order to induce the Secured Party to make the New Loan and any
Future  Loans,  the  Company  has agreed to grant the  Secured  Party a security
interest in the  Collateral  (as  hereinafter  defined) to secure payment by the
Company of the Obligations (as hereinafter defined).

     NOW, THEREFORE,  in consideration of the premises, 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:

1.  Definitions.  The following  terms when used herein shall have the following
definitions:

     1.1  "Collateral"  shall mean (i) the United States  patents  identified on
Exhibit A hereto,  (ii) the United  States  patent  applications  identified  on
Exhibit A hereto and any and all patents that issue with respect thereto,  (iii)
all renewals thereof, (iv) all income,  royalties,  damages and payments now and
hereafter due and/or payable under and with respect thereto, including,  without
limitation, payments under all licenses entered into in connection therewith and
damages and payments for past or future infringements  thereof, (v) the right to
sue for past, present and future infringements thereof, (vi) the goodwill of the
Company's  business  related to the foregoing and in connection  therewith,  and
(vii) all of the Company's rights corresponding thereto throughout the world.

     1.2 "Event of Default" shall mean:

          (a)  an "Event of Default" as defined in (i) the Restated  Note,  (ii)
               the July 30 Note or (iii) the August 5 Note;

          (b)  any occurrence specified in Section 3 of the New Note;

          (c)  any event of default specified in any Future Note; and

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          (d)  any material breach of any representation  made by the Company in
               Section 4 hereof.

     1.3 "Obligations" shall mean all indebtedness,  obligations and liabilities
of every kind and  nature of the  Company  now or  hereafter  existing  under or
arising out of or in  connection  with the New Note,  all Future Notes (if any),
and this Agreement and all extensions, amendments or renewals hereof or thereof,
whether for  principal,  premium,  interest,  or fees, and all or any portion of
such indebtedness, obligations or liabilities that are paid to the extent all or
any part of such payment is avoided or recovered directly or indirectly from the
Secured Party as a preference, fraudulent transfer or otherwise.

2. Grant of Security.  As security for the due and punctual  performance  of the
Obligations,  the Company hereby grants to the Secured Party a security interest
in the Collateral.

3. Release and Satisfaction. Upon the termination of this Agreement, the Secured
Party shall  promptly  deliver to the Company upon  request  therefor and at the
Company's  expense,  releases  and  satisfactions  of all  registrations  of the
security interests granted hereunder.

4. Representations and Warranties. The Company hereby represents and warrants to
the Secured Party that, as of the date hereof:

     4.1.  The Company  owns all of the  Collateral  free and clear of any lien,
encumbrance, mortgage, security agreement, pledge or charge other than a license
agreement,  dated as of July 15,  1997,  between the Company and  Warner-Lambert
Company,  pursuant to which the Company has licensed to  Warner-Lambert  Company
the right to use United States patent No. 5,912,014.

     4.2. The Company is a corporation duly  incorporated,  validly existing and
in good  standing  under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business and own its properties as
now  conducted  and owned.  The  Company is duly  qualified  to do business as a
foreign corporation and in good standing in the State of New Jersey.

     4.3. The Company has full corporate power and authority to execute, deliver
and  perform  this  Agreement  and has  taken  all  requisite  corporate  action
necessary for (i) the  authorization,  execution and delivery of this  Agreement
and (ii) the  performance  of all  obligations  of the Company  hereunder.  This
Agreement  constitutes the legal,  valid and binding  obligation of the Company,
enforceable  against the  Company in  accordance  with its terms  except as such
enforcement   may  be  limited  by  (a)   applicable   bankruptcy,   insolvency,
reorganization,  voidable  preference,  fraudulent  conveyance and other similar
laws  affecting  the  rights or  remedies  of  creditors  generally  and (b) the
exercise of judicial  discretion in accordance with general principles of equity
(whether applied by a court of law or equity).

5. Further Actions. The Company agrees that from time to time, at the expense of
the  Company,  the  Company  will  promptly  execute  and  deliver  all  further
instruments  and  documents  and take all further  action that the Secured Party
reasonably may request in order to perfect the security interest granted hereby,
including the execution,  recording and filing of such  recordation

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statements,  financing or continuation  statements,  or amendments thereto,  and
such other  instruments,  documents or notices,  as the Secured Party reasonably
may request.

6. Covenants. During the term hereof, the Company shall:

     (a) not use or permit any Collateral to be used  unlawfully or in violation
of any  provision of this  Agreement or any  applicable  statute,  regulation or
ordinance or any policy of insurance covering the Collateral;

     (b) pay all applicable  maintenance  fees and other  statutory fees due and
payable with respect to the Collateral;

     (c) take all actions  reasonably  necessary  to defend the  validity of the
Collateral;

     (d)  use its  best  efforts  to  maintain  in full  force  and  effect  the
Collateral;

     (e) pay promptly  when due all property  and other taxes,  assessments  and
governmental  charges  or levies  imposed  upon,  and all  claims  against,  the
Collateral, except to the extent the validity thereof is being contested in good
faith;

     (f) not sell,  assign  (by  operation  of law or  otherwise)  or  otherwise
dispose of any of the Collateral,  except (i) as permitted by this Agreement and
(ii) that the Company may dispose of Collateral that has become obsolete;

     (g) keep reasonable records respecting the Collateral and at all times keep
at least one complete set of its records concerning all of the Collateral at its
chief executive office or principal place of business; and

     (h) not  enter  into any  agreement,  including,  without  limitation,  any
license agreement,  inconsistent with this Agreement without the Secured Party's
prior written consent.

7. Secured  Party May  Perform.  If the Company  fails to perform any  agreement
contained herein, the Secured Party may itself perform, or cause performance of,
such  agreement,  and the expenses of the Secured  Party  incurred in connection
therewith shall be reimbursed by the Company promptly.

8.  Enforcement.  Upon the occurrence of an Event of Default,  the Secured Party
shall have all the rights,  privileges,  powers and remedies of a secured  party
under  the  Uniform  Commercial  Code  and all  other  applicable  laws and such
additional  rights as are set forth herein.  In addition to any other rights and
remedies the Secured Party may have,  the Secured Party may file and record with
the United States Patent and Trademark Office an absolute assignment (as opposed
to a collateral  assignment) of the  Collateral to the Secured Party.  Upon such
assignment,  the Secured  Party may sell,  retain,  or otherwise  dispose of the
Collateral  in the same  manner  as any  other  property  of the  Company  which
constitutes  security  for the  Obligations.  In  addition,  the Company  hereby
irrevocably  constitutes  and appoints the Secured Party (which  appointment  is
coupled  with an  interest)  as its true and lawful  attorney-in-fact  with full
power and authority and in the place and stead of the Company and in the name of
the  Company  or in his own name,  from  time to time,  in the  Secured  Party's
discretion,  for the  purpose  upon the  occurrence  of an Event

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of Default of  executing  and filing  such  assignment  of the  Collateral,  and
executing on behalf and in the name of the Company any and all  instruments  and
documents  and to take any and all  appropriate  action  in  furtherance  of the
foregoing.

9. Use of Income.  Until the  occurrence  of an Event of  Default,  the  Company
reserves the right to receive all income and royalties from the Collateral.

10.  Termination.  This  Agreement  shall  terminate  at such time as all of the
Obligations  shall have been  indefeasibly  fully paid and satisfied  and, until
such time, the Secured Party shall retain all security in the Collateral held by
it hereunder.

11. Binding  Effect.  This  Agreement  shall be binding upon the Company and its
successors  and assigns and shall inure to the benefit of the Secured  Party and
his heirs, executors, administrators, successors and assigns.

12. 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: Warren P. Levy, President
               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.

13.  Waiver.  No delay or failure on the part of the Secured 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 the  Secured  Party and then only to the
extent therein set forth.

14.  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.

15.  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.

16.  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.

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     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: /s/ Ronald S. Levy
                                        ---------------------------------------
                                        Name:  Ronald S. Levy
                                        Title: Executive Vice President


                                        /s/ Jay Levy
                                        ---------------------------------------
                                        JAY LEVY