Unigene Breaks Ground for China JV Facility

Unigene Laboratories, Inc. (UGNE.OB) of Fairfield, NJ has started construction of a facility that will house the operations of its China joint venture, the Unigene Biotechnology Co. Ltd. The new facility will be located in the Shijiazhuang Economic and Technology Development Zone of Hebei Province.

Unigene owns 45% of the JV; the other 55% is owned by Shijiazhuang Pharmaceutical Group Corporation [SPG] together with two subsidiaries: the China Pharmaceutical Group Ltd. [CPG], a publicly traded company based in Hong Kong, and NBP Pharmaceutical Company Ltd. [NBP].

At the outset, the JV will manufacture injectable, nasal and oral formulations of calcitonin, an osteoporosis treatment, and injectable and nasal formulations of parathyroid hormone. The calcitonin product will be aimed initially at the China market, with a possibility that global sales will follow.

Instead of cash, Unigene will contribute to the JV its patented technology for producing peptides such as calcitonin and corresponding delivery technologies. Unigene’s revenue-generating product is Fortical, a nasally delivered form of calcitonin that treats postmenopausal osteoporosis. The US marketing rights to Fortical, which was approved by the FDA in August 2005, were out-licensed to Upsher-Smith Laboratories. Unigene continues to manufacture the product. Unigene recorded $16.1 million in sales to Upsher-Smith for the product in 2007.

The initial capital for the JV will be supplied by SPG/CPG and is also contributing the land. Unigene will be responsible for just $1.05 million of the total $7 million of startup capital. However, SPG/CPG will extend a two-year, interest-free loan to Unigene for its share of the cash contribution. Also, any additional cash infusions from Unigene will be limited to $1.2 million and SPG/CPG has agreed to cover these obligations for Unigene under similar terms. Unigene will be able to lower its hard money responsibilities by either contributing additional technologies to the JV or by selling a portion of its 45% stake in the JV to another party.

Unigene has also out-licensed the worldwide rights for its oral human parathyroid hormone [PTH] technology to GlaxoSmithKline (NYSE: GSK) and the worldwide rights for its calcitonin manufacturing technology to Novartis (NYSE: NVS). It was not clear how the agreement with Novartis affects the new China JV.

The four story structure being built by the JV is located on a 215,000 square foot plot in the Shijiazhuang park. It will include space for research, development, formulation and manufacturing. The R&D facilities will be completed first, probably by the end of the year. The manufacturing facilities should be ready to begin initial operations and validation in mid-2009.

The JV will also consider additional programs in blood substitutes, diabetes and osteoporosis. And the JV announced its intention to consider acquiring products, either approved or in development (if they seem quickly approvable), that would speed the financial success of the JV.

Unigene announced a $3.4 million loss on revenues of $20.4 million in 2007. It has $3.3 million in cash on hand and has said it is seeking additional sources of funding.

Disclosure: none.