Filed pursuant to Rule 424B3
Registration No. 333-87104

PROSPECTUS

Unigene Laboratories, Inc.

2,700,000 Shares of Common Stock

This prospectus relates to the sale of up to 2,700,000 shares of our common
stock by the selling shareholders named under "Selling Shareholders," consisting
of 2,300,000 shares of common stock currently outstanding and 400,000 shares
issuable under a letter agreement. We will not receive proceeds from the sale of
our shares by the selling shareholders.

Our common stock is quoted on the Over-the-Counter Bulletin Board under the
symbol "UGNE." On May 13, 2002, the last reported sale price for our common
stock as reported on the Over-The-Counter Bulletin Board was $0.57 per share.

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Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 3 for a discussion of these risks.

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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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The date of this Prospectus is May 14, 2002.

TABLE OF CONTENTS

PROSPECTUS SUMMARY................................................1
RISK FACTORS......................................................3
FORWARD-LOOKING STATEMENTS.......................................10
USE OF PROCEEDS..................................................10
PRICE RANGE OF COMMON STOCK......................................11
DIVIDEND POLICY..................................................11
SELECTED FINANCIAL DATA..........................................12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................14
BUSINESS.........................................................23
MANAGEMENT.......................................................31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................37
PRINCIPAL STOCKHOLDERS...........................................38
DESCRIPTION OF CAPITAL STOCK.....................................40
SELLING STOCKHOLDERS.............................................41
PLAN OF DISTRIBUTION.............................................42
LEGAL MATTERS....................................................43
EXPERTS..........................................................43
ADDITIONAL INFORMATION...........................................43
INDEX TO FINANCIAL STATEMENTS....................................F-1

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Prospectus Summary

The following summary highlights information contained elsewhere in this
prospectus. It may not contain all of the information that is important to you.
You should read the entire prospectus carefully, especially the discussion
regarding the risks of investing in Unigene common stock under the heading "Risk
Factors," before investing in Unigene common stock. "Unigene(R),"
"Forcaltonin(R)," and "Fortical(R)" are registered trademarks of Unigene
Laboratories, Inc.

Business

Parathyroid Hormone. Parathyroid hormone is a natural peptide involved in
the regulation of bone formation. Several analogs of PTH have demonstrated the
ability to build new bone, and PTH could be the first of a new generation of
bone building agents to be used alone or in combination with other currently
available osteoporosis drugs, which principally act to prevent further bone
loss. In human trials conducted by other companies, human PTH has been found to
form new bone and to reduce fracture. Agents that can induce bone formation are
widely viewed as the next critical advance in the treatment of osteoporosis. In
2001, using the same animal model testing systems that we have used successfully
to demonstrate the oral delivery of calcitonin, we were able to show that our
patented oral delivery technology could deliver significant blood levels of PTH.
We believe that our proprietary technologies will enable the development of a
commercially viable oral product that can deliver therapeutic doses of PTH.
Other companies are also developing PTH products.

On April 13, 2002, we completed a licensing agreement with GlaxoSmithKline,
which we refer to as GSK, to develop an oral formulation of an analog of PTH,
currently in preclinical development, for the treatment of osteoporosis. Under
the terms of the agreement, GSK will receive an exclusive worldwide license to
develop and commercialize the product. In return, GSK made a $2 million up-front
licensing fee payment and a $1 million milestone payment to us and could make
subsequent milestone payments in the aggregate amount of $147 million, subject
to the progress of the compound through clinical development and through to the
market. In addition, GSK will fund all development activities during the
program, including Unigene's activities in the production of raw material for
development and clinical supplies, and will pay Unigene a royalty on its
worldwide sales of the product. The royalty rate will be increased if certain
sales milestones are achieved. This agreement is subject to certain termination
provisions.

... Injectable Calcitonin. Our injectable calcitonin product, which has the
trade name FORCALTONIN(R), has been approved for the treatment of Paget's
disease, a genetic bone disorder, and hypercalcemia, a disorder associated
with high calcium blood levels, in the 15 member states of the European
Union. This product was approved in 2001 in Switzerland for the treatment
of osteoporosis and other indications. Sales to date of this product have
been minimal.

... Nasal Calcitonin. In 2000 and 2001, we successfully completed human studies
demonstrating similar blood levels between our formulation and that of an
existing nasal calcitonin product and also showed significant bone marker
activity. We expect to file a New Drug Application, or NDA, with the U.S.
Food and Drug Administration, or FDA, around mid-year 2002. We are seeking
to license our nasal calcitonin product in the U.S. and other countries for
the treatment of osteoporosis.

... Oral Calcitonin. In 1997, we entered into an agreement under which we
granted to the Parke-Davis division of Warner-Lambert Company (which merged
with Pfizer in June 2000), a worldwide license to make, use and sell our
oral calcitonin technology. In December 1999, Warner Lambert filed an
Investigational New Drug Application with the FDA for the conduct of human
trials in the United States of our oral calcitonin product as a treatment
for osteoporosis. Pfizer began a Phase I/II human study in April 2000 and
patient dosing for this study was completed in December 2000. Pfizer
analyzed the results of the study and informed us in March 2001 that the
study did not achieve Pfizer's desired results. Pfizer terminated the
license agreement citing this

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conclusion. We believe that this study, in which an FDA approved product
also did not work and which produced results contrary to many published
studies, was not capable of determining the performance of our oral
calcitonin product. We also believe that the results would have been more
favorable if patients in the study had also received calcium
supplementation, in addition to calcitonin. Therefore, we intend to
continue the development of our oral calcitonin product as a treatment for
osteoporosis, and we are seeking potential licensees in the U.S. and other
countries. In addition, due to the termination of the Pfizer agreement, we
no longer have restrictions on selling bulk calcitonin and rights to all
technologies and information developed in the course of the collaboration
have reverted to Unigene.

Our business strategy is to utilize our patented manufacturing and oral
delivery technologies to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
milestone payments, royalties on third-party sales and direct sales of bulk or
finished products. Generally, we fund our internal research activities and, due
to our limited financial resources, intend to rely on licensees, which are
likely to be established pharmaceutical companies, to provide development
funding. We also generally expect to rely on these licensees to take
responsibility for obtaining appropriate regulatory approvals, human testing,
and marketing of products derived from our research activities. However, we may,
in some cases, retain the responsibility for human testing and for obtaining the
required regulatory approvals for a particular product.

Corporate Information

Unigene is incorporated under the laws of the State of Delaware. Our
executive offices are located at 110 Little Falls, Fairfield, New Jersey 07004,
and our telephone number at this location is (973) 882-0860. The address of our
web site is www.unigene.com. Information on our web site is not part of this
prospectus.

Unigene Common Stock

Unigene common stock trades on the OTC Bulletin Board under the symbol
"UGNE."

The Offering

The selling stockholders are offering for sale up to 2,700,000 shares of
our common stock. The shares being offered for sale consist of 2,000,000 shares
of our common stock that we issued under a settlement agreement to The Tail Wind
Fund, Ltd., which we refer to as Tail Wind, 300,000 shares issued to Patrick
Tedesco under a letter agreement and up to 400,000 shares of our common stock
issuable under a letter agreement with Annette North.

As of April 15, 2002, there were 56,523,314 shares of Unigene common stock
outstanding, including the 2,000,000 shares that Unigene has issued to Tail
Wind, but not including the 300,000 shares that we issued under the letter
agreement to Mr. Tedesco and the 400,000 shares that are issuable under the
letter agreement to Ms. North. The number of shares offered by this prospectus
represent 4.7% of the total number of shares of common stock outstanding as of
April 15, 2002, assuming the issuance of 700,000 shares under the letter
agreements.

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Risk Factors

An investment in Unigene common stock involves a high degree of risk. You
should carefully consider the following factors and other information in this
prospectus before deciding to invest in shares of Unigene common stock. If any
of the following risks actually occur, our business, financial condition,
results of operations and prospects for growth would likely suffer. As a result,
the trading price of Unigene common stock could decline, and you could lose all
or part of your investment.

Prospective investors should consider carefully these factors concerning
our business before purchasing the securities offered by this prospectus. We
make various statements in this section which constitute "forward-looking
statements" under Section 27A of the Securities Act of 1933, as amended, which
we refer to as the Securities Act. See "Forward-Looking Statements."

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

We have incurred annual operating losses since our inception. As a result,
at December 31, 2001, we had an accumulated deficit of approximately
$87,850,000. Our gross revenues for the years ended December 31, 2001, December
31, 2000 and 1999 were $865,000, $3,287,000 and $9,589,000, respectively.
However, our revenues have not been sufficient to sustain our operations.
Revenues for 2000 and 1999 consisted principally of milestone payments and other
fees received in connection with our terminated license agreement with Pfizer.
Our injectable calcitonin product has been approved for commercial sale in a
number of European countries, but we do not anticipate that these sales will
produce significant revenues. During the same periods, we have incurred losses
from operations of $10,957,000, $11,385,000 and $1,997,000, respectively. Our
net losses for the years ended December 31, 2001, 2000 and 1999 were
$12,472,000, $12,469,000 and $1,577,000, respectively. We believe that the
profitability of Unigene will require the successful commercialization of one or
more of our peptide products in the United States and abroad. Unigene might
never be profitable.

We will require additional financing to sustain our operations, and our ability
to secure additional financing is uncertain.

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. Our future capital
requirements will depend on many factors, including:

. continued scientific progress in our discovery and research programs;
. progress with preclinical studies and clinical trials;
. the magnitude and scope of our discovery, research and development
programs;
. our ability to maintain existing, and establish additional, corporate
partnerships and licensing arrangements;
. our ability to sell and market our products;
. the time and costs involved in obtaining regulatory approvals;
. the time and costs involved in expanding and maintaining our
production facility;
. the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims;
. the potential need to develop, acquire or license new technologies and
products; and
. other factors beyond our control.

At December 31, 2001, we had a working capital deficiency of approximately
$22,100,000. The independent auditors' report for the year ended December 31,
2001 includes an explanatory paragraph stating that our recurring losses from
operations and working capital deficiency discussed above raise substantial
doubt about our ability to continue as a going concern. We had operating cash
flow deficits of $1,400,000, $3,382,000 and $7,122,000 for the years ended
December 31, 1999, 2000, and 2001, respectively. We do not have sufficient
financial resources to fund our operations at the current level. Therefore, we
need additional funds to continue our operations. On May 9, 2001, we entered
into a common stock purchase agreement with Fusion Capital Fund II, LLC, which
we refer to as Fusion, under which Fusion has committed to purchase on each
trading day during the term of the agreement $43,750 of our common stock up to
an aggregate of $21,000,000. Our agreement with Fusion has provided us with some
cash to fund our operations, but it alone has not been sufficient to satisfy all
of our working capital needs. From May 18, 2001 through April 15, 2002 we raised
a total of $3,270,730 through the sale of 7,786,374 shares of our common stock
to Fusion, before cash expenses of approximately $420,000. The extent to which
we intend to

rely on Fusion as a source of financing will depend on a number of factors,
including the prevailing market price of our common stock and the extent to
which we are able to secure working capital from other sources, such as through
the entry into licensing agreements or the sale of calcitonin, both of which we
continue to explore. If we are unable to generate significant funding from our
license with GSK or from another license or financing arrangement in the near
term, we will need to significantly curtail our operations. We also could
consider a sale or merger of Unigene.

Even if we are able to access the remaining $17,779,270 under the common
stock purchase agreement with Fusion at April 15, 2002, we may still need
additional capital to fully implement our business, operating and development
plans. We only have the right to receive $43,750 per trading day under the
common stock purchase agreement unless our stock price equals or exceeds $4.00
per share, in which event the daily purchase amount may be increased. However,
our sales of common stock to Fusion have been well below that level due to the
share price and trading volume of our common stock and due to our desire to keep
dilution to a minimum. In addition, the agreement may be terminated by Fusion at
any time due to events of default under the agreement. See "Business - Fusion
Financing."

Our agreement with Fusion may prohibit us from raising funds through other
equity financings. The agreement expressly prohibits us from selling equity
securities in other variable priced financings without Fusion's consent. In
addition, the sale of our common stock to Fusion could cause the price of our
common stock to decline. If our stock price declines, we may be unable to raise
additional funds through the sale of our common stock to others. If we are able
to sell shares of our common stock, the sales could result in significant
dilution to our stockholders.

We believe that satisfying our long-term capital requirements will require
at least the successful commercialization of one of our peptide products.
However, our products may never become commercially successful.

We may not be successful in our efforts to develop a PTH product under our
license agreement with GlaxoSmithKline.

We recently executed a license agreement with GSK to develop an oral
formulation of an analog of PTH currently in preclinical development for the
treatment of osteoporosis. We are currently dependent upon the licensing fee
payments and future milestone payments from GSK to support our current and
future operations.

There is a risk that our license agreement with GSK may not lead to the
successful development of a PTH product. GSK, at its expense, will be
responsible for the development, marketing and distribution of the PTH product.
These responsibilities will include conducting clinical trials and obtaining all
necessary regulatory approvals in each country where the product is sold,
including the approval of the FDA. As a result, we have no control over the
further development of the PTH product.

Under the license agreement, GSK made a $2 million up-front licensing fee
payment and a $1 million milestone payment to us and could make subsequent
milestone payments in the aggregate amount of $147 million, subject to the
achievement of specific milestones. However, there is a risk that we may not
achieve the milestones necessary to receive future payments.

In addition, under the terms of the license agreement, GSK may terminate
the license agreement (i) for a material breach by Unigene, (ii) for the
bankruptcy or insolvency of Unigene, (iii) any time after one year from the
effective date due to 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 or (iv) if Unigene fails
to fulfill certain mandatory obligations by a date certain, which obligations
require the cooperation of third parties. Some of the events giving rise to
termination are beyond our control, and there is a risk that some of them may in
fact occur. Likewise, we cannot be certain that the required third parties will
cooperate with us, which would then allow GSK to terminate the license
agreement.

If the PTH milestones are not achieved or the product is not successfully
developed, or if GSK terminates the license agreement, we may not receive
milestone payments necessary to meet our working capital needs.

Some of our executives have made loans to Unigene and are entitled to remedies
available to a secured creditor, which gives them a priority over the holders of
our common stock. We granted similar rights to Tail Wind.

Some of our executives have made loans to us under promissory notes. Our
obligations under these promissory notes are secured by, among other things,
mortgages upon all of the real property owned by us and pledges of substantially
all of our assets. If we become insolvent or are liquidated, or if payment under
the promissory notes are accelerated, the holders of the promissory notes will
be entitled to exercise the remedies available to a secured lender under
applicable law which would entitle them to full repayment before any funds could
be paid to our shareholders.

Under the terms of the settlement agreement with Tail Wind, we issued to
Tail Wind a $1 million secured promissory note due in February 2005. Our
obligation to repay the note is secured by, among other things, a mortgage on
the real property owned by us and pledges of our fixed assets in Fairfield, New
Jersey. If a default occurs under the note or the security documents, Tail Wind
will also be entitled to remedies generally available to a secured lender, which
would entitle Tail Wind to full payment before any funds could be paid to our
shareholders.

We may not be successful in our efforts to develop peptide products that will
produce revenues sufficient to sustain our operations.

Our success depends on our ability to develop and the ability of our
partners to develop and commercialize peptide products that will produce
revenues sufficient to sustain our operations. We may never develop peptide
products that make us profitable. Our ability to achieve profitability is also
dependent on other factors, including our ability to obtain regulatory approval
for our product candidates.

We believe that the development of more desirable formulations is essential
to expand consumer acceptance of peptide pharmaceutical products. However, we
may not be successful in our development efforts, or other companies may develop
these products before we do.

Even if we are successful in our development efforts, we may not be able to
obtain the necessary regulatory approval for our products. The FDA must approve
the commercial manufacture and sale of pharmaceutical products in the United
States. Similar regulatory approvals are required for the sale of pharmaceutical
products outside of the United States. Although we have received regulatory
approval in the European Union and Switzerland for the sale of our injectable
calcitonin product, none of our products have been approved for sale in the
United States, and our products may never receive the approvals necessary for
commercialization. We must conduct further human testing on certain of our
products before they can be approved for commercial sale. Any delay in
receiving, or failure to receive, these approvals would adversely affect our
ability to generate product revenues.

If any of our products are approved for commercial sale, we will need to
manufacture the product in commercial quantities at a reasonable cost in order
for it to be a successful product that will generate profits. Because of our
limited clinical, manufacturing and regulatory experience and the lack of a
marketing organization, we are likely to rely on licensees or other parties to
perform one or more tasks for the commercialization of pharmaceutical products.
We may incur additional costs and delays while working with these parties, and
these parties may ultimately be unsuccessful.

We have made a substantial investment in our production facility which we will
need to upgrade or expand in order to manufacture some of our products in
commercial quantities required by our corporate partners.

We have constructed and are operating a facility intended to produce
calcitonin, PTH and other peptides. This facility has been approved by European
regulatory authorities for the manufacture of calcitonin for human use, but has
not yet been inspected or approved by the FDA. The risks associated with this
facility include the failure to achieve targeted production and profitability
goals, the development by others of superior processes and products, and the
absence of a market for products produced by the facility. In addition, the
successful commercialization of any of our products may require us to make
additional expenditures to expand or upgrade our manufacturing operations. We
may be unable to make these capital expenditures when required.

We are dependent on partners for the commercial development of our products.

We do not currently have, nor do we expect to have in the near future,
sufficient financial resources and personnel to develop and market our products
on our own. Accordingly, we expect to continue to depend on pharmaceutical
partners for revenues from sales of products, research sponsorship and
distribution of our products.

The process of establishing partnerships is difficult and time-consuming.
Our discussions with potential partners may not lead to the establishment of new
partnerships on favorable terms, if at all. If we successfully establish new
partnerships, the partnerships may never result in the successful development of
our product candidates or the generation of significant revenue. Management of
our relationships with these partners would require:

. significant time and effort from our management team;
. coordination of our research with the research priorities of our
corporate partners;
. effective allocation of our resources to multiple projects; and
. an ability to attract and retain key management, scientific and other
personnel.

We may not be able to manage these relationships successfully.

We currently have one worldwide license for our PTH product. We are
pursuing opportunities to license or enter into distribution arrangements for,
our oral, nasal and injectable calcitonin products, as well as other possible
peptide products. However, we may not be successful in any of these efforts.

In June 2000, we entered into a joint venture with a pharmaceutical company
in the People's Republic of China for the manufacture and distribution of
injectable and nasal calcitonin products in China and possibly other Asian
markets, for the treatment of osteoporosis. The joint venture began operations
in March 2002 and commenced sales of the injectable calcitonin product in April
2002. However, it is uncertain whether it will generate meaningful revenues or
profits for Unigene. We also have entered into distribution agreements for our
injectable formulation of calcitonin in the United Kingdom, Ireland and Israel.
To date, we have not received material revenues from these distribution
agreements.

Because we are a biopharmaceutical company, our operations are subject to
extensive government regulations.

Our laboratory research, development and production activities, as well as
those of our collaborators and licensees, are subject to significant regulation
by federal, state, local and foreign governmental authorities. In addition to
obtaining FDA approval and other regulatory approvals for our products, we must
obtain approvals for our manufacturing facility to produce calcitonin and other
peptides for human use. The regulatory approval process for a pharmaceutical
product requires substantial resources and may take many years. Our inability to
obtain approvals or delays in obtaining approvals would adversely affect our
ability to continue our development program, to manufacture and sell our
products, and to receive revenue from milestone payments, product sales or
royalties.

The FDA or other regulatory agencies may audit our production facility at
any time to ensure compliance with current Good Manufacturing Practice, referred
to as cGMP. These guidelines require that we conduct our production operations
in strict compliance with our established rules for manufacturing and quality
controls. Any of these agencies can suspend production operations and product
sales if they find significant or repeated changes from these guidelines. A
suspension would likely cause us to incur additional costs or delays in product
development.

If our products receive regulatory approval, our competitors may eventually
include large pharmaceutical companies with superior resources.

Unigene is engaged in a rapidly changing and highly competitive field. To
date, Unigene has concentrated its efforts primarily on one product --
calcitonin -- for treating osteoporosis and other indications. During 2001, we
began developing other peptide products, including parathyroid hormone for
osteoporosis which we licensed to GSK in April 2002. Like the market for any
pharmaceutical product, the market for treating osteoporosis and these other
indications has the potential for rapid, unpredictable and significant
technological change. Competition is intense from specialized biotechnology
companies, major pharmaceutical and chemical companies and universities and
research institutions. We currently have no products approved for sale in the
U.S. If we are successful in obtaining approval for one of our products, our
future competitors will have substantially greater financial resources, research

and development staffs and facilities, and regulatory experience than we do.
Major companies in the field of osteoporosis treatment include Novartis, Wyeth,
Merck, Eli Lilly, and Procter and Gamble. We would be able to compete with these
companies only if we have partnered with a major pharmaceutical or biotechnology
company. Any one of these entities could, at any time, develop products or a
manufacturing process that could render our technology or products
noncompetitive or obsolete.

Our success depends upon our ability to protect our intellectual property
rights.

We filed applications for U.S. patents relating to proprietary peptide
manufacturing technology and oral formulations that we have invented in the
course of our research. To date, eight U.S. patents have issued and other
applications are pending. We have also made patent application filings in
selected foreign countries and numerous foreign patents have issued. We face the
risk that any of our pending applications will not issue as patents. Our
business also is subject to the risk that our issued patents may be invalidated
or will not provide us with significant competitive advantages if, for example,
a competitor were independently to develop or obtain similar or superior
technologies. To the extent we are unable to protect our patents and patent
applications, our investment in those technologies may not yield the benefits
that we expect.

We also rely on trade secrets to protect our inventions. Our policy is to
include confidentiality obligations in all research contracts, joint development
agreements and consulting relationships that provide access to our trade secrets
and other know-how. However, parties with confidentiality obligations could
breach their agreements causing us harm. If a secrecy obligation were to be
breached, we may not have the financial resources necessary for a legal
challenge. If licensees, consultants or other third parties use technological
information independently developed by them or by others in the development of
our products, disputes may arise from the use of this information and as to the
ownership rights to products developed using this information. These disputes
may not be resolved in our favor.

Our technology or products could give rise to product liability claims.

Our business exposes us to the risk of product liability claims that are a
part of human testing, manufacturing and sale of pharmaceutical products. The
administration of drugs to humans, whether in clinical trials or commercially,
can result in product liability claims even if our products are not actually at
fault for causing an injury. Furthermore, our products may cause, or may appear
to cause, adverse side effects or potentially dangerous drug interactions that
we may not learn about or understand fully until the drug is actually
manufactured and sold. Product liability claims can be expensive to defend and
may result in large judgments against us. Even if a product liability claim is
not successful, the adverse publicity, time and expense involved in defending
such a claim may interfere with our business. We may not have sufficient
resources to defend against or satisfy these claims. Although we maintain
$2,000,000 in product liability insurance coverage, this amount may not be
sufficient to protect us against losses or may be unavailable in the future on
acceptable terms, if at all.

We may be unable to retain key employees or recruit additional qualified
personnel.

Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. There
is intense competition for qualified personnel in our business. Therefore, we
may not be able to attract and retain the qualified personnel necessary for the
development of our business. The loss of the services of existing personnel, as
well as the failure to recruit additional key scientific, technical and
managerial personnel in a timely manner would harm our research and development
programs and our business.

Dr. Warren Levy and Dr. Ronald Levy have been our principal executive
officers since our inception. We rely on them for their leadership and business
direction. Each of them has entered into an agreement with us providing that he
shall not engage in any other employment or business for the period of his
employment with us. However, each of them is only bound by his respective
employment agreement to provide services for a one-year term. The loss of the
services of either of these individuals could significantly delay or prevent the
achievement of our scientific and business objectives.

The market price of our common stock is volatile.

The market price of our common stock has been, and we expect it to continue
to be, highly unstable. Factors including our announcement of technological
improvements or announcements by other companies, regulatory matters, research
and development activities, new or existing products or procedures, signing or
termination of licensing agreements, concerns about our financial condition,
operating results, litigation, government regulation,

developments or disputes relating to agreements, patents or proprietary rights,
and public concern over the safety of activities or products have had a
significant impact on the market price of our stock. We expect such factors to
continue to impact the market price of our common stock for the foreseeable
future. In addition, potential dilutive effects of future sales of shares of our
common stock by Unigene, including sales to Fusion and upon the exercise of
Unigene outstanding and future warrants and options, could have an adverse
effect on the price of our stock.

Our common stock is classified as a "penny stock" under SEC rules which may make
it more difficult for our stockholders to resell our common stock.

Our common stock is traded on the OTC Bulletin Board. As a result, the
holders of our common stock may find it more difficult to obtain accurate
quotations concerning the market value of the stock. Stockholders also may
experience greater difficulties in attempting to sell the stock than if it was
listed on a stock exchange or quoted on the Nasdaq National Market or the Nasdaq
Small-Cap Market. Because Unigene common stock is not traded on a stock exchange
or on the Nasdaq National Market or the Nasdaq Small-Cap Market, and the market
price of the common stock is less than $5.00 per share, the common stock is
classified as a "penny stock." Rule 15g-9 of the Securities Exchange Act of 1934
imposes additional sales practice requirements on broker-dealers that recommend
the purchase or sale of penny stocks to persons other than those who qualify as
an "established customer" or an "accredited investor." This includes the
requirement that a broker-dealer must make a determination that investments in
penny stocks are suitable for the customer and must make special disclosures to
the customer concerning the risks of penny stocks. Application of the penny
stock rules to our common stock could adversely affect the market liquidity of
the shares, which in turn may affect the ability of holders of our common stock
to resell the stock.

The sale of our common stock to Fusion could cause the price of our common stock
to decline.

All of the shares purchased by Fusion under the common stock purchase
agreement are freely tradeable. Fusion may sell none, some or all of the shares
of common stock purchased from Unigene at any time. We have been advised by
Fusion that it will sell the shares purchased under the common stock purchase
agreement over a period of up to 24 months from May 2001. Depending upon market
liquidity at the time, the resale by Fusion of shares at any given time could
cause the trading price of our common stock to decline. The sale by Fusion of a
substantial number of shares purchased from us, or the anticipation of such
sales, could make it more difficult for us to sell equity or equity related
securities in the future at a time and at a price that we might otherwise wish
to effect sales. However, Fusion has agreed that it will not sell or otherwise
transfer the 2,000,000 commitment shares or the 1,000,000 shares of common stock
issuable upon the exercise of the warrant that we issued to Fusion as part of
its commitment fee until the earlier of the termination of the common stock
purchase agreement, the occurrence of an event of default by us under the
agreement or May 2003.

The sale of common stock to Fusion could cause substantial dilution of our
common stock and significantly impact our capital structure.

The price at which Fusion is obligated to purchase shares of our common
stock under the common stock purchase agreement will fluctuate based on the
market price of our common stock. See "Business - Fusion Financing" for a
detailed description of the purchase price.

If Fusion purchased the remaining balance of $17,729,270 purchasable under
the common stock purchase agreement, at a price equal to $.88, the closing sale
price of our common stock on April 15, 2002, Fusion would be able to purchase an
additional 20,146,898 shares of our common stock. These shares, along with the
2,000,000 shares and the 1,000,000 shares of common stock issuable upon the
exercise of the warrant which was issued to Fusion as a commitment fee, would
represent 30% of our outstanding common stock as of April 15, 2002.

The issuance of these shares would result in significant dilution to the
ownership interests of other holders of our common stock. The amount of dilution
would be higher if the market price of our common stock is lower than the
current market price at the time Fusion purchases shares under the common stock
purchase agreement, as a lower market price would cause more shares of our
common stock to be issuable to Fusion. Subsequent sales of these shares in the
open market by Fusion may also have the effect of lowering our stock price,
thereby increasing the number of shares issuable under the common stock purchase
agreement and consequently further diluting our outstanding shares. Although we
have the right to reduce or suspend Fusion purchases at any time, the financial
condition of Unigene at the time may require Unigene to waive its right to
suspend purchases even if there is a decline in the market price. If the closing
sale price of our common stock is at least $4.00 for five (5) consecutive

trading days, we have the right to increase the daily purchase amount above
$43,750, provided the closing sale price of our common stock remains at least
$4.00.

The existence of the agreement with Fusion to purchase shares of Unigene common
stock could cause downward pressure on the market price of the Unigene common
stock.

Both the actual dilution and the potential for dilution resulting from
sales of Unigene common stock to Fusion could cause holders to elect to sell
their shares of Unigene common stock, which could cause the trading price of the
Unigene common stock to decrease. In addition, prospective investors
anticipating the downward pressure on the price of the Unigene common stock due
to the shares available for sale by Fusion could refrain from purchases or cause
sales or short sales in anticipation of a decline of the market price, which may
itself cause the price of our stock to decline.

The issuance of our common stock to Tail Wind could cause the price of our
common stock to decline.

On April 9, 2002, Unigene and Tail Wind entered into a settlement agreement
whereby Unigene issued to Tail Wind a $1 million secured promissory note and two
million shares of common stock. Generally, the two million shares are being held
in escrow and will be delivered to Tail Wind at a rate of 50,000 shares per week
over a 40-week period, depending on trading volume. Tail Wind may sell none,
some or all of the shares of common stock issued to it at any time. Depending
upon market liquidity, the resale of the shares by Tail Wind could cause the
trading price of our common stock to decline. In addition, prospective investors
anticipating the downward pressure on the price of our common stock due to the
shares available for sale by Tail Wind could refrain from purchases or cause
sales or short sales in anticipation of a decline of the market price, which may
itself cause the price of our stock to decline.

Forward-Looking Statements

Various statements that we make in this prospectus under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
prospectus are "forward-looking statements" within the meaning of Section 27A of
the Securities Act. These forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or activities of our business, or industry results, to be materially
different from any future results, performance or activities expressed or
implied by the forward-looking statements. These factors include: general
economic and business conditions, 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 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 failure
to obtain regulatory approvals for our products and other factors discussed in
this prospectus.

Use of Proceeds

The sale of our common stock in this offering by the selling stockholders
will be for their own accounts, and Unigene will not receive any of the proceeds
from the sale.

Price Range of Common Stock

The Unigene common stock is quoted on the OTC Bulletin Board under the
symbol UGNE. The following table presents, for the periods indicated, the high
and low sales prices per share of the Unigene common stock as reported on the
OTC Bulletin Board.

Fiscal Year Ended December 31, 2000 High Low
----- -----
First Quarter $5.38 $0.54
Second Quarter $3.66 $1.44
Third Quarter $3.03 $2.00
Fourth Quarter $3.00 $0.97

Fiscal Year Ended December 31, 2001 High Low
---- ---
First Quarter $1.88 $0.38
Second Quarter $0.65 $0.33
Third Quarter $0.44 $0.19
Fourth Quarter $0.66 $0.33

Fiscal Year Ended December 31, 2002 High Low
---- ---
First Quarter $0.88 $0.53
Second Quarter (through May 13) $0.92 $0.53

On May 13, 2002, the last reported sale price of the Unigene common stock
on the OTC Bulletin Board was $0.57. As of April 15, 2002, there were 492
holders of record of the Unigene common stock.

Dividend Policy

We have never paid a cash dividend on our common stock, and we do not
anticipate paying cash dividends in the foreseeable future. Instead, we
currently plan to retain all earnings, if any, for use in the operation of our
business and to fund future growth.

Selected Financial Data

The selected financial data as of December 31, 2001 and 2000, and for the
years ended December 31, 2001, 2000 and 1999, that is set forth below have been
derived from Unigene's financial statements included in this prospectus, which
have been audited by KPMG LLP, independent accountants. The audit report of KPMG
LLP covering the December 31, 2001 financial statements contains an explanatory
paragraph that states that the Company's recurring losses from operations and
working capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty. The selected
financial data below as of December 31, 1999, 1998 and 1997, and for the years
ended December 31, 1998 and 1997 have been derived from our audited financial
statements that are not included in this prospectus. Historical results are not
necessarily indicative of results to be expected for any future period. You
should read the data below together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes included in this prospectus.

STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)

Year Ended December 31,
-------------------------------------- --------
2001 2000 1999 1998 1997
-------- ------- ------- ------- --------

Revenue:
Licensing & other revenue $ 865 3,287 $ 9,589 $ 5,050 $ 3,003

Costs and expenses:
Research & development expenses 9,122 11,484 9,375 9,042 9,416
General and administrative 2,700 3,187 2,212 2,068 2,016
Loss before extraordinary item
and cumulative effect of
accounting change (12,472) (11,469) (1,577) (6,737) (10,128)
Extraordinary item -- -- -- (144) --
Cumulative effect of accounting
change -- (1,000) -- -- --

Net loss (12,472) (12,469) (1,577) (6,881) (10,128)

Basic and diluted loss per share:
Loss before extraordinary item and
cumulative effect of accounting
change (.26) (.26) (.04) (.17) (.27)
Extraordinary item -- -- -- (.01) --
Cumulative effect of accounting
change -- (.02) -- -- --
-------- ------- ------- ------- --------
Net loss (.26) (.28) (.04) (.18) (.27)
======== ======= ======= ======= ========
Weighted average number of shares
outstanding 47,483 44,008 40,719 38,701 37,397

BALANCE SHEET
(In thousands)

December 31,
-------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- ------- ------- -------

Cash and cash equivalents $ 405 $ 17 $ 683 $ 403 $ 2,126
Working capital (deficiency) (22,089) (13,267) (2,759) (1,805) 310
Total assets 7,519 9,047 13,778 11,564 13,692
Long-term debt and other long-term
obligations 509 546 1,003 3,931 1,608
Total liabilities 23,359 14,540 9,049 7,344 4,258
Total stockholders' equity (deficit) (15,840) (5,493) 4,729 4,220 9,433

Management's Discussion and Analysis of
Financial Condition and Results of Operations

You should read the following discussion together with our financial
statements and the notes appearing elsewhere in this prospectus. The following
discussion contains forward-looking statements. Our actual results may differ
materially from those projected in the forward-looking statements. Factors that
might cause future results to differ materially from those projected in the
forward-looking statements include those discussed in "Risk Factors" and
elsewhere in this prospectus.

Years ended December 31, 2001, 2000 and 1999

Revenue. Revenue decreased 74% to $865,000 for the year ended December 31,
-------
2001 as compared to $3,287,000 for the year ended December 31, 2000, due to
Pfizer's termination of its license agreement with Unigene in March 2001.
Revenue decreased 66% to $3,287,000 for the year ended December 31, 2000 as
compared to $9,589,000 for the year ended December 31, 1999. Revenue for 2001
consisted primarily of $339,000 in bulk calcitonin sales as well as deferred
revenue, final analytical testing services provided to Pfizer and $94,000
received in a grant from the National Institute of Health. In 2000 and 1999,
revenue consisted primarily of milestone revenue from Pfizer resulting from the
achievement of milestones in the development of an oral calcitonin product for
treating osteoporosis. Revenue in those years was affected by the timing of the
completion of the various milestones. In addition, revenue for the year ended
December 31, 2000 included $800,000 from the amortization of deferred revenue
related to the initial licensing fee paid by Pfizer in 1997 and $345,000 for
analytical testing services provided to Pfizer.

Research and Development Expenses. Research and development, Unigene's
---------------------------------
largest expense, decreased 21% in 2001 to $9,122,000 from $11,484,000 in 2000
and increased 22% in 2000 from $9,375,000 in 1999. The decrease in 2001 was
primarily attributable to decreased expenses related to Unigene's nasal
calcitonin product, as well as decreased production expenditures. The increased
expenditures in 2000 were primarily attributable to Unigene's clinical trials
for its nasal calcitonin product and an increase in expenditures related to an
increase in calcitonin production and the write-off of inventory in the fourth
quarter as a result of Pfizer's termination of our agreement, partially offset
by a reduction in consulting fees related to the Pfizer collaboration.
Expenditures for the sponsorship of collaborative research programs were
$405,000, $411,000 and $250,000 in 2001, 2000 and 1999, respectively, which are
included as research and development expenses. A portion of these expenditures
was reimbursed by Pfizer in 1999.

General and Administrative Expenses. General and administrative expenses
-----------------------------------
decreased 15% in 2001 to $2,700,000 from $3,187,000 in 2000 and increased 44% in
2000 from $2,212,000 in 1999. The 2001 decrease was primarily attributable to
the recognition of a non-cash expense in 2000 of $220,000 due to the issuance of
a warrant to a consultant, and to the recognition of a $350,000 expense in 2000
to terminate Unigene's former joint venture in China. This was partially offset
by the recognition of a non-cash expense in 2001 of $225,000 due to additional
shares of common stock to be issued to two consultants as compensation for the
lack of an effective registration statement. The 2000 increase was primarily due
to the recognition of non-cash expenses of $220,000 due to the issuance of
warrants to a consultant and stock option compensation of $399,000, in addition
to the recognition of a $350,000 expense to terminate Unigene's former joint
venture in China.

Interest Income. Interest income decreased $41,000 or 84% in 2001 from
---------------
2000, after increasing $12,000 or 31% in 2000 from 1999. The 2001 decrease in
interest income resulted from reduced funds available for investment. The 2000
increase was due to higher interest rates on investments.

Interest Expense. Interest expense increased $885,000 or 74% in 2001 to
----------------
$2,084,000 from $1,199,000 in 2000 after increasing $27,000 or 2% in 2000 from
$1,171,000 in 1999. Interest expense increased in 2001 due to increased
stockholders' loans and higher interest rates on a portion of these loans.
Stockholders' loans to Unigene increased $6,110,000 during 2001. In addition,
due to the fact that Unigene did not make principal and interest payments on
stockholders' loans when due, the interest rate on $1,100,000 of these new loans
and on $4,743,323 of prior loans increased an additional 5% per year and applied
to both past due principal and interest. This additional interest was
approximately $512,000 for 2001. Interest expense increased in 2000, as compared
to 1999, due to increased notes payable to stockholders and to higher interest
rates in 2000 on the 5% convertible debentures, offset by a reduction in the
amortization of the beneficial conversion feature and related warrants on the 5%
convertible debentures as compared to 1999. The annual interest rate on the
$2,000,000 in outstanding principal amount of the 5% Debentures increased in
2000 to 20% resulting from the failure of Unigene to make a semi-annual interest
payment that was due in January 2000. In addition, since October 1999, Unigene
has been accruing additional

interest expense monthly in an amount equal to 2% of the outstanding principal
amount of the 5% Debentures as a penalty for the removal of Unigene's Common
Stock from trading on the Nasdaq Stock Market in October 1999. The expenses
incurred in connection with the 5% Debentures in 2000 were partially offset by a
50% decrease in the principal balance outstanding as a result of conversions to
common stock during 1999.

Income Tax Benefit. The income tax benefit in 2001 of $561,000, in 2000 of
------------------
$1,065,000 and in 1999 of $1,553,000 consists of proceeds received for the sale
of a portion of Unigene's state tax net operating loss carryforwards and
research credits under a New Jersey Economic Development Authority program,
which allows certain New Jersey taxpayers to sell their state tax benefits to
third parties. The purpose of the New Jersey program is to provide financial
assistance to high-technology and biotechnology companies in order to facilitate
future growth and job creation.

Cumulative Effect of Accounting Change. In December 1999, the Securities
--------------------------------------
and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," which we refer to as SAB 101. Prior to the
implementation of SAB 101, non-refundable license fees received upon execution
of license agreements were recognized as revenue immediately. SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements and specifically
addresses revenue recognition in the biotechnology industry for non-refundable
technology access fees and other non-refundable fees. Unigene was required to
adopt SAB 101, as amended, in the fourth quarter of 2000 with an effective date
of January 1, 2000, and the recognition of a cumulative effect adjustment
calculated as of January 1, 2000. Unigene adopted SAB 101 in 2000, changing its
revenue recognition policy for up-front licensing fees that require services to
be performed in the future from immediate revenue recognition to deferral of
revenue with the up-front fee recognized over the life of the agreement. In
1997, Unigene recognized $3,000,000 in revenue from an up-front licensing fee
from Pfizer. With the adoption of SAB 101, Unigene is now recognizing this
revenue over a 45 month period, equivalent to the term of its oral calcitonin
agreement with Pfizer which was terminated in March 2001. Unigene therefore
recognized a non-cash cumulative effect adjustment of $1,000,000 as of January
1, 2000 representing a revenue deferral over the remaining 15 months of the
agreement. Unigene recognized $800,000 in revenue in 2000 and $200,000 of
revenue in 2001 as a result of this deferral.

Net Loss. During 2001, operating expenses decreased from the prior year. In
--------
addition, a cumulative effect adjustment was recognized in 2000. This was offset
by a reduction in revenue from Pfizer, after Pfizer terminated its license
agreement with Unigene, and also by an increase in interest expense. As a
result, net loss increased $3,000 for the year ended December 31, 2001 from the
prior year. During 2000, revenue decreased approximately $6,300,000 principally
due to the timing of the achievement of various milestones in the Pfizer
agreement. In addition, operating expenses were higher as Unigene increased its
product commercialization efforts including its nasal calcitonin clinical
trials. Also, Unigene recognized a cumulative charge from an accounting change
offset by a realized income tax benefit. Therefore, net loss increased
$10,892,000 for the year ended December 31, 2000 from the prior year.

Summary of Critical Accounting Policies.

The Securities and Exchange Commission recently issued disclosure guidance
for "critical accounting policies". The SEC defines "critical accounting
policies" as those that are both important to the portrayal of a company's
financial condition and results, and require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.

The following discussion of critical accounting policies represents our
attempt to bring to the attention of the readers of this report those accounting
policies which we believe are critical to our financial statements and other
financial disclosure. It is not intended to be a comprehensive list of all of
our significant accounting policies which are more fully described in Note 3 of
the Notes to the Financial Statements included in this registration statement.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by generally accepted accounting principles, with no need
for management's judgment in their application. There are also areas in which
the selection of an available policy would not produce a materially different
result.

Revenue Recognition: Revenue from the sale of product is recognized upon
shipment to the customer. Revenue from grants is recognized when earned. Such
revenues generally do not involve difficult, subjective or complex judgments.
Non-refundable milestone payments that represent the completion of a separate
earnings process and a significant step in the research and development process
are recognized as revenue when earned. This sometimes requires management to
judge whether or not a milestone has been met, and when it should be recognized
in the financial statements. Non-refundable license fees received upon execution
of license agreements where Unigene has continuing involvement are deferred and
recognized as revenue over the life of the agreement.

This requires management to estimate the expected term of the agreement or, if
applicable, the estimated life of its licensed patents.

Inventory Valuation: Inventories are stated at the lower of cost (using the
first-in, first-out method) or market. This requires management to estimate the
marketability of its products. Currently, Unigene has no approved products for
sale in the United States. However, we do sell calcitonin overseas and in the
U.S. for research purposes. We therefore capitalize and recognize in finished
goods inventory the estimated value of saleable calcitonin.

Accounting for Stock Options: We account for stock options granted to
employees and directors in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation expense is
recorded on fixed stock option grants only if the current fair value of the
underlying stock exceeds the exercise price of the option at the date of grant
and it is recognized on a straight-line basis over the vesting period. We
account for stock options granted to non-employees on a fair value basis in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", and
Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." As a result, the non-cash charge to operations for
non-employee options with vesting or other performance criteria is affected each
reporting period by changes in the fair value of our common stock. Had
compensation cost for options granted to employees and directors been determined
consistent with SFAS No. 123, Unigene's net loss would have increased for the
years ended December 31, 2001, 2000 and 1999 by approximately $780,000, $175,000
and $605,000, respectively.

Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Liquidity and Capital Resources.

At December 31, 2001, Unigene had cash and cash equivalents of $405,000, an
increase of $388,000 from December 31, 2000.

We do not have sufficient financial resources to continue to fund our
operations at the current level. Unigene has incurred annual operating losses
since its inception and, as a result, at December 31, 2001, had an accumulated
deficit of approximately $87,850,000 and a working capital deficiency of
approximately $22,100,000. The independent auditors' report covering Unigene's
2001 financial statements includes an explanatory paragraph stating that these
factors raise substantial doubt about our ability to continue as a going
concern. However, 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.

Unigene's cash requirements to operate its research and peptide
manufacturing facilities and develop its products are approximately $10 to 11
million per year. In addition, Unigene has principal and interest obligations
under the Tail Wind note and its outstanding notes payable to the Levys, as well
as obligations relating to its current and former joint ventures in China.

Our future ability to generate cash from operations will depend primarily
upon signing research or licensing agreements, achieving defined benchmarks in
such agreements that entitle Unigene to receive milestone payments and receiving
royalties from the sale of its licensed products. We are actively seeking
licensing and/or supply agreements with pharmaceutical companies for oral, nasal
and injectable forms of calcitonin as well as for other oral peptides.

program, including Unigene's activities in the production of raw material for
development and clinical supplies, and will pay Unigene a royalty on its
worldwide sales of the product. The royalty rate will be increased if certain
sales milestones are achieved. This agreement is subject to certain termination
provisions.

In July 1997, Unigene entered into an agreement under which it granted to
Warner-Lambert Company a worldwide license to use its oral calcitonin
technology. In June 2000, Pfizer Inc. acquired Warner-Lambert. Through December
31, 2001, we had received a total of $22.9 million from Pfizer consisting of $3
million for an equity investment, $3 million for a licensing fee, $400,000 for
analytical testing services and recognized an aggregate of $16.5 million in
milestone revenue. Pfizer conducted a Phase I/II human study which was completed
in December 2000. Pfizer analyzed the results of the study and informed Unigene
in March 2001 that the study did not achieve Pfizer's desired results. Pfizer
terminated the license agreement citing this conclusion. As a result of the
termination, Pfizer was no longer obligated to make additional milestone
payments or royalty payments to us (previously achieved milestones had been paid
in full prior to December 31, 2000). At the time the agreement was terminated,
there were remaining milestone payments in the aggregate amount of $32 million.
Of this total, $16 million was related to commencement of clinical trials or
regulatory submissions and $16 million was related to regulatory approvals in
the U.S. and overseas. We believe that this study, in which an FDA approved
product also did not work and which produced results contrary to many published
studies, was not capable of determining the performance of our oral calcitonin
product. Unigene also believes that the results would have been more favorable
if subjects in the study had received calcium supplementation in addition to the
calcitonin. Therefore, Unigene intends to continue the development of its oral
calcitonin product as a treatment of osteoporosis, and is seeking potential
licensees in the U.S. and other countries.

As a result of the termination of the Pfizer agreement, we no longer have
restrictions on selling bulk calcitonin. During 2001, we sold a total of
$339,000 of bulk calcitonin. Unigene also has the right to license the use of
its technologies for injectable and nasal formulations of calcitonin on a
worldwide basis. Unigene has licensed distributors in the United Kingdom,
Ireland and Israel for its injectable product. However, these distribution
agreements have not produced significant revenues. In June 2000, we entered into
a joint venture agreement in China with Shijiazhuang Pharmaceutical Group, or
SPG, to manufacture and market our injectable and nasal products. Unigene is
actively seeking other licensing and/or supply agreements with pharmaceutical
companies for its injectable and nasal calcitonin products and for other
pharmaceutical products that can be manufactured and/or delivered using its
patented technologies, and is also exploring other opportunities including
business combinations. However, we may not be successful in our efforts to enter
into any additional revenue generating agreements.

We are engaged in the research, production and delivery of peptide-related
products. Our primary focus has been on the development of various forms of
calcitonin and other peptide products for the treatment of osteoporosis,
including nasal and oral calcitonin, and, beginning in 2001, parathyroid
hormone. In each case, we seek to develop the basic product and then license the
product to an established pharmaceutical company to complete the development,
clinical trials and regulatory process. As a result, we will not control the
nature, timing or cost of bringing our products to market. Prior to our
agreement with GSK, we did not track costs on a per project basis, and therefore
were unable to allocate our total research and development costs incurred to
date to our various products. Each of these products is in various stages of
completion. For nasal calcitonin, we filed an Investigational New Drug
Application with the FDA in February 2000 and successfully completed human
studies using our product. The remaining steps to commercialize this product
would include the signing of a license or distribution agreement and the filing
of an NDA with the FDA around mid-year 2002. The remaining cost for preparing
and filing the NDA is approximately $175,000. Unigene is seeking a licensing
partner or contract sales organization which could proceed to market nasal
calcitonin after FDA approval. We believe that this product could be on the
market as soon as 2003. For oral calcitonin, Pfizer terminated its license
agreement with Unigene in March 2001 and as a result we will require a new
licensee to repeat a Phase I/II clinical trial and also to conduct a Phase III
clinical trial. We expect that the costs of these trials would be borne by our
future licensee due to our limited financial resources. Because multiple
clinical trials are still necessary for our oral calcitonin product, the product
launch would take at least several years. Parathyroid hormone is in very early
stages of development. It is too early to speculate on a marketable product
using our parathyroid hormone. However, GSK will fund all development activities
during the program, including Unigene's activities in the production of raw
material for development and clinical supplies. Typically, we would expect cash
inflows prior to commercialization from any license agreement we sign in the
form of up-front payments and milestone payments. Due to our limited financial
resources, the delay in signing license or distribution agreements for our
products, the delay in achieving milestones, the termination of the GSK
agreement, or the delay in obtaining regulatory approvals for our products would
have an adverse effect on our operations and our cash flow.

We have a number of future payment obligations under various agreements. They
are summarized at December 31, 2001, except as to the Tail Wind note which is as
of April 9, 2002, as follows:

Contractual Obligations Total 2002 2003 2004 Thereafter
- --------------------------------------- ---------- ---------- ------- ------- ----------

Chinese joint ventures 1,165,000 670,000 -- 495,000 --
Tail Wind Note 1,000,000 -- -- -- 1,179,780
Short-term notes payable - stockholders 8,983,323 8,983,323 -- -- --
Long-term notes payable - stockholders 1,870,000 1,870,000 -- -- --
Capital leases 43,808 29,677 14,131 -- --
Operating leases 544,169 245,180 227,010 39,676 32,303
Executive compensation 335,000 335,000 -- -- --

--------------------------------------------------------
Total Contractual Obligations 13,941,300 12,133,180 241,141 534,676 1,212,083
--------------------------------------------------------

Unigene maintains its peptide production facility on leased premises in
Boonton, New Jersey. We began production under current Good Manufacturing
Practice guidelines at this facility in 1996. The current lease expires in 2004.
Unigene has two consecutive ten-year renewal options under the lease, as well as
an option to purchase the facility. During 2001, Unigene invested approximately
$20,000 in fixed assets and leasehold improvements. Currently, Unigene has no
material commitments outstanding for capital expenditures relating to either the
Boonton facility or the office and laboratory facility in Fairfield, New Jersey.

Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 2002 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by Unigene's share of joint venture profits. As of December 31, 2001,
Unigene had not made any contributions to the joint venture. The joint venture
began operations in March 2002. In addition, Unigene is obligated to pay to the
Qingdao General Pharmaceutical Company an aggregate of $350,000 in 14 monthly
installment payments of $25,000 in order to terminate its former joint venture
in China, of which $85,000 had been paid as of December 31, 2001. We recognized
the entire $350,000 obligation as an expense in 2000.

In June 1998, Unigene completed a private placement of $4,000,000 in
principal amount of 5% convertible debentures from which Unigene realized net
proceeds of approximately $3,750,000. The 5% debentures were convertible into
shares of Unigene's common stock. The interest on the debentures, at our option,
was payable in shares of common stock. Upon conversion, the holder of a 5%
debenture was entitled to receive warrants to purchase a number of shares of
common stock equal to 4% of the number of shares issued as a result of the
conversion. However, the number of shares of common stock that Unigene was
obligated to issue, in the aggregate, upon conversion, when combined with the
shares issued in payment of interest and upon the exercise of the warrants, was
limited to 3,852,500 shares. After this share limit was reached, we became
obligated to redeem all 5% debentures tendered for conversion at a redemption
price equal to 120% of the principal amount, plus accrued interest. In December
1999, Unigene was unable to convert $200,000 in principal of the 5% debentures
tendered for conversion because the conversion would have exceeded the share
limit. As a result, Unigene accrued, as of December 31, 1999, an amount equal to
$400,000 representing the 20% premium on the outstanding $2,000,000 in principal
amount of 5% debentures that had not been converted. As of December 31, 2001,
all of the $2,000,000 in principal amount of 5% debentures were tendered for
conversion and therefore are classified as a current liability in the amount of
$2,400,000. Through December 31, 2001, Unigene issued a total of 3,703,362
shares of common stock upon conversion of $2,000,000 in principal amount of the
5% debentures and in payment of interest on the 5% debentures. Also, Unigene
issued an additional 103,032 shares of common stock upon the cashless exercise
of all of the 141,123 warrants issued upon conversion of the 5% debentures.

On January 5, 2000, Unigene failed to make the required semi-annual
interest payment on the outstanding 5% debentures. As a result, the interest
rate on the outstanding 5% debentures increased to 20% per year. The semi-annual
interest payments due July 5, 2000, January 5, 2001, July 5, 2001 and January 5,
2002 were not made. As of April 1, 2002, the accrued and unpaid interest on the
5% debentures totaled approximately $966,000. In addition, due to the delisting
of Unigene's common stock from the Nasdaq National Market in October 1999, we
became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the outstanding principal amount of the
debentures per month. Unigene had not made any of these payments, but had
accrued the amounts as additional interest expense. As of April 1, 2002, the
accrued and unpaid amount of this penalty totaled approximately $1,217,000.

Because of our failure to make cash payments to the holder of the
debentures, an event of default occurred. As a result, the holder filed a demand
for arbitration against Unigene in July 2000. In June 2001, the arbitration was
postponed to allow Tail Wind and Unigene to engage in settlement discussions. On
April 9, 2002, Unigene and Tail Wind entered into a settlement. Pursuant to the
terms of the settlement agreement, Tail Wind surrendered to Unigene the $2
million in principal amount of convertible debentures that remained outstanding
and released all claims against Unigene relating to Tail Wind's purchase of the
convertible debentures, including all issues raised in the arbitration, which
were in excess of $4 million. In exchange, Unigene issued to Tail Wind a $1
million secured promissory note and two million shares of Unigene common stock.
The note bears interest at a rate of 6% per annum and principal and interest are
due in February 2005. The shares are valued at $1.1 million in the aggregate,
based on Unigene's closing stock price on April 9, 2002. Unigene will therefore
recognize a gain for accounting purposes of approximately $2 million on the
extinguishment of debt and related interest. Under the terms of the settlement
agreement, Unigene deposited the two million shares of common stock with an
escrow agent and filed the registration statement of which this prospectus is a
part covering the resale of the shares with the Securities and Exchange
Commission. Once the registration statement is declared effective by the SEC,
the escrow agent will release the shares to Tail Wind at a rate of 50,000 shares
per week over a 40-week period, depending on trading volume. If the registration
statement is not declared effective on a timely basis as provided for in the
settlement agreement, Unigene may be liable for liquidated damages of $1,000 per
day.

To satisfy Unigene's short-term liquidity needs, Jay Levy, the Chairman of
the Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors
and officers of Unigene, and another Levy family member from time to time have
made loans to Unigene. From January 1, 2002 through April 1, 2002, Jay Levy made
demand loans to Unigene of $700,000. During 2001, Jay Levy made demand loans to
Unigene of $6,100,000 and Warren Levy and Ronald Levy each made demand loans to
Unigene of $5,000. Unigene has not made principal and interest payments on
certain loans when due. However, the Levys waived all default provisions
including additional interest penalties due under these loans through December
31, 2000. Beginning January 1, 2001, interest on loans originated through March
4, 2001 increased an additional 5% per year and is calculated on both past due
principal and interest. This additional interest was approximately $512,000, and
total interest expense on all Levy loans was approximately $1,087,000 for 2001.
As of April 1, 2002, total accrued interest on all Levy loans was approximately
$2,303,000 and the outstanding loans by these individuals to Unigene, classified
as short-term debt, totaled $11,553,323 and consist of:

... Loans from Jay Levy in the aggregate principal amount of $3,465,000, which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus 5.25% (11.00% at April 1, 2002) that
are classified as short-term debt. These loans were originally at the
Merrill Lynch Margin Loan Rate plus .25%. These loans are secured by a
security interest in Unigene's equipment and real property. Accrued
interest on these loans at April 1, 2002 was approximately $1,216,000.

... Loans from Jay Levy in the aggregate principal amount of $1,870,000
evidenced by term notes maturing January 2002, and bearing interest at the
fixed rate of 11% per year. These loans were originally at 6%. These loans
are secured by a security interest in all of Unigene's equipment and a
mortgage on Unigene's real property. The terms of the notes require Unigene
to make installment payments of principal and interest beginning in October
1999 and ending in January 2002 in an aggregate amount of $72,426 per
month. No installment payments have been made to date. Accrued interest on
these loans at April 1, 2002 was approximately $461,000.

... Loans from Jay Levy in the aggregate principal amount of $5,700,000 which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus .25%, (6.00% at April 1, 2002) and are
classified as short-term debt and which are secured by a security interest
in certain of our patents. Accrued interest on these loans at April 1, 2002
was approximately $239,000.

... Loans from Warren Levy in the aggregate principal amount of $260,000 which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus 5.25% (11.00% at April 1, 2002) that
are classified as short-term debt. These loans were originally at the
Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount
of $5,000 bears interest at the Merrill Lynch Loan Rate plus .25% (6.00% at
March 1, 2002) and is classified as short-term debt. These loans are
secured by a secondary security interest in Unigene's equipment and real
property. Accrued interest on these loans at April 1, 2002 was
approximately $195,000.

... Loans from Ronald Levy in the aggregate principal amount of $248,323 which
are evidenced by demand notes bearing a floating interest rate equal to the
Merrill Lynch Margin Loan Rate plus 5.25% (11.00% at April 1, 2002) that
are classified as short-term debt. These loans were originally at the
Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount
of $5,000 bears interest at the Merrill Lynch Margin Loan Rate plus .25%
(6.00% at April 1, 2002) and is classified as short-term debt. These loans
are secured by a secondary security interest in Unigene's equipment and
real property. Accrued interest on these loans at April 1, 2002 was
approximately $192,000.

Under the agreement with Fusion Capital, Unigene has the contractual right
to sell to Fusion, subject to certain conditions, at the then current market
price, on each trading day during the term of the agreement $43,750 of its
common stock up to an aggregate of $21,000,000. See Note 8 to our financial
statements. The Board of Directors has authorized the sale to Fusion of up to
21,000,000 shares of Unigene common stock. From May 18, 2001 through April 15,
2002, Unigene has received $3,270,730 through the sale of 7,786,374 shares to
Fusion, before cash expenses of approximately $420,000. Our sales of common
stock to Fusion have been below the maximum level due to the share price and
trading volume of our common stock. As a result, we are still borrowing from the
Levys to supplement the funding of our operations. Depending on the future price
at which shares are sold, Fusion could provide Unigene with sufficient funding
to sustain its operations for up to two years. The ability of Unigene to realize
these funds will also depend on its continuing compliance with the Fusion
agreement.

The extent to which we intend to utilize Fusion as a source of financing
will depend on a number of factors, including the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources, such as through the achievement of milestones in the GSK license
agreement and through the entry into new licensing agreements or the sale of
calcitonin, both of which we are actively exploring. If we are unable to achieve
milestones in the GSK license agreement on a timely basis or are unable to enter
into a significant new revenue generating license or other arrangement in the
near term, or if the GSK license is terminated, we would need either to secure
another source of funding in order to satisfy our working capital needs or
significantly curtail our operations. We also could consider a sale or merger of
Unigene. 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. Unigene believes that satisfying its capital
requirements over the long term will require the successful commercialization of
its PTH product, its oral or nasal calcitonin products or another peptide
product in the United States and abroad. However, it is uncertain whether or not
any of its products will be approved or will be commercially successful. In
addition, the commercialization of its peptide products may require Unigene to
incur additional capital expenditures to expand or upgrade its manufacturing
operations. Unigene cannot determine either the cost or the timing of such
capital expenditures at this time.

As of December 31, 2001, Unigene had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$80,000,000, expiring from 2002 through 2021, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, as of December 31, 2001, Unigene has research and development credits
in the approximate amount of $3,000,000, which are available to reduce the
amount of future federal income taxes. These credits expire from 2002 through
2021. Unigene has New Jersey operating loss carryforwards in the approximate
amount of $26,700,000, expiring from 2005 through 2008, which are available to
reduce future earnings, which would otherwise be subject to state income tax. As
of December 31, 2001, approximately $14,700,000 of these New Jersey loss
carryforwards has been approved for future sale under a program of the New
Jersey Economic Development Authority, which we refer to as the NJEDA. In order
to realize these benefits, Unigene must apply to the NJEDA each year and must
meet various requirements for continuing eligibility. In addition, the program
must continue to be funded by the State of New Jersey, and there are limitations
based on the level of participation by other companies. As a result, future tax
benefits will be recognized in the financial statements as specific sales are
approved. In November 2001, the NJEDA approved a portion of our New Jersey tax
benefits for current sale. We have sold tax benefits and realized a total of
$832,000 in December 2001 and January 2002.

Unigene follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Given our past history of incurring operating
losses, any deferred tax assets that are recognizable under SFAS No. 109 were
fully reserved. As of December 31, 2001 and 2000 under SFAS No. 109, Unigene had
deferred tax assets of approximately $34,000,000 and $29,000,000, respectively,
subject to valuation allowances of $34,000,000 and $29,000,000, respectively.
The deferred tax assets are primarily a result of Unigene's net operating losses
and tax credits.

Recently Issued Accounting Pronouncements.

In July 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." Statement 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Unigene is required to adopt the provisions of
Statement 142 effective January 1, 2002.

Upon adoption of Statement 142, Unigene will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, Unigene
will be required to test the intangible asset for impairment in accordance with
the provisions of Statement 142 within the first interim period. Unigene is
required to adopt the provisions of SFAS No. 142 effective January 1, 2002.
Unigene does not expect that the adoption of SFAS No. 142 will have an impact on
its financial statements because the Company has never entered into a purchase
business combination and has no goodwill or indefinite life intangible assets at
December 31, 2001.

In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement
establishes an accounting model for impairment or disposal of long-lived assets
by sale. The Company is required to adopt SFAS No. 144 on January 1, 2002. The
Company does not expect the adoption of SFAS No. 144 for long-lived assets to
have a material impact on its financial statements because the impairment
assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The
provisions of this statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities and, therefore, will depend on future
actions initiated by management. As a result, the Company cannot determine the
potential effects that adoption of SFAS No. 144 will have on its financial
statements with respect to future decisions, if any.

Related Parties.

One of our directors is a partner in a law firm that we have engaged for
legal services. In 2001, we incurred an aggregate of $11,432 in legal fees with
this firm.

Market Risk

In the normal course of business, Unigene is exposed to fluctuations in
interest rates due to the use of debt as a component of the funding of its
operations. Unigene does not employ specific strategies, such as the use of
derivative instruments or hedging, to manage its interest rate exposure.
Beginning in the first quarter of 2001, Unigene's interest rate exposure on its
notes payable-stockholders has been affected by its failure to make principal
and interest payments when due. Unigene's exposure to interest rate fluctuations
over the near-term will continue to be affected by these events.

The information below summarizes Unigene's market risks associated with
debt obligations as of December 31, 2001, except as to the Tail Wind note which
is as of April 9, 2002. The table below presents principal cash flows and
related interest rates by year of maturity based on the terms of the debt.

Variable interest rates disclosed represent the rates at December 31, 2001.
Given Unigene's financial condition described in "Liquidity and Capital
Resources" it is not practicable to estimate the fair value of our debt
instruments.

Year of Maturity
-------------------------------------------
Carrying
Amount 2001 2002 2003 2004 2005
---------- --------- ---- ---- ---- ----------

Notes payable - stockholders $3,973,323 3,973,323 -- -- -- --
Variable interest rate (1) 11.0% -- -- -- --
Notes payable - stockholders $5,010,000 5,010,000 -- -- -- --
Variable interest rate 6.0% -- -- -- --
Notes payable - stockholders $1,870,000 1,870,000 -- -- -- --
Fixed interest rate (2) 11% -- -- -- --
Tail Wind note $1,000,000 -- -- -- -- $1,000,000
Fixed interest rate - 6%

(1) Due to the fact that Unigene did not make principal and interest payments
on its notes payable to stockholders when due, the variable interest rate
on these notes has increased from the Merrill Lynch Margin Loan Rate plus
.25% to the Merrill Lynch Margin Loan Rate plus 5.25%.

(2) Due to the fact that Unigene did not make principal and interest payments
on its notes payable to stockholders when due, the fixed interest rate on
these notes has increased from 6% to 11%.

Business

Overview

Unigene is a biopharmaceutical company engaged in the research, production
and delivery of small proteins, referred to as peptides, that have demonstrated
or may have potential medical use. We have a patented manufacturing technology
for producing many peptides cost-effectively. We also have patented oral
delivery technology that has been shown to deliver medically useful amounts of
various peptides into the bloodstream. Our primary focus has been on the
development of calcitonin and other peptide products for the treatment of
osteoporosis and other indications. We have the facilities and the technology
for manufacturing calcitonin in accordance with cGMP, and we have an injectable
calcitonin product that is approved for sale in Switzerland for the treatment of
osteoporosis and in the European Union for two minor indications. We are seeking
approval for an osteoporosis indication in the European Union. We are also
engaged in the development of oral and nasal calcitonin products, as well as
other peptide products, including parathyroid hormone, which we refer to as PTH,
for osteoporosis.

Our Accomplishments

Among our major accomplishments are:

... Development of a Proprietary Peptide Production Process. One of our
principal scientific accomplishments is our success in developing a highly
efficient biotechnology-based peptide production process. Several patents
relating to this process have issued. We believe that these proprietary
processes are key steps in the more efficient and economical commercial
production of medically useful peptides. Many of these peptides cannot be
produced at a reasonable cost in sufficient quantities for human testing or
commercial use by currently available production processes. We have
constructed and are operating a manufacturing facility employing this
process to produce PTH and calcitonin, and we have also produced
laboratory-scale quantities of several other peptides.

... Development of Proprietary Technology for Oral Delivery. We have also
developed and patented an oral formulation that has successfully delivered
calcitonin into the bloodstream of human subjects. We and our collaborators
have shown in several human studies that this formulation can deliver
significant quantities of the peptide into the human bloodstream. We
believe that the components of our patented oral product also can enable
the delivery of other peptides and we have initiated studies to investigate
this possibility internally and in collaboration with others. During 2001,
we reported successful oral delivery in animal studies of various peptides
including parathyroid hormone for the treatment of osteoporosis and insulin
for the treatment of diabetes.

These two patented technologies form the basis of our business strategy.
The potential pharmaceutical products that we are developing use one, or in most
cases, both of these technologies. For example, our nasal calcitonin product
would use calcitonin manufactured by our peptide production process.

All of our clinical trials for nasal calcitonin have been completed. An NDA
is in the final stages of preparation, and the filing of the NDA is expected
around mid-year 2002. For this product, we believe that FDA approval may take
approximately 12 months from the filing of the NDA. We are seeking a licensing
partner or contract sales organization which could proceed to market the product
after FDA approval, although we may not be successful in our attempts to find a
licensing partner or contract sales organization to market the product on
favorable terms, if at all. There is an existing nasal calcitonin product on the
market. Since our end product would be similar to the currently existing
product, we believe that it would not require extensive sales promotions by our
potential partners. Therefore, we believe that our product could be on the
market as soon as 2003. Our oral calcitonin and oral parathyroid hormone
products would utilize our peptide production process as well as our oral
delivery system for peptides. These products would be on the market after our
nasal calcitonin product.

Strategy

Our business strategy is to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
milestone payments, royalties on third-party sales and direct sales of bulk or
finished products. Generally, we fund our internal research activities and, due
to our limited financial resources, intend to rely on licensees, which are
likely to be established pharmaceutical companies, to provide development
funding. We also generally expect to rely on these licensees to take
responsibility for obtaining appropriate

regulatory approvals, human testing, and marketing of products derived from our
research activities. However, we may, in some cases, retain the responsibility
for human testing and for obtaining the required regulatory approvals for a
particular product.

... GlaxoSmithKline Agreement. On April 13, 2002, we completed a licensing
agreement with GSK to develop an oral formulation of an analog of PTH
currently in preclinical development for the treatment of osteoporosis.
Under the terms of the agreement, GSK will receive an exclusive worldwide
license to develop and commercialize the product. In return, GSK made a $2
million up-front licensing fee payment and a $1 million milestone payment
to us and could make subsequent milestone payments in the aggregate amount
of $147 million, subject to the progress of the compound through clinical
development and through to the market. In addition, GSK will fund all
development activities during the program, including Unigene's activities
in the production of raw material for development and clinical supplies,
and will pay Unigene a royalty on its worldwide sales of the product. The
royalty rate will be increased if certain sales milestones are achieved.
This agreement is subject to certain termination provisions.

... Pfizer License Agreement. In July 1997, we entered into an agreement under
which we granted to the Parke-Davis division of Warner-Lambert Company
(which merged with Pfizer in June 2000) a worldwide license to use our oral
calcitonin technology. Upon signing the agreement, we received $6.0 million
in payments from Warner-Lambert, consisting of a $3.0 million licensing fee
and a $3.0 million equity investment by Warner-Lambert. Through December
31, 2000, we recognized an aggregate of $16.5 million in revenue due to the
achievement of specified milestones, including $2.0 million in 2000. Pfizer
began a Phase I/II human study in April 2000 and patient dosing was
completed in December 2000. Pfizer analyzed the results of the study and
informed us in March 2001 that the study did not achieve Pfizer's desired
results. Pfizer terminated the license agreement citing this conclusion. We
believe that this study, in which an FDA approved product also did not work
and which produced results contrary to many published studies, was not
capable of determining the performance of our oral calcitonin product. We
also believe that the results would have been more favorable if patients in
the study had received calcium supplementation, in addition to the
calcitonin. Therefore, we intend to continue the development of our oral
calcitonin product as a treatment for osteoporosis, and we are seeking
potential licensees in the U.S. and other countries. In addition, due to
the termination of the Pfizer agreement, we no longer have restrictions on
selling bulk calcitonin and rights to all technologies and information
developed in the course of the collaboration have reverted to Unigene.

... China Joint Venture. In June 2000, we entered into a joint venture with
SPG, a pharmaceutical company in the People's Republic of China. The joint
venture will manufacture and distribute injectable and nasal calcitonin
products in China (and possibly other selected Asian markets) for the
treatment of osteoporosis. We own 45% of the joint venture and will have a
45% interest in the joint venture profits and losses. In the first phase of
the collaboration, SPG will contribute its existing injectable calcitonin
license to the joint venture, which will allow the joint venture to sell
our product in China. The joint venture is now preparing an NDA in China
for its injectable and nasal products, which is expected to be filed in
late 2002. In addition, the joint venture may be required to conduct brief
local human trials. If the product is successful, the joint venture may
establish a facility in China to fill injectable and nasal calcitonin
products using bulk calcitonin produced at our Boonton, New Jersey plant.
Eventually the joint venture may manufacture bulk calcitonin in China at a
new facility that would be constructed by it. This would require local
financing by the joint venture. The joint venture began operations in March
2002 and commenced sales of the injectable calcitonin product in April
2002.

... Other License or Distribution Arrangements. In addition to the joint
venture with SPG, we have entered into distribution agreements for our
injectable calcitonin product in the United Kingdom, Ireland and Israel. We
continue to seek other licensing or distribution agreements with
pharmaceutical companies for both the injectable and nasal calcitonin
products. However, we may not be successful in our efforts to sign any
additional revenue generating agreements and any new or existing agreements
may not be successful in generating significant revenue.

Competition

Our primary business activity has been biotechnology research and
development. Biotechnology research is highly competitive, particularly in the
field of human health care. We compete with specialized biotechnology companies,
major pharmaceutical and chemical companies, universities and other non-profit
research organizations,

many of which can devote considerably greater financial resources to research
activities. We believe that one of our main competitors in the field of oral
delivery of peptides is Emisphere Technologies, Inc. We currently have no
products approved for sale in the U.S.

Our calcitonin and PTH products have potential applications in the
treatment of osteoporosis. If we are successful in obtaining approval for one of
these products, we would compete with major pharmaceutical companies. These
competitors can devote considerably greater financial resources to these
activities. Major companies with products in the field of osteoporosis include
Novartis, Wyeth, Merck, Eli Lilly, and Procter and Gamble. We would be able to
compete with these companies with our calcitonin products only if we have a
successful partnership with a pharmaceutical or biotechnology company. We expect
that our relationship with GSK will be productive, but we may be unsuccessful in
developing a PTH product with GSK. We believe that the unique safety and
effectiveness of calcitonin, combined with our patented peptide manufacturing
process and our patented oral formulation, will enable it to compete with
products marketed by these and other companies.

We believe that success in competing with others in the biotechnology
industry will be based primarily upon scientific expertise and technological
superiority. We also believe that success will be based on the ability to
identify and to pursue scientifically feasible and commercially viable
opportunities and to obtain proprietary protection for research achievements.
Our success will further depend on our ability to obtain adequate funding and on
developing, testing, protecting, producing and marketing products and obtaining
their timely regulatory approval. We are always at risk that others may develop
superior processes or products that would render our processes or products
noncompetitive or obsolete.

Product Manufacture

We have been producing salmon calcitonin since 1992. We constructed a cGMP
facility for the production of calcitonin at leased premises located in Boonton,
New Jersey. The facility began producing salmon calcitonin under cGMP guidelines
in 1996. We began producing PTH in 2001. The facility also produces our
proprietary amidating enzyme for use in producing calcitonin. The current
production level of the facility is between one and two kilograms of bulk
calcitonin per year.

The facility can be modified to increase calcitonin and PTH production
capacity. If we are successful in our efforts to commercialize an oral peptide
product, we expect that we may incur additional expenditures to expand or
upgrade our manufacturing operations. Although the facility currently is devoted
primarily to calcitonin and PTH production, it also is suitable for producing
other peptide products.

We are following conventional procedures to secure the approval of the
facility by regulatory agencies to allow us to manufacture peptides for human
use. European health authorities inspected the facility in connection with the
filing of our injectable calcitonin dossier and found it to be in compliance
with cGMP guidelines. However, there is always the risk that our operations
might not remain in compliance or that approval by other agencies will not be
obtained. The FDA must approve the facility in order to manufacture calcitonin,
PTH or other peptides for sale in the United States.

Government Regulation

Our laboratory research, development and production activities and those of
our collaborators are subject to significant regulation by numerous federal,
state, local and foreign governmental authorities. FDA approval, following the
successful completion of various animal and human studies, is required for the
sale of a pharmaceutical product in the United States. Foreign sales require
similar studies and approval by regulatory agencies.

The regulatory approval process for a pharmaceutical product requires
substantial resources and can take many years. There is always a risk that any
additional regulatory approvals required for our production facility or for any
of our products will not be obtained in a timely manner. Our inability to
obtain, or delays in obtaining, these approvals would adversely affect our
ability to continue to fund our programs, to produce marketable products, or to
receive revenue from milestone payments, product sales or royalties. We also
cannot predict the extent of any adverse governmental regulation that may arise
from future legislative and administrative action.

The FDA or other regulatory agencies may audit our production facility to
ensure that it is operating in compliance with cGMP. These guidelines require
that production operations be conducted in strict compliance with

our established rules for manufacturing and quality controls. These agencies are
empowered to suspend production operations and/or product sales if, in their
opinion, significant or repeated changes from these guidelines have occurred. A
suspension by any of these agencies could have a material adverse impact on our
operations.

Regulatory Approval of Our Injectable Calcitonin Product

In January 1999, we received approval from the European Committee for
Proprietary Medicinal Products, referred to as the CPMP, to market our
injectable calcitonin product in all 15 member states of the European Union as a
treatment for Paget's disease and for hypercalcemia. We began to market this
product in Europe for these indications in 1999. We have filed a supplementary
submission with the CPMP to expand the approved indications to include the
treatment of osteoporosis. However, it is uncertain whether or when the request
will be approved by the CPMP. In 2001, we received an approval in Switzerland
for our injectable calcitonin product that includes an osteoporosis indication.

Regulatory authorities in many non-European Union countries can cite the
approved European Union or Swiss dossiers in order to reduce the requirements
needed to obtain their national approvals for the products, which we believe
could significantly reduce the registration requirements for injectable
calcitonin in other countries, thereby speeding up product launch. We believe
that our abbreviated clinical program, which was accepted by the FDA, would be
sufficient to satisfy approval requirements in the United States and other
countries. Accordingly, we expect that the review process for our injectable
calcitonin product in such countries may be shorter than that typically
associated with a new drug submission for numerous reasons:

... The active ingredient is structurally identical to and indistinguishable
from the active ingredient in products already approved by many regulatory
agencies.

... The formulation is essentially similar to the formulations used in already
approved products.

... The human trial program that was accepted by the FDA is relatively brief
and involved small numbers of subjects. As a result, the amount of
information that must be reviewed is far less than would have been compiled
for the lengthier trials required for a typical new drug submission.

Development of our Oral Calcitonin Product

In December 1995 and January 1996, we successfully tested a proprietary
calcitonin oral formulation in two separate human studies in the United Kingdom.
These studies indicated that the majority of those who received oral calcitonin
showed levels of the peptide in blood samples taken during the trial that were
greater than the minimum levels generally regarded as being required for maximum
medical benefit. We believe that these were the first studies to demonstrate
that significant blood levels of calcitonin could be observed in humans
following oral administration of the peptide. In April 1996, we successfully
conducted a third pilot human study in the United Kingdom which used lower
calcitonin dosages than in the prior two human trials. The results of this trial
indicated that every test subject showed levels of the peptide in their blood
samples that exceeded the minimum levels generally regarded as required for
maximum medical benefit.

In July 1997, we entered into an agreement under which we granted to the
Parke-Davis division of Warner-Lambert Company (which merged with Pfizer in June
2000), a worldwide license to make, use and sell oral calcitonin. Under this
agreement, Pfizer had the ability to terminate the license if (1) a product was
disapproved in the U.S. or Europe; (2) peak blood levels were too low; (3) the
product was infeasible for scientific or technical reasons; (4) Unigene was
declared bankrupt or insolvent; (5) there was an uncured material breach; or (6)
Pfizer could not meet at least 25% of its sales projections.

During 1999, we and Pfizer successfully concluded two pilot human studies
using an oral calcitonin formulation manufactured by Warner-Lambert. Both
studies showed significant measurable blood levels of calcitonin. In December
1999, Warner Lambert filed an Investigational NDA with the FDA for the conduct
of human trials in the United States of our oral calcitonin product as a
treatment for osteoporosis. Pfizer began a Phase I/II human study in April 2000
and patient dosing for this study was completed in December 2000. Pfizer
analyzed the results of the study and informed us in March 2001 that the study
did not achieve Pfizer's desired results related to measurement of bone marker
activity. Pfizer terminated the license agreement for scientific reasons citing
this conclusion. We believe that this study, in which an FDA approved product,
nasal calcitonin, also did not work and which produced results contrary to many
published studies, was not capable of determining the performance of our

oral calcitonin product. We also believe that the results would have been more
favorable if patients in the study had received calcium supplementation, in
addition to the calcitonin. Therefore, we intend to continue the development of
our oral calcitonin product as a treatment for osteoporosis, and we are seeking
licensees for this product in the U.S. and other countries. In addition, due to
the termination of the Pfizer agreement, we no longer have restrictions on
selling bulk calcitonin and rights to all technologies and information developed
in the course of the collaboration have reverted to Unigene.

We have filed patent applications for our oral formulation in the United
States and in numerous foreign countries. In 1999, we received a U.S. patent for
our basic technology covering the oral delivery of calcitonin for the treatment
of osteoporosis. In 2000, we received a U.S. patent extending this protection to
the oral delivery of other peptides.

There are risks that we will not be successful in licensing this product,
that a safe and effective oral product will not be developed, that we will not
be successful in obtaining regulatory approval of an oral calcitonin product,
and that we will not succeed in developing, producing or marketing an oral
calcitonin product.

Development of our Oral Parathyroid Hormone Product

Parathyroid hormone is a natural peptide involved in the regulation of bone
formation. Several analogs of PTH have demonstrated the ability to build new
bone, and PTH could be the first of a new generation of bone building agents to
be used alone or in combination with other currently available osteoporosis
drugs, which principally act to prevent further bone loss. In human trials
conducted by other companies, human PTH has been found to form new bone and to
reduce fracture. Agents that can induce bone formation are widely viewed as the
next critical advance in the treatment of osteoporosis. In 2001, using the same
animal model testing systems that we have used successfully to demonstrate the
oral delivery of calcitonin, we were able to show that our patented oral
delivery technology could deliver significant blood levels of PTH. We believe
that our proprietary technologies will enable the development of a commercially
viable oral product that can deliver therapeutic doses of PTH. Other companies
are also developing PTH products.

On April 13, 2002, we completed a licensing agreement with GSK to develop
an oral formulation of an analog of PTH currently in preclinical development for
the treatment of osteoporosis. Under the terms of the agreement, GSK will
receive an exclusive worldwide license to develop and commercialize the product.
In return, GSK made a $2 million up-front licensing fee payment and a $1 million
milestone payment to us and could make subsequent milestone payments in the
aggregate amount of $147 million, subject to the progress of the compound
through clinical development and through to the market. In addition, GSK will
fund all development activities during the program, including Unigene's
activities in the production of raw material for development and clinical
supplies, and will pay Unigene a royalty on its worldwide sales of the product.
The royalty rate will be increased if certain sales milestones are achieved.
This agreement is subject to certain termination provisions.

There is a risk that our license agreement with GSK may not lead to the
successful development of a PTH product. Also, there is a risk that we may not
achieve all of the milestones set forth in the license agreement. In addition,
under the terms of the license agreement, GSK may terminate the license
agreement (i) for a material breach by Unigene, (ii) for the bankruptcy or
insolvency of Unigene, (iii) any time after one year from the effective date due
to safety or efficacy concerns of the PTH product, significant increases in
development timelines or costs, significant changes in the osteoporosis market
or in government regulations or (iv) if Unigene fails to fulfill certain
mandatory obligations by a date certain, which obligations require the
cooperation of third parties. There is a risk that these events giving rise to
termination by GSK may occur. If the PTH product is not successfully developed
or the milestones are not achieved, or if GSK terminates the license agreement,
we may not receive milestone payments necessary to meet our working capital
needs.

Development of our Nasal Calcitonin Product

A major pharmaceutical company received FDA approval in 1995 for the
marketing of a nasally administered calcitonin product, which has substantially
enlarged the U.S. market for calcitonin. During 1999, we completed preliminary
human studies for our proprietary nasal calcitonin product. A patent application
for the product was filed in February 2000. In January 2000, we filed an
Investigational New Drug Application with the FDA to begin human testing of our
nasal product as a treatment for osteoporosis. In February 2000, we began U.S.
human studies. In December 2000, we successfully completed a human study
demonstrating similar blood levels between our product and that of an existing
nasal calcitonin product. We have successfully completed a second human study

which showed a rapid and persistent reduction in bone loss as measured by
several accepted blood markers. A substance in the bloodstream that measures the
rate of bone loss in the tested subjects decreased by an average of over 40% in
the first month of the study, and that reduction was maintained throughout the
three-month dosing period during which the measurements were taken. We are
seeking to license our nasal calcitonin product in the U.S. and other countries
for the treatment of osteoporosis. However, we may not be successful in our
efforts to conclude a license agreement, to obtain governmental approval of our
nasal calcitonin product, or to manufacture and sell the product.

Patents and Proprietary Technology

We have filed a number of applications for U.S. patents relating to our
proprietary peptide manufacturing process and our technology for oral delivery.
To date, the following eight U.S. patents have issued:

... a patent covering Immunization By Immunogenic Implant, a method for
producing antibodies for developing diagnostic medical tests;

... three patents related to the Alpha-Amidation Enzyme and its use in
manufacturing peptides;

... two patents covering an improvement in our manufacturing technology; and

... two patents covering oral delivery of peptides.

We believe that our manufacturing patents give us a competitive advantage
in producing peptides cost-effectively and in large quantities, because they
cover a highly efficient bacterial fermentation process for producing
calcitonin. Currently, other companies use a chemical synthesis process to
manufacture peptide products. This process is very labor intensive and involves
many steps in which product is lost because no step is 100% efficient. Our
patents cover a process that we expect will reduce the cost and time required
for commercial production and enable the production of quantities of peptides
that exceed the capabilities of conventional technologies.

We also believe that our oral delivery patents give us a competitive
advantage in enabling us to develop peptide products in oral forms, because they
cover a process allowing delivery of significant quantities of peptides into the
bloodstream. Peptides are small proteins that get broken down in the digestive
system thereby making oral delivery of these peptides extremely difficult.

We believe that the greatest competitive advantage of our manufacturing and
oral delivery patent estates is realized through the combination of both
technologies. To successfully commercialize an oral peptide product, an
efficient manufacturing process is necessary, because oral delivery systems are
typically less efficient than injectable or nasal spray products. Reduced
efficiency requires an increase in the active pharmaceutical ingredient in each
dose. Therefore, an efficient manufacturing process is needed to
cost-effectively manufacture the increased quantities that are necessary and to
make a product that is commercially viable.

We believe that our manufacturing and oral delivery patent estates provide
both a current and anticipated advantage. Currently, the patent estates protect
our intellectual property rights in the development of our manufacturing and
oral delivery processes. In the future, we expect that the patent estates will
give us a competitive advantage in commercializing our products.

Other applications are pending. We also have made filings in selected
foreign countries, and eighteen foreign patents have issued. However, our
pending applications may not issue as patents and our issued patents may not
provide us with significant competitive advantages. Furthermore, our competitors
may independently develop or obtain similar or superior technologies.

Although we believe our patents and patent applications are valid, the
repeal of one or more of our key patents could have a significant adverse effect
upon our business. Detecting and proving infringement generally is more
difficult with process patents than with product patents. In addition, a process
patent's value is diminished if others have patented the product that can be
produced using the process. Under these circumstances, we would require the
cooperation of, and likely be required to share royalties with, the product
patent holder or its sublicensees in order to make and sell the product.

In some cases, we rely on trade secrets to protect our inventions. Our
policy is to include confidentiality provisions in all research contracts, joint
development agreements and consulting relationships that provide access to our
trade secrets and other know-how. However, there is a risk that these secrecy
obligations could be breached, causing us harm. To the extent licensees,
consultants or other third parties apply technological information independently
developed by them or by others to our projects, disputes may arise as to the
ownership rights to information, which may not be resolved in our favor.

Employees

As of April 1, 2002 we had 60 full-time employees. Twenty were engaged in
research, development and regulatory activities, 29 were engaged in production
activities and 11 were engaged in general and administrative functions. Eight of
our employees hold Ph.D. degrees. Our employees are experts in molecular
biology, including DNA cloning, synthesis, sequencing and expression; protein
chemistry, including purification, amino acid analysis, synthesis and sequencing
of proteins; immunology, including tissue culture, monoclonal and polyclonal
antibody production and immunoassay development; chemical engineering;
pharmaceutical production; quality assurance; and quality control. None of our
employees are covered by a collective bargaining agreement. Warren P. Levy,
President, and Ronald S. Levy, Executive Vice President, both executive officers
and directors, have signed employment agreements with us.

Research and Development

We have established a multi-disciplinary research team to adapt proprietary
amidation, biological production and oral delivery technologies to the
development of proprietary products and processes. Approximately 82% of our
employees are directly engaged in activities relating to production of,
regulatory compliance for, and the research and development of pharmaceutical
products. We spent $9.1 million on research activities in 2001, $11.5 million in
2000, and $9.4 million in 1999.

Properties

We own a one-story office and laboratory facility consisting of
approximately 12,500 square feet. The facility is located on a 2.2 acre site in
Fairfield, New Jersey.

Our 32,000 square foot cGMP production facility, of which 20,000 square
feet are currently being used for the production of calcitonin and can be used
for the production of other peptides, was constructed in a building located in
Boonton, New Jersey. We lease the facility under a 10-year agreement, which
began in February 1994. We have two 10-year renewal options and an option to
purchase the facility.

Litigation

In July 2000, Reseau de Voyage Sterling, Inc. filed suit against Unigene in
the Supreme Court of the State of New York. Unigene removed this case to the
United States District Court for the Southern District of New York. The
plaintiff, which purchased from a third party a warrant to purchase one million
shares of Unigene common stock, alleges that Unigene breached a verbal agreement
with the plaintiff to extend the term of the warrant beyond its expiration date.
The plaintiff is seeking damages of $2 million. We believe that this suit is
completely without merit, and we will continue to vigorously contest the claim.

Fusion Financing

On May 9, 2001, Unigene entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, under which Fusion has agreed to purchase on each
trading day during the term of the agreement $43,750 of our common stock up to
an aggregate of $21,000,000. Fusion is committed to purchase the shares over a
twenty-four month period. We may decrease this amount or terminate the agreement
at any time. If our stock price equals or exceeds $4.00 per share for five (5)
consecutive trading days, we have the right to increase the daily purchase
amount above $43,750, providing that the closing sale price of our stock remains
at least $4.00. Fusion is not obligated to purchase any shares of our common
stock if the purchase price is less than $0.25 per share. Under the agreement
with Fusion, Unigene must satisfy the requirements that are a condition to
Fusion's obligation, including: the continued effectiveness of the registration
statement for the resale of the shares by Fusion, no default on, or acceleration
prior to maturity of, any payment obligations of Unigene in excess of
$1,000,000, no insolvency or bankruptcy of Unigene, our transfer agent's failure
for five trading days to issue to Fusion shares of our common stock which Fusion
is entitled to under the common stock purchase agreement, any material breach of
the

representations or warranties or covenants contained in the common stock
purchase agreement or any related agreements which has or which could have a
material adverse affect on us subject to a cure period of ten trading days,
continued listing of Unigene common stock on the OTC Bulletin Board, and Unigene
must avoid the failure to meet the maintenance requirements for listing on the
OTC Bulletin Board for a period of 10 consecutive trading days or for more than
an aggregate of 30 trading days in any 365-day period. The selling price per
share to Fusion is equal to the lesser of: the lowest sale price of our common
stock on the day of purchase by Fusion, or the average of the lowest five
closing sale prices of our common stock during the 15 trading days prior to the
date of purchase by Fusion. We issued to Fusion 2,000,000 shares of common stock
and a five-year warrant to purchase 1,000,000 shares of common stock at an
exercise price of $.50 per share as of March 30, 2001 as compensation for its
commitment, which was charged to additional paid-in-capital. Fusion has agreed
not to sell the shares issued as a commitment fee or the shares issuable upon
the exercise of the warrant until the earlier of May 2003 or the termination or
a default under the common stock purchase agreement. In addition to the
compensation shares, the Board of Directors has authorized the issuance and sale
to Fusion of up to 21,000,000 shares of Unigene common stock. From May 18, 2001
through April 15, 2002, we have received $3,270,730 through the sale of
7,786,374 shares of common stock to Fusion, before cash expenses of
approximately $420,000.

In December 2000, we issued a five-year warrant to purchase 373,002 shares
of Unigene common stock at $1.126 per share to our investment banker as a fee in
connection with the Fusion financing agreement.

Fusion has agreed that neither it nor any of its affiliates will engage in
any direct or indirect short-selling or hedging of our common stock during any
time prior to the termination of the common stock purchase agreement.

Tail Wind Settlement

On January 5, 2000, Unigene failed to make the required semi-annual
interest payment on the outstanding 5% debentures. As a result, the interest
rate on the outstanding 5% debentures increased to 20% per year. The semi-annual
interest payments due July 5, 2000, January 5, 2001, July 5, 2001 and January 5,
2002 were not made. As of April 1, 2002, the accrued and unpaid interest on the
5% debentures totaled approximately $966,000. In addition, due to the delisting
of Unigene's common stock from the Nasdaq National Market in October 1999, we
became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the outstanding principal amount of the
debentures per month. Unigene failed to make any of these payments to date. As
of April 1, 2002, the accrued and unpaid amount of this penalty totaled
approximately $1,217,000.

Management

Executive Officers and Directors

The following table sets forth information regarding Unigene's executive
officers and directors:

Name Age Position
- ------------------ --- -------------------------------------------------
Warren P. Levy (1) 50 President, Chief Executive Officer, and Director
Ronald S. Levy (1) 53 Executive Vice President, Secretary, and Director
Jay Levy (1) 78 Chairman of the Board and Treasurer
James P. Gilligan 50 Vice President of Product Development
J. Thomas August 74 Director
Bruce S. Morra 48 Director
Allen Bloom 58 Director

- ----------
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the sons of
Mr. Jay Levy.

Each executive officer's term of office continues until the first meeting
of the Board of Directors following the annual meeting of stockholders and until
the election and qualification of his successor. All officers serve at the
discretion of the Board of Directors.

Warren P. Levy. Dr. Warren P. Levy, a founder of Unigene, has served as
President and Chief Executive Officer, and as a director, since our formation in
November 1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from
Northwestern University and a bachelor's degree in chemistry from the
Massachusetts Institute of Technology.

Ronald S. Levy. Dr. Ronald S. Levy, a founder of Unigene, has served as a
director since our formation in November 1980, as Executive Vice President since
April 1999, and as Secretary since May 1986. Dr. Levy served as Vice President
from November 1980 through March 1999. Dr. Levy holds a Ph.D. in bioinorganic
chemistry from Pennsylvania State University and a bachelor's degree in
chemistry from Rutgers University.

Jay Levy. Mr. Jay Levy, a founder of Unigene, has served as the Chairman of
the Board of Directors and as Treasurer since our formation in November 1980. He
served as Secretary from 1980 to May 1986. Mr. Levy is a part-time employee of
Unigene and devotes approximately 15% of his time to Unigene. From 1985 through
February 1991, he served as the principal financial advisor to the Estate of
Nathan Cummings and its principal beneficiary, The Nathan Cummings Foundation,
Inc., a large charitable foundation. From 1968 through 1985, he performed
similar services for the late Nathan Cummings, a noted industrialist and
philanthropist.

James P. Gilligan. Dr. James P. Gilligan has been employed by Unigene since
1981 and has served as Vice President of Product Development since April 1999.
From February 1995 to March 1999, he served as Director of Product Development.
Dr. Gilligan holds a Ph.D. in pharmacology from the University of Connecticut
and a Masters of International Business from Seton Hall University.

J. Thomas August. Dr. J. Thomas August is a Distinguished Service Professor
of the Departments of Oncology, Pharmacology and Molecular Sciences at the Johns
Hopkins University School of Medicine, where he has been employed since 1976. He
is also Director, Johns Hopkins Singapore Biomedical Centre. Dr. August has
served as Unigene's Director of Research since 1990. He serves on the Board of
Directors of Bioqual, Inc., Aarmedis, Inc. and the Foundation for Comparative
and Conservation Biology, and is also a consultant for various biotechnology and
medical companies. Dr. August received his medical degree from Stanford
University School of Medicine.

Bruce S. Morra. Dr. Bruce S. Morra has been the President, COO and CFO of
Biopore Corporation and Polygenetics, Inc., two related companies developing
technology for drug delivery and medical devices for biomedical and industrial
applications since 2000. From 1993 through 2000, he served as President and COO
of Flamel Technologies, Inc., a company developing, manufacturing and licensing
drug and agrochemical delivery technologies and products. He has also served as
President of ISP Filters and currently serves as a director for Medisys
Technologies. Dr. Morra holds a Ph.D. in polymer science and engineering and an
M.B.A. from the University of Massachusetts, Amherst and a B.S.E. in chemical
engineering from Princeton University.

Allen Bloom. Dr. Allen Bloom, a patent attorney, has been a partner in
Dechert, a law firm, since 1994 where he established and heads the patent
practice group, which focuses on biotechnology, pharmaceuticals and medical
devices. Prior to that time, he was Vice President, General Counsel and
Secretary of The Liposome Company, Inc., a biotechnology company, for nine
years. His responsibilities there included patent, regulatory and licensing
activities. Dr. Bloom holds a Ph.D. in organic chemistry from Iowa State
University.

Committees of the Board of Directors

The Board of Directors performs several important functions through
committees. These committees are made up of members of the Board of Directors.
Unigene's by-laws authorize the formation of these committees and grant the
Board the authority to prescribe the functions of each committee and the
standards for membership of each committee. The Board has the following four
standing committees. The Board does not have a standing nominating committee.

Audit Committee. The responsibilities of the Audit Committee include
annually recommending a firm of independent public accountants to the Board to
act as our auditors, reviewing the scope of the annual audit with the auditors
in advance, and reviewing the results of the audit and the adequacy of our
accounting, financial and operating controls. The Audit Committee also reviews
our accounting and reporting principles, policies and practices; and approves
fees paid to the auditors for audit and non-audit services. The current members
of the Audit Committee are Messrs. Bloom, August and Morra.

Compensation Committee. The responsibilities of the Compensation Committee
include reviewing and approving the compensation, including salaries and
bonuses, of our officers. The Compensation Committee also oversees the
administration of our 401(k) plan and reviews and approves general benefits and
compensation strategies. The current members of the Compensation Committee are
Messrs. Bloom, August, Morra and Jay Levy.

Stock Option Committee (2000 Stock Option Plan). The Stock Option Committee
for the 2000 Stock Option Plan, subject to the limitations of the plan, selects
the employees to be granted options, fixes the number of shares to be covered by
each option grant, and determines the exercise price and other terms and
conditions of each option. The current members of this Stock Option Committee
are Messrs. Bloom, August and Morra.

Stock Option Committee (Directors Stock Option Plan). The Stock Option
Committee for the Directors Stock Option Plan, subject to the limitations of the
plan, interprets the plan and makes all determinations necessary for the plan's
administration. The current members of this Stock Option Committee are Messrs.
Jay Levy, Warren Levy and Ronald Levy.

Director Compensation

Directors who are not employees receive an annual retainer of $8,000 as
well as a fee of $1,000 for each Board meeting attended. Messrs. Bloom, August
and Morra were the directors who received such fees in 2001. Board members do
not earn additional compensation for service on a committee.

Under the Director Stock Option Plan, each person elected to the Board who
is not an employee receives, on the date of his initial election, an initial
option to purchase 21,000 shares of Unigene common stock. On May 1st of each
year, each non-employee director receives an additional option to purchase
10,000 shares of Unigene common stock if he has served as a non-employee
director for at least six months prior to the grant date. Each option has a
ten-year term and the exercise price is equal to the market price of Unigene
common stock on the date of the grant. Each initial option vests in equal
installments of 1/3 over a period of three years, commencing on the date of the
grant, and each additional option vests in its entirety on the first anniversary
of the grant. If the director's service as a non-employee director terminates
prior to the expiration of the option term, the options will remain exercisable
for a 90-day period following termination of service, except if a non-employee
director resigns due to disability, the options will remain exercisable for 180
days following termination, and if a non-employee director dies while serving as
a director, or within 90 days following termination of service (180 days in the
case of disability), the options will remain exercisable for 180 days following
the person's death. After such period, the options will terminate and cease to
be exercisable.

On December 5, 2001, the Board granted stock options to purchase Unigene
common stock to the entire Board of Directors as follows:

Jay Levy 300,000
Allen Bloom 150,000
J. Thomas August 120,000
Bruce Morra 120,000
Warren P. Levy 100,000
Ronald S. Levy 100,000

The exercise price of these options is $.47 per share, the closing stock price
of Unigene common stock on December 5, 2001. These options expire in ten years
and vest 10% immediately and 30% on each of June 5, 2002, December 5, 2002 and
June 5, 2003. For the stock options granted to Messrs. Bloom, August and Morra,
upon termination of their status as director, their time to exercise after
termination will be based upon tenure as follows:

Time period after
Tenure as Director Termination to Exercise
------------------ -----------------------

Up to one year 90 days
Greater than one year and up to three years 180 days
Greater than three years and up to fiveyears One year
Greater than five years Two years

For the stock options granted to Jay Levy, Warren Levy and Ronald Levy, in the
event of termination, the option holder has three months to exercise the
options.

Employment Agreements

Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Warren P. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as President and Chief Executive Officer at an annual salary
of $160,000 for the first year of the agreement. The Compensation Committee has
discretion to approve salary increases beyond this first year.

Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Ronald S. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as Executive Vice President at an annual salary of $155,000
for the first year of the agreement. Salary increases beyond this first year are
at the discretion of the Compensation Committee.

Each agreement provides that, after the first two-year term, the agreement
will be renewed on a year-to-year basis unless either party notifies the other
of the desire not to renew the agreement. Either party must give this notice no
later than three months prior to the scheduled termination date. Each agreement
also provides that, if Unigene terminates the employment of the executive
without cause or the executive resigns for good reason, which the executive has
a right to do upon a change of control of Unigene or a significant reduction of
the executive's responsibilities without his consent, Unigene will make a
lump-sum severance payment to the executive equal to the salary that he would
have earned for the remaining term of this agreement, if the remaining term
(either the initial term or as extended) is more than one year; or if the
remaining term of the agreement (either the initial term or as extended) is one
year or less, a lump-sum payment equal to the executive's then-current annual
salary.

Compensation Committee Interlocks and Insider Participation

The Board of Directors determined executive compensation for 2001. Three of
the six Board members, Warren P. Levy, Ronald S. Levy and Jay Levy, are
executive officers. Jay Levy is the father of Warren and Ronald Levy.

and interest. This additional interest was approximately $512,000, and total
interest expense on all Levy loans was approximately $1,087,000 for 2001. As of
April 1, 2002, total accrued interest on all Levy loans was approximately
$2,303,000 and the outstanding loans by these individuals to Unigene, classified
as short-term debt, totaled $11,553,323 and consist of:

Executive Compensation

The following table shows, for the years 2001, 2000 and 1999, the
compensation paid to the Chief Executive Officer and to each other executive
officer whose salary and bonus, for their services in all capacities in 2001
exceeded $100,000:

Summary Compensation Table

Long-Term
Compensation
------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Restricted
Annual Stock Options/ LTIP All Other
Name and Position Year Salary($) Bonus($) Compensation($)(2) Awards($) SARs(#) Payouts($) Compensation($)(1)
- ----------------------------------------------------------------------------------------------------------------------------------

Warren P. Levy 2001 $161,280 $0 $ 0 $0 100,000 $0 $13,932
President, Chief 2000 160,175 0 0 0 0 0 13,902
Executive Officer 1999 146,211 0 0 0 0 0 13,866

Dr. Ronald S. Levy 2001 156,626 0 0 0 100,000 0 16,872
Executive Vice 2000 155,260 0 0 0 0 0 16,864
President 1999 141,563 0 0 0 0 0 16,862

Dr. James P.
Gilligan 2001 141,832 0 6,692 0 120,000 0 0
Vice President 2000 148,034 0 7,615 0 0 0 0
1999 139,216 0 7,235 0 135,000 0 0

- ----------
(1) Represents premium we paid on executive split-dollar life insurance.

(2) Represents reimbursement for unused vacation days.

Stock Option Grants During The Year Ended December 31, 2001

The following table sets forth certain information relating to stock option
grants to each of the executive officers named in the Summary Compensation Table
during the year ended December 31, 2001:

Number of Percent of
Shares Total Option
Underlying Shares
Options Granted to Exercise Price Expiration Grant Date
Name Granted Employees/(1)/ per Share/(2)/ Date Value/(3)/
---------- -------------- -------------- ---------- ----------

Dr. Warren P. Levy 100,000 6.7% $ 0.47 12/4/11 $44,172
Dr. Ronald S. Levy 100,000 6.7% $ 0.47 12/4/11 $44,172
Dr. James P. Gilligan 120,000 8.0% $ 0.395 7/17/11 $44,548

(1) Options exercisable for an aggregate of 1,503,000 shares of Common Stock
were granted in 2001 under the 2000 Stock Option Plan.

(2) Fair market value on the date of grant.

(3) The fair value of the stock options granted in 2001 is estimated at grant
date using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield of 0%; expected volatility of
113%; a risk-free interest rate of 4.4%; and expected lives of 5 years.

Aggregated Option Exercises and Year-End Option Values

The following table shows information about any option exercises during the
year ended December 31, 2001, and the number and value of unexercised options
held as of December 31, 2001, by each of the executive officers named in the
Summary Compensation Table:

Exercise during Shares Underlying Value of Unexercised
the Fiscal Year Unexercised Options In-the-Money Options(1)
-------------------------- --------------------------- ---------------------------
Number of Value
Name Shares Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- -------- ----------- ------------- ----------- -------------

Dr. Warren P. Levy 0 0 10,000 90,000 $1,800 $16,200
Dr. Ronald S. Levy 0 0 10,000 90,000 $1,800 $16,200
Dr. James P. Gilligan 0 0 402,000 108,000 $5,360 $27,540

- ----------
(1) Based upon a closing price of $0.65 on December 31, 2001.

Certain Relationships and Related Transactions

Jay Levy, the Chairman of the Board and an officer of Unigene, and Warren
Levy and Ronald Levy, directors and officers of Unigene, and another Levy family
member from time to time have made loans to Unigene. From January 1, 2002
through April 1, 2002, Jay Levy made demand loans to Unigene of $700,000. During
2001, Jay Levy made demand loans to Unigene of $6,100,000 and Warren Levy and
Ronald Levy each made demand loans to Unigene of $5,000. Unigene has not made
principal and interest payments on certain loans when due. However, the Levys
waived all default provisions including additional interest penalties due under
these loans through December 31, 2000. Beginning January 1, 2001, interest on
loans originated through March 4, 2001 increased an additional 5% per year and
is calculated on both past due principal and interest. This additional interest
was approximately $512,000, and total interest expense on all Levy loans was
approximately $1,087,000 for 2001. As of April 1, 2002, total accrued interest
on all Levy loans was approximately $2,303,000 and the outstanding loans by
these individuals to Unigene, classified as short-term debt, totaled $11,553,323
and consist of:

On May 9, 2001, we entered into a common stock purchase agreement with
Fusion, under which Fusion has committed to purchase on each trading day during
the term of the agreement $43,750 of our common stock up to an aggregate of
$21,000,000. From May 18, 2001 through April 15, 2002 we raised a total of
$3,270,730 through the sale of 7,786,374 shares of our common stock to Fusion,
before cash expenses of approximately $420,000. See "Business - Fusion
Financing."

Alan Bloom, a member of the Board of Directors of Unigene, is a partner in
the law firm of Dechert. We retain Dechert from time to time to perform legal
services on behalf of Unigene.

Principal Stockholders

The following table shows information as of April 15, 2002, concerning the
beneficial ownership of Unigene common stock by each of Unigene's directors,
each executive officer of Unigene listed in the Summary Compensation Table, and
all directors and executive officers of Unigene as a group and each other person
known by Unigene to be the beneficial owner of more than 5% of Unigene's common
stock.

The ownership percentages listed on the table are based on 56,523,314
shares of Unigene common stock outstanding as of April 15, 2002. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. A person generally is deemed to be the beneficial owner of
shares over which he has either voting or investment power. Shares underlying
options that are currently exercisable, or that will become exercisable within
60 days, are deemed to be beneficially owned by the person holding the options,
and are deemed to be outstanding for the purpose of computing the beneficial
ownership percentage of that person, but are not considered to be outstanding
for the purpose of computing the ownership percentage of any other person.

Except as otherwise noted, the persons and the group identified in the
table have sole voting and sole investment power with respect to all the shares
of Unigene common stock shown as beneficially owned by them. Except as otherwise
indicated, the address of each beneficial owner listed below is c/o Unigene
Laboratories, Inc., 110 Little Falls Road, Fairfield, New Jersey 07004.

Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
--------------------------- -------------------- ----------------

Fusion Capital Fund II, LLC
222 Merchandise Mart Plaza
Chicago, IL 60654 3,500,000 (1) 6.1%

Warren P. Levy 2,020,545 (2)(3) 3.6%
Ronald S. Levy 2,035,545 (2)(4) 3.6%
Jay Levy 713,095 (5) 1.3%
James P. Gilligan 457,660 (6) *
J. Thomas August 67,552 (7) *
Bruce S. Morra 55,000 (8) *
Allen Bloom 121,000 (9) *
Officers and Directors
as a Group (7 persons) 5,270,397 (2)(10) 9.2%

- ----------
* Less than one percent.

(1) Includes 1,000,000 shares that Fusion has the right to acquire upon the
exercise of a warrant.

(2) Includes 200,000 shares of Unigene common stock held in a family trust over
which Warren P. Levy and Ronald S. Levy, in their capacity as trustees,
share voting and dispositive power.

(3) Includes 40,000 shares of Unigene common stock that Dr. Warren Levy has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

(4) Includes 40,000 shares of Unigene common stock that Dr. Ronald Levy has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

(5) Includes 190,000 shares of Unigene common stock that Jay Levy has the right
to acquire upon the exercise of stock options that are exercisable either
immediately or within 60 days.

(6) Includes 438,000 shares of Unigene common stock that Dr. Gilligan has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

(7) Includes 55,000 shares of Unigene common stock that Dr. August has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

(8) Includes 55,000 shares of Unigene common stock that Dr. Morra has the right
to acquire upon the exercise of stock options that are exercisable either
immediately or within 60 days.

(9) Includes 120,000 shares of Unigene common stock that Dr. Bloom has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

(10) Includes an aggregate of 938,000 shares of Unigene common stock that such
persons have the right to acquire upon the exercise of stock options that
are exercisable either immediately or within 60 days.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.01 per share. As of April 15, 2001, there were 56,523,314
shares of common stock outstanding and held of record by approximately 492
stockholders.

Each holder of common stock is entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. There is no
cumulative voting for the election of directors and, as a consequence, minority
stockholders will not be able to elect directors on the basis of their votes
alone. Holders of common stock are entitled to receive ratably dividends as may
be declared by the board of directors out of funds legally available therefor.
We have never paid and we do not anticipate declaring or paying any cash
dividends on shares of our common stock in the foreseeable future. Upon our
liquidation, dissolution or winding up, the holders of common stock then
outstanding are entitled to share ratably in our assets remaining after the
payment of liabilities. All shares of common stock outstanding and to be
outstanding upon completion of this offering are and will be fully paid and
nonassessable.

SELLING STOCKHOLDERS

The following table presents information regarding the selling
stockholders' beneficial ownership of our common stock as of April 25, 2002.
None of the selling stockholders nor any of their affiliates has held a position
or office, or had any other material relationship, with us.

Percentage of Percentage of
Outstanding Outstanding
Shares Shares Shares
Beneficially Beneficially Shares to be Beneficially
Owned Before Owned Before Sold in the Owned After
Selling Stockholder Offering (1) Offering (2) Offering Offering (1) (2)
- ----------------------- ------------ ------------- ------------ ----------------

The Tail Wind Fund, Ltd 2,000,000 3.5% 2,000,000 0%
Annette North(1) 400,000 * 400,000 0%
Patrick Tedesco(2) 300,000 * 300,000 0%

- ----------
* Less than one percent.

(1) Up to 400,000 shares of our common stock are issuable to Annette North as
compensation for the decrease in the market price of 62,000 shares of our
common stock that she acquired upon the exercise of a warrant prior to the
time that the warrant shares are registered for resale and within 10
trading days after the warrant shares are delivered to Ms. North. Pursuant
to an agreement with Ms. North, we will pay to Ms. North, in shares of our
common stock, an amount equal to the product of 62,000 and the amount by
which $2.75 exceeds the closing sale price of our common stock on the date
that the registration statement to which this prospectus relates becomes
effective. Under the agreement, for warrant shares sold within 10 days
after delivery to Ms. North, we are obligated to pay the amount, if any,
that the closing price of the common stock on the effective date exceeds
the sale prices of the shares sold. In addition, with respect to any
warrant shares not sold within 10 days after delivery to Ms. North, we also
are obligated to pay the amount, if any, that the closing price of the
common stock on the effective date exceeds the closing price of the shares
on the date delivered.

(2) We issued 300,000 shares of our common stock to Patrick Tedesco as
compensation for the decrease in the market price of shares of our common
stock that he acquired upon the exercise of a warrant prior to the time
that the warrant shares are registered for resale.

Plan of Distribution

The common stock offered by this prospectus is being offered by the selling
stockholders. The common stock may be sold or distributed from time to time by
the selling stockholder directly to one or more purchasers or through brokers,
dealers, or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. The sale
of the common stock offered by this Prospectus may be effected in one or more of
the following methods:

. ordinary brokers' transactions;
. transactions involving cross or block trades;
. through brokers, dealers, or underwriters who may act solely as
agents;
. "at the market" into an existing market for the common stock;
. in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
. in privately negotiated transactions; or
. any combination of the foregoing.

In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in the state or an exemption
from the registration or qualification requirement is available and complied
with.

Brokers, dealers, underwriters, or agents participating in the distribution
of the shares as agents may receive compensation in the form of commissions,
discounts, or concessions from the selling shareholder and/or purchasers of the
common stock for whom the broker-dealers may act as agent. The compensation paid
to a particular broker-dealer may be less than or in excess of customary
commissions.

Neither we nor the selling stockholders can presently estimate the amount
of compensation that any agent will receive. We know of no existing arrangements
between the selling stockholders, any other stockholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the shares offered
by this Prospectus. At the time a particular offer of shares is made, a
prospectus supplement, if required, will be distributed that will set forth the
names of any agents, underwriters, or dealers and any compensation from the
selling stockholder and any other required information.

We will pay all of the expenses incident to the registration, offering, and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers, or agents. We have also agreed to indemnify Tail
Wind and related persons against specified liabilities, including liabilities
under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, and controlling persons, we have
been advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable.

The selling stockholders may also sell the shares in accordance with Rule
144 under the Securities Act, rather than pursuant to this prospectus,
regardless of whether the shares are covered by this prospectus.

From time to time, the selling stockholders may transfer, pledge, donate or
assign their shares of common stock to lenders or others and each of these
persons will be deemed to be a "selling stockholder" for purposes of this
prospectus. The number of shares of common stock beneficially owned by the
selling stockholders may decrease as and when these actions are taken. The plan
of distribution for the selling stockholders' shares of common stock sold under
this prospectus will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be "selling stockholders" hereunder.

The selling stockholders may enter into hedging, derivative or short
transactions with broker-dealers in connection with the sales or distributions
of the shares or otherwise. In these transactions, broker-dealers may engage in
short sales of the shares in the course of hedging the positions they assume
with the selling stockholders. The selling stockholders also may sell shares
short and redeliver the shares to close out short positions and engage in
derivative or hedging transactions. The selling stockholders may enter into
option contracts or other transactions with broker-dealers which require the
delivery to the broker-dealer of the shares. The broker-dealer may then resell

or otherwise transfer the shares under this prospectus. The selling stockholders
also may loan or pledge the shares to a broker-dealer. The broker-dealer may
sell the loaned shares or upon a default the broker-dealer may sell the pledged
shares under this prospectus.

Legal Matters

The validity of the Unigene common stock offered by this prospectus will be
passed upon for Unigene by Dechert, Philadelphia, Pennsylvania.

Experts

The financial statements of Unigene Laboratories, Inc. as of December 31,
2001 and 2000, and for each of the years in the three-year period ended December
31, 2001, have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. The audit report covering the December 31, 2001 financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations and working capital deficiency raise
substantial doubt about the entity's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty. Also, the audit report refers to a change in the
method of revenue recognition for up-front, non-refundable license fees in 2000.

Additional Information

Unigene has filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission. This prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Some information is omitted from this prospectus in accordance with
the rules of the Securities and Exchange Commission and you should refer to the
Registration Statement and its exhibits for additional information. Unigene also
files annual and quarterly reports, proxy statements and other information with
the SEC. You may review a copy of the Registration Statement and any other
documents filed with the Securities and Exchange Commission at its public
reference room located at 450 Fifth Street, Washington, D.C. 20549, and at the
SEC's regional offices in Chicago, Illinois and New York, New York. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Unigene's SEC filings and the
Registration Statement can also be reviewed by accessing the SEC's Internet site
at http://www.sec.gov.

You should rely only on the information contained in this prospectus.
Unigene has not authorized anyone to provide you with any information that is
different from that contained in this prospectus. The information contained in
this prospectus is accurate as of the date of this prospectus. You should not
assume that there has been no changes in the affairs of Unigene since the date
of this prospectus or that the information in this prospectus is correct as of
any time after the date of this prospectus, regardless of the time that this
prospectus is delivered or any sale of the common stock offered by this
prospectus is made. This prospectus is not an offer to sell or a solicitation of
an offer to buy the shares covered by this prospectus in any jurisdiction where
the offer or solicitation is unlawful. In this prospectus, "Unigene," "we," "us"
and "our" refer to Unigene Laboratories, Inc.

Unigene Laboratories, Inc.

INDEX TO FINANCIAL STATEMENTS

Page
----

INDEPENDENT AUDITORS' REPORT.................................................................F-2
BALANCE SHEETS -- December 31, 2001 and 2000.................................................F-3
STATEMENTS OF OPERATIONS -- Years Ended December 31, 2001, 2000 and 1999.....................F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- Years Ended December 31, 2001, 2000 and
1999.........................................................................................F-5
STATEMENTS OF CASH FLOWS -- Years Ended December 31, 2001, 2000 and 1999.....................F-6
NOTES TO FINANCIAL STATEMENTS -- Years Ended December 31, 2001, 2000 and 1999................F-7

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Unigene Laboratories, Inc.:

We have audited the financial statements of Unigene Laboratories, Inc. as
listed in the accompanying index. These financial statements are the
responsibility of Unigene's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unigene Laboratories, Inc.
as of December 31, 2001 and 2000, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that
Unigene will continue as a going concern. As discussed in Note 2 to the
financial statements, Unigene has suffered recurring losses from operations and
has a working capital deficiency which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note 3 to the financial statements, the Company changed its
method of accounting for revenue recognition for up-front, non-refundable
license fees in 2000.

/S/ KPMG LLP

Short Hills, New Jersey
March 29, 2002, except as
to the last paragraph of
note 7, which is as of
April 9, 2002

F-2

UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 2001 and 2000

2001 2000
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents $ 405,040 $ 17,108
Contract receivables -- 165,671
Prepaid expenses 72,701 129,493
Inventory (Note 9) 283,328 415,420
------------ ------------
Total current assets 761,069 727,692
Property, plant and equipment - net (Note 5) 4,109,312 5,684,127
Patents and other intangibles, net 1,375,062 1,288,686
Investment in joint venture (Note 6) 900,000 900,000
Other assets 373,811 446,894
------------ ------------
$ 7,519,254 $ 9,047,399
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable (Note 10) $ 2,977,949 $ 2,834,556
Accrued expenses (Notes 4, 6 and 10) 6,589,251 3,761,277
Notes payable - stockholders (Note 4) 8,983,323 2,873,323
Current portion - long-term notes payable -
stockholders (Note 4) 1,870,000 1,870,000
5% convertible debentures (Note 7) 2,400,000 2,400,000
Current portion - capital lease obligations (Note
11) 29,677 55,398
Deferred revenue -- 200,000
------------ ------------
Total current liabilities 22,850,200 13,994,554

Joint venture obligation, excluding current portion
(Note 6) 495,000 495,000
Capital lease obligations, excluding current portion
(Note 11) 14,131 50,572
Commitments and contingencies (Notes 6, 7, 8, 12
and 18)
Stockholders' equity (deficit) (Notes 8, 13 and 14):
Common Stock - par value $.01 per share, authorized
100,000,000 shares, issued 51,456,715 shares in
2001 and 44,441,855 shares in 2000 514,567 444,419
Additional paid-in capital 71,271,610 70,053,710
Common stock to be issued (Note 13) 225,000 --
Deferred stock option compensation -- (284,948)
Deferred stock offering costs -- (327,000)
Accumulated deficit (87,850,223) (75,377,877)
Less: Treasury stock, at cost, 7,290 shares (1,031) (1,031)
------------ ------------
Total stockholders' equity (deficit) (15,840,077) (5,492,727)
------------ ------------
$ 7,519,254 $ 9,047,399
============ ============

See accompanying notes to financial statements.

F-3

UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999

2001 2000 1999
------------ ------------ -----------

Licensing and other revenue $ 864,645 $ 3,286,961 $ 9,589,413
------------ ------------ -----------

Operating expenses:
Research and development 9,121,999 11,484,379 9,374,528
General and administrative 2,699,572 3,187,465 2,211,778
------------ ------------ -----------
11,821,571 14,671,844 11,586,306
------------ ------------ -----------
Operating loss (10,956,926) (11,384,883) (1,996,893)

Other income (expense):
Interest income 7,989 49,130 37,545
Interest expense (Notes 4 and 7) (2,084,008) (1,198,508) (1,171,260)
------------ ------------ -----------

Loss before income taxes, and cumulative
effect of accounting change (13,032,945) (12,534,261) (3,130,608)

Income tax benefit (Note 15) 560,599 1,064,856 1,553,268
------------ ------------ -----------

Loss before cumulative effect of
accounting change (12,472,346) (11,469,405) (1,577,340)

Cumulative effect of revenue recognition
accounting change (Note 3) -- (1,000,000) --
------------ ------------ -----------

Net loss $(12,472,346) $(12,469,405) $(1,577,340)
============ ============ ===========

Loss per share - basic and diluted:
Loss before cumulative effect of
accounting change $ (.26) $ (.26) $ (.04)
Cumulative effect of accounting change -- (.02) --
------------ ------------ -----------

Net loss per share $ (.26) $ (.28) $ (.04)
============ ============ ===========

Weighted average number of shares
outstanding - basic and diluted 47,482,705 44,008,154 40,718,519
============ ============ ===========

Pro forma amounts assuming the revenue recognition principle adopted in 2000 is
applied retroactively, exclusive of cumulative effect adjustment (See Note 3):

Net loss $(11,469,405) $ (777,340)
============ ===========

Earnings per share -- basic and diluted:

Net loss $ (.26) $ (.02)
============ ===========

See accompanying notes to financial statements.

F-4

UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2001, 2000 and 1999

Common Stock Deferred
---------------------- Additional Common Stock
Number of Paid-in Stock Option
Shares Par Value Capital to be Issued Compensation
---------- --------- ----------- ------------ ------------

Balance, January 1,
1999 39,384,822 $393,848 $65,158,403 $ -- $ --

Conversion of 5%
Debentures into
Common Stock and
Warrants 3,528,125 35,281 1,859,994 -- --

Issuance of Common
Stock as payment
of interest on
5% Debentures 175,237 1,753 189,207 -- --

Net loss -- -- -- -- --
---------- -------- ----------- -------- ---------

Balance, December
31, 1999 43,088,184 430,882 67,207,604 -- --

Exercise of warrants 1,118,071 11,181 1,317,087 -- --

Exercise of stock
options 235,600 2,356 298,177 -- --

Grant and
recognition of
stock option
compensation -- -- 683,733 -- (284,948)

Deferred stock
offering costs -- -- 327,000 -- --

Issuance of
warrants as
compensation -- -- 220,109 -- --

Net loss -- -- -- -- --
---------- -------- ----------- -------- ---------

Balance, December
31, 2000 44,441,855 444,419 70,053,710 -- (284,948)

Sale of common
stock to Fusion
at $.23 to $.47
per share (net
of cash issuance
costs of
$ 292,000) 5,012,485 50,125 1,211,427 -- --

Issuance of common
stock as a
commitment fee
to Fusion 2,000,000 20,000 (20,000) -- --

Grant and
recognition of
stock option
compensation -- -- 25,000 -- 284,948

Common stock to be
issued -- -- -- 225,000 --

Exercise of stock
options 2,375 23 1,473 -- --

Net loss -- -- -- -- --
---------- -------- ----------- -------- ---------
51,456,715 $514,567 $71,271,610 $225,000 $ --
========== ======== =========== ======== =========

Deferred
Stock
Offering Accumulated Treasury
Costs Deficit Stock Total
--------- ------------ -------- ------------

Balance, January 1,
1999 $ -- $(61,331,132) $(1,031) $ 4,220,088

Conversion of 5%
Debentures into
Common Stock and
Warrants -- -- -- 1,895,275

Issuance of Common
Stock as payment
of interest on
5% Debentures -- -- -- 190,960

Net loss -- (1,577,340) -- (1,577,340)
--------- ------------ ------- ------------

Balance, December
31, 1999 -- (62,908,472) (1,031) 4,728,983

Exercise of warrants -- -- -- 1,328,268

Exercise of stock
options -- -- -- 300,533

Grant and
recognition of
stock option
compensation -- -- -- 398,785

Deferred stock
offering costs (327,000) -- -- --

Issuance of
warrants as
compensation -- -- -- 220,109

Net loss -- (12,469,405) -- (12,469,405)
--------- ------------ ------- ------------

Balance, December
31, 2000 (327,000) (75,377,877) (1,031) (5,492,727)

Sale of common
stock to Fusion
at $.23 to $.47
per share (net
of cash issuance
costs of
$ 292,000) 327,000 -- -- 1,588,552

Issuance of common
stock as a
commitment fee
to Fusion -- -- -- --

Grant and
recognition of
stock option
compensation -- -- -- 309,948

Common stock to be
issued -- -- -- 225,000

Exercise of stock
options -- -- -- 1,496

Net loss -- (12,472,346) -- (12,472,346)
--------- ------------ ------- ------------
$ -- $(87,850,223) $(1,031) $(15,840,077)
========= ============ ======= ============

See accompanying notes to financial statements.

F-5

UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999

2001 2000 1999
------------ ------------ -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $(12,472,346) $(12,469,405) $(1,577,340)
Adjustments to reconcile net loss to net cash
used by operating activities:
Non-cash cumulative effect adjustment ................ -- 1,000,000 --
Amortization of deferred revenue ..................... (200,000) (800,000) --
Non-cash compensation ................................ 534,948 618,894 --
Depreciation and amortization ........................ 1,647,510 1,617,957 1,558,663
Amortization of beneficial conversion feature on 5%
Debentures ........................................ -- -- 197,193
20% premium on 5% debentures ......................... -- -- 400,000
Payment of interest through the issuance of
common stock ...................................... -- -- 190,960
Decrease in other assets ............................. 42,313 42,312 64,528
(Increase) decrease in contract receivables .......... 165,671 3,360,558 (3,210,171)
(Increase) decrease in prepaid expenses and
inventory ......................................... 188,884 532,848 (188,092)
Increase in accounts payable and accrued expenses .... 2,971,367 2,715,086 1,163,795
------------ ------------ -----------

Net cash used for operating activities ............... (7,121,653) (3,381,750) (1,400,464)
------------ ------------ -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold and building improvements... (2,169) (235,764) (4,010)
Purchase of furniture and equipment .................. (17,556) (283,589) (134,127)
Increase in patents and other assets ................. (108,576) (69,389) (88,695)
------------ ------------ -----------

Net cash used in investing activities ................ (128,301) (588,742) (226,832)
------------ ------------ -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ............. -- -- 1,870,000
Proceeds from issuance of short-term debt, net ....... 6,110,000 1,733,323 100,000
Repayment of long-term debt and capital lease
obligations ....................................... (62,162) (57,153) (62,739)
Exercise of stock options and warrants ............... 1,496 1,628,801 --
Proceeds from sale of stock, net ..................... 1,588,552 -- --
------------ ------------ -----------

Net cash provided by financing activities ............ 7,637,886 3,304,971 1,907,261
------------ ------------ -----------

Net increase (decrease) in cash and cash equivalents.. 387,932 (665,521) 279,965
Cash and cash equivalents at beginning of period ..... 17,108 682,629 402,664
------------ ------------ -----------

Cash and cash equivalents at end of period ........... $ 405,040 $ 17,108 $ 682,629
============ ============ ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Investment in joint venture and related obligations... -- $ 900,000 --
Acquisition of equipment through capital leases ...... -- -- $ 36,617
Conversion of convertible debentures and accrued
interest into common stock ........................ -- -- $ 2,190,960
============ ============ ===========

Cash paid for interest ............................... $ 58,500 $ 39,800 $ 24,700
============ ============ ===========

See accompanying notes to financial statements.

F-6

UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

1. Description of Business

Unigene Laboratories, Inc. ("Unigene"), a biopharmaceutical company, was
incorporated in the State of Delaware in 1980. Unigene's single business segment
focuses on research, production and delivery of peptides for medical use.
Unigene has concentrated most of its efforts to date on one product -
calcitonin, for the treatment of osteoporosis and other indications. Unigene's
initial products will be injectable, nasal and oral formulations of calcitonin.
Unigene's calcitonin products require clinical trials and approvals from
regulatory agencies as well as acceptance in the marketplace. Unigene's
injectable calcitonin product has been approved for marketing in all 15-member
states of the European Union for the treatment of Paget's disease and
hypercalcemia associated with malignancy. Through December 31, 2001, sales of
injectable calcitonin have not been significant. Although Unigene believes its
patents and patent applications are valid, the invalidation of its patents or
the failure of certain of its pending patent applications to issue as patents
could have a material adverse effect upon its business. Unigene competes with
specialized biotechnology companies, major pharmaceutical and chemical companies
and universities and research institutions. Most of these competitors have
substantially greater resources than does Unigene. During 2000 and 1999, almost
all of Unigene's revenue was generated from one customer, Pfizer (see Note 17).
The Pfizer agreement was terminated in March 2001.

2. Liquidity

Unigene has incurred annual operating losses since its inception and, as a
result, at December 31, 2001 has an accumulated deficit of approximately
$87,850,000 and has a working capital deficiency of approximately $22,100,000.
These factors raise substantial doubt about Unigene's ability to continue as a
going concern. However, 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. Unigene's cash requirements are approximately
$10 to 11 million per year to operate its research and peptide manufacturing
facilities and develop its calcitonin and other products. In addition, Unigene
has principal and interest obligations under its outstanding notes payable to
stockholders and other debt, and its obligations relating to its current and
former joint ventures in China. As a result of the Company's failure to make
required principal and interest payments, Unigene's cash requirements increased
related to interest rates on certain stockholders notes as described in Note 4.
Management is actively seeking licensing and/or supply agreements with
pharmaceutical companies for oral, nasal and injectable forms of calcitonin as
well as for other oral peptides. With the termination of our Pfizer
collaboration in March 2001, we currently have no licenses for any of our
products in the U.S. We do not have sufficient financial resources to continue
to fund our operations at the current level. We had operating cash flow deficits
of $1,400,000 in 1999, $3,382,000 in 2000 and $7,122,000 in 2001. Therefore, we
need additional funds to continue our operations. Our agreement with Fusion has
provided us with some cash to fund our operations, but it alone has not been
sufficient to satisfy all of our working capital needs. The extent to which we
intend to rely on Fusion as a source of financing will depend on a number of
factors, including the prevailing market price of our common stock and the
extent to which we are able to secure working capital from other sources, such
as through the entry into licensing agreements which we are actively exploring
or the sale of bulk calcitonin, which totaled $339,000 in 2001. If we are unable
to enter into a significant revenue generating license or financing arrangement
in the near term, we will need to significantly curtail our operations. We also
could consider a sale or merger of the Company.

Even if we are able to access $21,000,000 under the common stock purchase
agreement with Fusion, we may still need additional capital to fully implement
our business, operating and development plans. We only have the right to receive
$43,750 per trading day under the common stock purchase agreement unless our
stock price equals or exceeds $4.00 per share, in which event the daily purchase
amount may be increased. However, our sales of common stock to Fusion have been
well below that level due to the share price and trading volume of our common
stock and due to our desire to keep dilution to a minimum. In addition, the
agreement may be terminated by Fusion at any time due to events of default under
the agreement. See Note 8.

We believe that satisfying our capital requirements over the long term will
require the successful commercialization of one of our calcitonin products or
another peptide product in the United States and abroad. However, it is
uncertain whether or not any of our products will be approved or will be
commercially successful. The commercialization of one of our products may
require us to incur additional capital expenditures to expand or

F-7

upgrade our manufacturing operations to satisfy future supply obligations.
However, we cannot determine either the cost or the timing of such capital
expenditures at this time.

3. Summary of Significant Accounting Policies & Practices

Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Segment Information - Unigene is managed and operated as one business. The
entire business is managed by a single management team that reports to the chief
executive officer. Unigene does not operate separate lines of business or
separate business entities with respect to any of its product candidates.
Accordingly, Unigene does not prepare discrete financial information with
respect to separate product areas or by location and does not have separately
reportable segments as defined by Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information."

Cash Equivalents - Unigene considers all highly liquid securities purchased with
an original maturity of three months or less to be cash equivalents.

Inventory - Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.

Property, Plant and Equipment - Property, plant and equipment are carried at
cost. Equipment under capital leases are stated at the present value of the
minimum lease payments. Depreciation is computed using the straight-line method.
Amortization of equipment under capital leases and leasehold improvements is
computed over the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs and maintenance
are charged to expense as incurred.

Patents and Other Intangibles - Patent costs are deferred pending the outcome of
patent applications. Successful patent costs are amortized using the
straight-line method over the lives of the patents. Unsuccessful patent costs
are expensed when determined worthless. As of December 31, 2001, eight of
Unigene's patents had issued in the U.S. and eighteen had issued in various
foreign countries. Various other applications are still pending. Other
intangibles are recorded at cost and are amortized over their estimated useful
lives. Accumulated amortization on patents and other intangibles is $239,000 and
$186,000 at December 31, 2001 and 2000, respectively.

Goodwill and Other Intangible Assets - In July 2001, the FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144. Unigene is required to adopt the
provisions of SFAS No. 142 effective January 1, 2002. Unigene does not expect
that the adoption of SFAS No. 142 will have an impact on its financial
statements because the Company has never entered into a purchase business
combination and has no goodwill or indefinite life intangible assets at December
31, 2001.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company accounts for the impairment of long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived

F-8

assets. SFAS No. 144 requires that long-lived assets, exclusive of goodwill and
indefinite life intangibles, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted net
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future undiscounted net cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. SFAS No. 144 requires companies to
separately report discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The Company is required to adopt SFAS No. 144 on January 1, 2002.
The Company does not expect the adoption of SFAS No. 144 for long-lived assets
to have a material impact on its financial statements because the impairment
assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The
provisions of this statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities and, therefore, will depend on future
actions initiated by management. As a result, the Company cannot determine the
potential effects that adoption of SFAS No. 144 will have on its financial
statements with respect to future decisions, if any.

Fair Value of Financial Instruments - The fair value of a financial instrument
represents the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation.
Significant differences can arise between the fair value and carrying amounts of
financial instruments that are recognized at historical cost amounts. Given our
financial condition described in Note 2, it is not practicable to estimate the
fair value of our financial instruments at December 31, 2001.

Revenue Recognition - Commencing in 2000, non-refundable license fees received
upon execution of license agreements where Unigene has continuing involvement
are deferred and recognized as revenue over the life of the agreement. Prior to
the implementation of SAB 101, non-refundable license fees received upon
execution of license agreements were recognized as revenue immediately.
Non-refundable milestone payments that represent the completion of a separate
earnings process and a significant step in the research and development process
are recognized as revenue when earned. Revenue from the sale of product is
recognized upon shipment to the customer. Revenue from grants is recognized when
earned.

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. Unigene was
required to adopt SAB 101, as amended, in the fourth quarter of 2000 with an
effective date of January 1, 2000, and the recognition of a cumulative effect
adjustment calculated as of January 1, 2000. Unigene adopted SAB 101 in 2000,
changing its revenue recognition policy for up-front licensing fees that require
services to be performed in the future from immediate revenue recognition to
deferral of revenue with the up-front fee recognized over the life of the
agreement. In 1997, Unigene recognized $3,000,000 in revenue from an up-front
licensing fee from Pfizer. With the adoption of SAB 101, Unigene recognized this
revenue over a 45 month period, equivalent to the term of its oral calcitonin
agreement with Pfizer which was terminated in March 2001. Unigene therefore
recognized a non-cash cumulative effect adjustment of $1,000,000 as of January
1, 2000 representing a revenue deferral over the remaining 15 months of the
agreement. Unigene recognized $800,000 of revenue in 2000 and $200,000 in
revenue in 2001 as a result of this deferral. The pro forma effects of
retroactive application of this revenue recognition principle on net loss and
related per share amounts for the years ended December 31, 2000 and 1999 are
presented in the accompanying statements of operations.

Research and Development - Research and development expenses include the costs
associated with internal research and development by Unigene and research and
development conducted for Unigene by third parties. These costs primarily
consist of salaries, clinical trials, outside consultants, sponsorship of
universities' research projects, supplies, and indirect costs. Indirect costs
such as depreciation, rent, utilities, insurance, taxes, and maintenance are
allocated to research and development based on specific criteria such as square
footage utilized. All research and development costs discussed above are
expensed as incurred. Expenses reimbursed under research and development
contracts, which are not refundable, are recorded as a reduction to research and
development expense in the statement of operations.

F-9

Stock Options - Unigene accounts for stock options issued to employees and
directors in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on fixed stock option
grants only if the current market price of the underlying stock exceeded the
exercise price of the option at the date of grant and it is recognized on a
straight-line basis over the vesting period; compensation expense on variable
stock option grants is estimated until the measurement date. As permitted by
SFAS No. 123, "Accounting for Stock-Based Compensation", Unigene provides pro
forma net loss and pro forma loss per share disclosures for employee and
director stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied. Unigene accounts for stock options and warrants issued
to consultants on a fair value basis in accordance with SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."

Income Taxes - Income taxes are accounted for under the asset and liability
method with deferred tax assets and liabilities recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be reversed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date. Deferred tax assets are recorded
when they more likely than not are able to be realized.

Net Loss per Share - Unigene computes and presents 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 being reported on. 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 being
reported on and the effect was dilutive. Unigene's net loss and weighted average
shares outstanding used for computing diluted loss per share were the same as
that used for computing basic loss per share for each of the years ended
December 31, 2001, 2000 and 1999 because Unigene's convertible debentures, stock
options and warrants were not included in the calculation since the inclusion of
such potential shares (approximately 4,500,000 potential shares of Common Stock
at December 31, 2001) would be antidilutive.

4. Related Party Transactions

To satisfy Unigene's short-term liquidity needs, Jay Levy, the Chairman of the
Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors and
officers of Unigene, and another Levy family member from time to time have made
loans to Unigene. During 2001, Jay Levy made demand loans to Unigene of
$6,100,000 and Warren Levy and Ronald Levy each made demand loans to Unigene of
$5,000. During 2000, the Levys loaned the Company $1,733,323 in demand loans.
Due to the fact that Unigene did not make principal and interest payments on
certain stockholder loans when due, the Company is in default on outstanding
loans originated through March 4, 2001. As a result, interest on such loans
increased an additional 5% per year beginning January 2001 and is calculated on
both past due principal and interest. This additional interest was approximately
$512,000, and total interest expense on all Levy loans was approximately
$1,087,000 for 2001 ($281,000 for 2000 and $153,000 for 1999). The Levys had
waived all default provisions including additional interest penalties due under
these loans through December 31, 2000. As of December 31, 2001, total accrued
interest on all Levy loans was approximately $2,008,000 ($922,000 as of December
31, 2000).

Outstanding stockholder loans consist of the following at December 31, 2001 and
2000 (in thousands):

2001 2000
------- ------

Jay Levy term loans $ 1,870 $1,870
Jay Levy demand loans 8,465 2,365
Warren Levy demand loans 265 260
Ronald Levy demand loans 253 248
------- ------
$10,853 $4,743
======= ======

. Loans from Jay Levy in the aggregate principal amount of $1,870,000
($1,870,000 at December 31, 2000) evidenced by term notes maturing
January 2002, and bearing interest at the fixed rate of 11% per year.
These loans were originally at 6%. These loans are secured by a
security interest in all of Unigene's

F-10

equipment and a mortgage on Unigene's real property. The terms of the
notes require Unigene to make installment payments of principal and
interest beginning in October 1999 and ending in January 2002 in an
aggregate amount of $72,426 per month. No installment payments have
been made to date. Accrued interest on these loans at December 31,
2001 was approximately $399,000.

. Loans from Jay Levy in the aggregate principal amount of $3,465,000
($2,365,000 at December 31, 2000), which are evidenced by demand notes
bearing a floating interest rate equal to the Merrill Lynch Margin
Loan Rate plus 5.25% (11.00% at December 31, 2001) that are classified
as short-term debt. These loans were originally at the Merrill Lynch
Margin Loan Rate plus .25%. These loans are secured by a security
interest in Unigene's equipment and real property. Accrued interest on
these loans at December 31, 2001 was approximately $1,085,000.

. Loans from Jay Levy in the aggregate principal amount of $5,000,000
($0 at December 31, 2000) which are evidenced by demand notes bearing
a floating interest rate equal to the Merrill Lynch Margin Loan Rate
plus .25%, (6.00% at December 31, 2001) and are classified as
short-term debt and which are secured by a security interest in
certain of our patents. Accrued interest on these loans at December
31, 2001 was approximately $162,000.

. Loans from Warren Levy in the aggregate principal amount of $260,000
($260,000 at December 31, 2000) which are evidenced by demand notes
bearing a floating interest rate equal to the Merrill Lynch Margin
Loan Rate plus 5.25% (11.00% at December 31, 2001) that are classified
as short-term debt. These loans were originally at the Merrill Lynch
Margin Loan Rate plus .25%. An additional loan in the amount of $5,000
($0 at December 31, 2000) bears interest at the Merrill Lynch Loan
Rate plus .25% (6.00% at December 31, 2001) and is classified as
short-term debt. These loans are secured by a secondary security
interest in Unigene's equipment and real property. Accrued interest on
these loans at December 31, 2001 was approximately $182,000.

. Loans from Ronald Levy in the aggregate principal amount of $248,323
($248,323 at December 31, 2000) which are evidenced by demand notes
bearing a floating interest rate equal to the Merrill Lynch Margin
Loan Rate plus 5.25% (11.00% at December 31, 2001) that are classified
as short-term debt. These loans were originally at the Merrill Lynch
Margin Loan Rate plus .25%. An additional loan in the amount of $5,000
($0 at December 31, 2000) bears interest at the Merrill Lynch Margin
Loan Rate plus .25% (6.00% at December 31, 2001) and is classified as
short-term debt. These loans are secured by a secondary security
interest in Unigene's equipment and real property. Accrued interest on
these loans at December 31, 2001 was approximately $180,000.

One of our directors is a partner in a law firm that we have engaged for legal
services. In 2001, we incurred an aggregate of $11,432 in legal fees with this
firm.

F-11

5. Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31, 2001
and 2000:

Estimated
Depreciable
2001 2000 Lives
----------- ----------- -----------

Building and improvements $ 1,397,210 $ 1,397,210 25 years
Leasehold improvements 8,698,020 8,695,851 Lease Term
Manufacturing equipment 4,009,741 4,000,940 10 years
Laboratory equipment 2,819,801 2,815,870 5 years
Other equipment 466,523 466,523 10 years
Office equipment and furniture 345,667 340,843 5 years
Equipment under capital leases 258,517 258,517 Lease Term
----------- -----------

17,995,479 17,975,754

Less accumulated depreciation and
amortization 14,007,334 12,412,794
----------- -----------

3,988,145 5,562,960
Land 121,167 121,167
----------- -----------

$ 4,109,312 $ 5,684,127
=========== ===========

Depreciation and amortization expense on property, plant and equipment was
$1,595,000, $1,576,000 and $1,520,000 in 2001, 2000 and 1999, respectively.

6. China Joint Venture

In June 2000, we entered into a joint venture with Shijiazhuang Pharmaceutical
Group ("SPG"), a pharmaceutical company in the People's Republic of China. The
joint venture will manufacture and distribute injectable and nasal calcitonin
products in China (and possibly other selected Asian markets) for the treatment
of osteoporosis. We own 45% of the joint venture and will have a 45% interest in
the joint venture profits and losses. In the first phase of the collaboration,
SPG will contribute its existing injectable calcitonin license to the joint
venture, which will allow the joint venture to sell our product in China. The
joint venture is now preparing a new drug application in China for its
injectable and nasal products which is expected to be filed in late-2002. In
addition, the joint venture may be required to conduct brief local human trials.
If the product is successful, the joint venture may establish a facility in
China to fill injectable and nasal calcitonin products using bulk calcitonin
produced at our Boonton, New Jersey plant. Eventually the joint venture may
manufacture bulk calcitonin in China at a new facility that would be constructed
by it. This would require local financing by the joint venture. The joint
venture had not yet begun formal operations as of December 31, 2001, but did
commence operations in March 2002.

Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 2002 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by our share of joint venture profits. As of December 31, 2001, we have
not made any investments in the joint venture. In addition, Unigene is obligated
to pay to the Qingdao General Pharmaceutical Company an aggregate of $350,000 in
14 monthly installment payments of $25,000 in order to terminate its former
joint venture in China, of which $85,000 had been paid as of December 31, 2001
($75,000 was paid as of December 31, 2000). We recognized the entire $350,000
obligation as an expense in 2000.

7. Convertible Debentures

In June 1998, we issued 5% convertible debentures with a principal amount of
$4,000,000 to the Tail Wind Fund, Ltd. Pursuant to the terms of the debentures,
they were convertible into shares of our common stock, the interest on the
debentures, at our option, was payable in shares of common stock, and, upon
conversion, the owners of the debentures were entitled to receive warrants to
purchase a number of shares of common stock equal to 4% of the

F-12

number of shares issued as a result of the conversion. However, the number of
shares of common stock that we were obligated to issue, in the aggregate, upon
conversion, when combined with the shares issued in payment of interest and upon
the exercise of the warrants, was limited to 3,852,500 shares. After this share
limit was reached, we became obligated to redeem in cash all debentures tendered
for conversion at a redemption price equal to 120% of the principal amount, plus
accrued interest. Unigene in 1998 estimated the value of the beneficial
conversion feature and related warrants at the issuance of the 5% Debentures to
be approximately $687,000. Such amount was credited to additional paid-in
capital and was amortized to interest expense over the earliest conversion
periods using the effective interest method (approximately $197,000 for the year
ended December 31, 1999).

Through December 31, 2001, we issued a total of 3,703,362 shares of common stock
upon conversion of $2,000,000 principal amount of the debentures and in payment
of interest on them. Also, we issued an additional 103,032 shares of common
stock upon the cashless exercise of all of the 141,123 warrants issued upon
conversion of the debentures.

During 1999 and 2000, the owner of the debenture tendered the remaining
$2,000,000 principal amount of the debentures for conversion, but the conversion
into shares of common stock would have exceeded the aggregate share limit. As a
result, the owner of the debenture became entitled to redeem the $2,000,000
principal amount of the debenture for $2,400,000 in cash. We failed to make the
redemption payment to the owner of the debenture. We have also failed to make
the required semi-annual interest payment on the outstanding debentures since
January 5, 2000. As a result, the interest rate on the outstanding debentures
has increased to 20% per year. As of December 31, 2001, the accrued and unpaid
interest on the debentures is approximately $866,000 ($467,000 as of December
31, 2000).

In addition, the delisting of our common stock from the Nasdaq National Market
in October 1999 obligated us under a separate agreement to pay the owner of the
debentures an amount in cash equal to 2% of the outstanding principal amount of
the debentures per month. We have not made any of these payments. As of December
31, 2001, the accrued and unpaid amount of this penalty totaled approximately
$1,097,000 ($617,000 as of December 31, 2000).

Because of our failure to make cash payments to the holder of the debentures, an
event of default occurred. As a result, the holder filed a demand for
arbitration against Unigene in July 2000. In June 2001, the arbitration was
postponed to allow Tail Wind and Unigene to engage in settlement discussions. On
April 9, 2002, Unigene and Tail Wind entered into a settlement. Pursuant to the
terms of the settlement agreement, Tail Wind has agreed to surrender to Unigene
the $2 million in principal amount of convertible debentures that remain
outstanding and to release all claims against Unigene relating to Tail Wind's
purchase of the convertible debentures, including all issues raised in the
arbitration, which are currently in excess of $4 million. In exchange, Unigene
has agreed to issue to Tail Wind a $1 million secured promissory note and two
million shares of Unigene common stock. The note bears interest at a rate of 6%
per annum and principal and interest are due in February 2005. The shares are
valued at $1.1 million in the aggregate, based on Unigene's closing stock price
on April 9, 2002. Unigene will therefore recognize a gain for accounting
purposes of approximately $2 million on the extinguishment of debt and related
interest. Unigene is required to deposit the two million shares of common stock
with an escrow agent and to file a registration statement covering the resale of
the shares with the Securities and Exchange Commission. Once the registration
statement is declared effective by the SEC, the escrow agent will release the
shares to Tail Wind at a rate of 50,000 shares per week over a 40-week period,
depending on trading volume. If the registration statement is not declared
effective on a timely basis as provided for in the settlement agreement, Unigene
may incur penalties of $1,000 per day.

8. Fusion Capital Financing

On May 9, 2001, Unigene entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, under which Fusion has agreed, subject to certain
conditions, to purchase on each trading day during the term of the agreement
$43,750 of our common stock up to an aggregate of $21,000,000. Fusion is
committed to purchase the shares over a twenty-four month period. We may
decrease this amount or terminate the agreement at any time. If our stock price
equals or exceeds $4.00 per share for five (5) consecutive trading days, we have
the right to increase the daily purchase amount above $43,750, providing that
the closing sale price of our stock remains at least $4.00. Fusion is not
obligated to purchase any shares of our common stock if the purchase price is
less than $0.25. Under the agreement with Fusion, Unigene must satisfy the
requirements that are a condition to Fusion's obligation including: the
continued effectiveness of the registration statement for the resale of the
shares by Fusion, no default on, or acceleration prior to maturity of, any
payment obligations of Unigene in excess of $1,000,000, no insolvency or
bankruptcy of Unigene, continued listing of Unigene common stock on the OTC
Bulletin Board, and Unigene

F-13

must not fail to meet the maintenance requirements for listing on the OTC
Bulletin Board for a period of 10 consecutive trading days or for more than an
aggregate of 30 trading days in any 365-day period. The selling price per share
to Fusion is equal to the lesser of: the lowest sale price of our common stock
on the day of purchase by Fusion, or the average of the lowest five closing sale
prices of our common stock, during the 15 trading days prior to the date of
purchase by Fusion. Fusion has agreed that neither it nor any of its affiliates
will engage in any direct or indirect short-selling or hedging of our common
stock during any time prior to the termination of the common stock purchase
agreement. We issued to Fusion 2,000,000 shares of common stock and a five-year
warrant to purchase 1,000,000 shares of common stock at an exercise price of
$.50 per share as of March 30, 2001 as compensation for its commitment which was
charged to additional paid-in-capital. Fusion has agreed not to sell the shares
issued as a commitment fee or the shares issuable upon the exercise of the
warrant until the earlier of May 2003, or the termination or a default under the
common stock purchase agreement. In addition to the compensation shares, the
Board of Directors has authorized the issuance and sale to Fusion of up to
21,000,000 shares of Unigene common stock and initially reserved 6,000,000
shares for such purpose. From May 18, 2001 through December 31, 2001, we have
received approximately $1,881,000 through the sale of 5,012,485 shares of common
stock to Fusion, before cash expenses of approximately $292,000. In January
2002, Unigene increased the shares reserved for sale to Fusion by 15,000,000.

In December 2000, we issued a five-year warrant to purchase 373,002 shares of
Unigene common stock to our investment banker as a fee in connection with the
Fusion financing agreement. The warrant has an exercise price of $1.126 and a
fair value of $327,000 using the Black-Scholes pricing model. The value of these
warrants had been deferred at December 31, 2000 pending the closing of the
Fusion stock offering, which occurred in May 2001.

9. Inventory - Inventories consist of the following as of December 31, 2001
and 2000:

2001 2000
-------- --------

Finished goods $100,000 $ 89,104

Raw material 183,328 326,316
-------- --------

Total $283,328 $415,420
======== ========

Unigene charged $515,000 of finished goods inventory to research and development
expense in the fourth quarter of 2000 as a result of Pfizer's termination of its
license agreement with Unigene.

10. Accrued expenses and accounts payable - Accrued expenses consist of the
following as of December 31, 2001 and 2000:

2001 2000
---------- ----------
Interest - notes payable to stockholders
(Note 4) $2,008,273 $ 921,722

Interest and penalties on 5% convertible
debentures (Note 7) 1,963,190 1,083,194

China joint ventures (Note 6) 670,000 680,000

Clinical trials and contract research 991,399 665,568

Vacation and other payroll-related expenses 480,134 204,948

Consultants 203,656 47,000

Other 272,599 158,845
---------- ----------

Total $6,589,251 $3,761,277
========== ==========

Included in accounts payable are two notes to a vendor aggregating $800,000. One
note for $300,000 is a demand note with a per annum interest rate of 6%. The
other is a note for $500,000 which was due December 31, 2001. The

F-14

per annum interest rate was originally 8%, but increased to 12% on January 1,
2002 when the note was not paid on its due date. No principal or interest
payments have been made on these notes.

11. Obligations Under Capital Leases

Unigene entered into various lease arrangements during 1999 and 1998 which
qualify as capital leases. The future years' minimum lease payments under the
capital leases, together with the present value of the net minimum lease
payments, as of December 31, 2001 are as follows:

2002 $41,565

2003 10,656
-------

Total minimum lease payments 52,221

Less amount representing interest 8,413
-------

Present value of net minimum lease
payments 43,808

Less current portion 29,677
-------

Obligations under capital leases, excluding
current portion $14,131
=======

The discount rates on these leases vary from 12% to 18%.

12. Obligations Under Operating Leases

Unigene is obligated under a 10-year net-lease, which began in February 1994,
for its manufacturing facility located in Boonton, New Jersey. Unigene has two
10-year renewal options as well as an option to purchase the facility. In
addition, Unigene leases laboratory, production, and office equipment under
various operating leases expiring in 2002 through 2006. Total future minimum
rentals under these noncancelable operating leases are as follows:

2002 $245,180
2003 227,010
2004 39,676
2005 21,472
2006 10,831
--------
$544,169
========

Total rent expense was approximately $236,000, $259,000 and $243,000 for 2001,
2000 and 1999, respectively.

13. Stockholders' Equity

During 1999, an aggregate of $2,000,000 in principal amount of convertible
debentures, plus $191,000 of accrued interest, was converted into approximately
3,703,000 shares of Common Stock (see Note 7).

As of December 31, 2001, there are warrants outstanding to various consultants
and an investment banker, all of which are currently exercisable, to purchase an
aggregate of 1,598,002 shares of Common Stock at exercise prices ranging from
$.50 to $3.41 per share (warrants to purchase 989,000 shares of Common Stock
were exercisable at December 31, 2000 at a weighted average exercise price of
$2.11 per share).

F-15

The following summarizes warrant activity for the past three years:

Warrants
Exercisable At Weighted Average
Warrants End of Year Exercise Price
---------- -------------- ----------------

Outstanding January 1, 1999 3,923,906 3,923,906
=========

Granted 141,123 $0.71
Cancelled (2,262,870) 3.00
Exercised -- --
----------

Outstanding December 31, 1999 1,802,159 1,802,159
=========

Granted 523,002 $1.57
Cancelled (10,000) 1.38
Exercised (1,326,159) 1.44
----------

Outstanding December 31, 2000 989,002 989,002
=========

Granted 1,000,000 $0.50
Cancelled (391,000) 2.63
Exercised -- --

----------
Outstanding December 31, 2001 1,598,002 1,598,002
========== =========

A summary of warrants outstanding and exercisable as of December 31, 2001
follows:

Warrants Outstanding and Exercisable
- ---------------------------------------------------------------
Weighted Ave.
Range of Number Remaining Life Weighted Ave.
Exercise Price Outstanding (years) Exercise Price
- -------------- ----------- --------------- --------------

$0.50-$0.99 1,000,000 4.3 $0.50
$1.00-$1.99 373,002 4.0 1.13
$2.00-$2.99 155,000 3.4 2.61
$3.00-$3.41 70,000 0.5 3.23
---------
1,598,002 0.97
========= =====

In 1995, two consultants received warrants from Unigene to purchase an aggregate
of 112,000 shares of common stock. These warrants were exercised, but Unigene
was unable to issue unlegended stock due to the lack of an effective
registration statement. As compensation for the delay, Unigene has agreed to
issue additional shares to the holders which Unigene has recorded as a non-cash
expense of $225,000 in 2001.

14. Stock Option Plans

During 1994, Unigene's stockholders approved the adoption of the 1994 Employee
Stock Option Plan (the "1994 Plan"). All employees of Unigene were eligible to
participate in the 1994 Plan, including executive officers and directors who are
employees of Unigene. The 1994 Plan terminated on June 6, 2000; however,
1,283,865 options previously granted continue to be outstanding and exercisable
under that plan as of December 31, 2001.

At Unigene's 1999 Annual Meeting, the stockholders approved the adoption of a
1999 Directors Stock Option Plan (the "1999 Plan") under which each person
elected to the Board after June 23, 1999 who is not an employee will receive, on
the date of his initial election, an option to purchase 21,000 shares of Common
Stock. In addition, on May 1st of each year, commencing May 1, 1999, each
non-employee director will receive an option to purchase

F-16

10,000 shares of Common Stock if he or she has served as a non-employee director
for at least six months prior to the May 1st grant. Each option granted under
the 1999 Plan will have a ten-year term and the exercise price of each option
will be equal to the market price of Unigene's Common Stock on the date of the
grant. A total of 350,000 shares of Common Stock are reserved for issuance under
the 1999 Plan.

In November 1999, the Board of Directors approved, subject to stockholder
approval, the adoption of a new Stock Option Plan (the "2000 Plan") to replace
the 1994 Plan. All employees (including directors who are employees), as well as
certain consultants, are eligible to receive option grants under the 2000 Plan.
Options granted under the 2000 Plan have a ten-year term and an exercise price
equal to the market price of the Common Stock on the date of the grant. A total
of 4,000,000 shares of Common Stock are reserved for issuance under the 2000
Plan.

In November 1999, the Board granted under the 2000 Plan, to employees of
Unigene, stock options to purchase an aggregate of 482,000 shares (of which
14,650 shares were subsequently cancelled) of Common Stock at an exercise price
of $0.63 per share, the market price on the date of grant. Each of the grants
was made subject to stockholder approval of the 2000 Plan. At Unigene's June 6,
2000 Annual Meeting, the stockholders approved the 2000 Plan. In accordance with
APB Opinion No. 25, the measurement date for valuing the stock options for the
purpose of determining compensation expense was June 6, 2000, the date of
stockholder approval. The market price of the Common Stock on this date was
$2.093 per share. Therefore, an aggregate of $683,733 was charged to
compensation expense over the vesting periods of the options, which vest in
approximately 50% increments on November 5, 2000 and November 5, 2001. Unigene
recognized $398,785 as compensation expense in 2000 and $284,948 as compensation
expense in 2001.

F-17

The following summarizes activity for options granted to directors and
employees:

Weighted
Options Average Weighted
Exercisable At Grant-date Average
Options End of Year Fair Value Exercise Price
--------- -------------- ----------- --------------

Outstanding January 1, 1999 1,795,115 1,382,615
=========

Granted 438,000 $0.55 $0.70
Cancelled (187,250) -- 2.17
Exercised -- -- --
---------

Outstanding December 31, 1999 2,045,865 1,639,615
=========

Granted 571,500 $1.96 $0.87
Cancelled (64,650) -- 1.78
Exercised (245,600) -- 1.28
---------

Outstanding December 31, 2000 2,307,115 1,968,540
=========

Granted 1,955,000 $0.41 $0.44
Cancelled (348,000) -- 1.82
Exercised (2,375) -- 0.63

=========
Outstanding December 31, 2001 3,911,740 2,118,990
========= =========

A summary of options outstanding and exercisable as of December 31, 2001,
follows:

Options Outstanding Options Exercisable
-------------------------------------------- ----------------------------
Weighted Ave.
Range of Number Remaining Weighted Ave. Number Weighted Ave.
Exercise Price Outstanding Life (years) Exercise Price Exercisable Exercise Price
- -------------- ----------- ------------- -------------- ----------- --------------

$.38-.94 2,625,875 9.3 $ .49 874,875 $ .60
1.00-1.97 723,365 5.5 1.81 698,115 1.83
2.16-4.69 562,500 4.7 2.81 546,000 2.80
--------- ---------
3,911,740 1.07 2,118,990 1.57
========= ===== ========= =====

As of December 31, 2001, options to purchase 278,000 shares and 2,012,600 shares
of Common Stock were available for grant under the 1999 and 2000 Plans.

Unigene accounts for options granted to employees and directors under APB
Opinion No. 25. Had compensation cost for options granted to employees and
directors been determined consistent with the fair value method under SFAS No.
123, Unigene's pro forma net loss and pro forma net loss per share would have
been as follows for the years ended December 31, 2001, 2000 and 1999:

2001 2000 1999
------------ ----------- ----------
Net loss:
As reported $(12,472,346) (12,469,405) (1,577,340)
Pro forma (13,252,346) (12,644,405) (2,182,340)
============ =========== ==========

Basic and diluted net loss per
share:
As reported $ (0.26) (0.28) (0.04)
Pro forma (0.28) (0.29) (0.05)
============ =========== ==========

F-18

The fair value of the stock options granted in 2001, 2000 and 1999 is estimated
at grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yields of 0%; expected volatility of 113%
in 2001, 103% in 2000 and 74% in 1999; a risk-free interest rate of 4.4% in
2001, 4.7% in 2000 and 6.4% in 1999; and expected lives of 5 years in 2001 and
2000 and 6 years in 1999.

During 1995, Unigene granted to a consultant options to purchase 10,000 shares
of Unigene's Common Stock, expiring in 2000, immediately exercisable at $1.44
per share. These options were exercised in a cashless exercise during 2000,
resulting in the issuance of 4,175 shares of Common Stock.

15. Income Taxes

As of December 31, 2001, Unigene had available for federal income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$80,000,000, expiring from 2002 through 2021, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, Unigene has research and development credits in the approximate amount
of $3,000,000, which are available to reduce the amount of future federal income
taxes. These credits expire from 2002 through 2021. Unigene has New Jersey
operating loss carryforwards in the approximate amount of $26,700,000, expiring
from 2005 through 2008, which are available to reduce future earnings, which
would otherwise be subject to state income tax. As of December 31, 2001,
approximately $14,700,000 of these New Jersey loss carryforwards has been
approved for future sale under a program of the New Jersey Economic Development
Authority (the "NJEDA"). In order to realize these benefits, Unigene must apply
to the NJEDA each year and must meet various requirements for continuing
eligibility. In addition, the program must continue to be funded by the State of
New Jersey, and there are limitations based on the level of participation by
other companies. As a result, future tax benefits will be recognized in the
financial statements as specific sales are approved. In the fourth quarters of
2001 and 2000, Unigene realized $561,000 and $1,065,000, respectively, of tax
benefits arising from the sale of a portion of Unigene's New Jersey net
operating loss carryforwards and research credits that had previously been
subject to a full valuation allowance. In January 2002, Unigene realized an
additional $272,000 of tax benefits arising from the sale of New Jersey net
operating loss carryforwards.

Given Unigene's past history of incurring operating losses, any gross deferred
tax assets that are recognizable have been fully reserved. As of December 31,
2001 and 2000, Unigene had gross deferred tax assets of approximately
$34,000,000 and $29,000,000, respectively, subject to valuation allowances of
$34,000,000 and $29,000,000, respectively. The gross deferred tax assets were
generated primarily as a result of Unigene's net operating losses and tax
credits. Unigene's ability to use such net operating losses may be limited by
change in control provisions under Internal Revenue Code Section 382.

16. Employee Benefit Plan

Unigene maintains a deferred compensation plan covering all full-time employees.
The plan allows participants to defer a portion of their compensation on a
pre-tax basis pursuant to Section 401(k) of the Internal Revenue Code of 1986,
as amended, up to an annual maximum for each employee set by the Internal
Revenue Service. Unigene's discretionary matching contribution expense for 2001,
2000 and 1999 was approximately $43,000, $48,000 and $44,000, respectively.

17. Research and Licensing Revenue

In July 1997, Unigene entered into an agreement under which it granted to the
Parke-Davis division of Warner-Lambert Company a worldwide license to use
Unigene's oral calcitonin technology. In June 2000, Pfizer Inc. acquired
Warner-Lambert. During 1997, Unigene received $3 million for an equity
investment and $3 million for a licensing fee (see Note 3). Several milestones
were achieved during 1998, resulting in milestone revenue of $5 million. In
1999, two pilot human studies for Unigene's oral calcitonin formulation were
successfully concluded, resulting in milestone revenue totaling $5 million. Also
in 1999, Unigene and Pfizer identified an oral calcitonin formulation to be used
in the Phase I/II clinical study entitling Unigene to milestone revenue of an
additional $4.5 million. During 2000, two milestones were achieved resulting in
milestone revenue of $2 million. Patient dosing for this study was completed in
December 2000. Pfizer analyzed the results of this study and terminated the
agreement in March 2001 citing scientific and technical reasons.

F-19

As a result of the termination, Pfizer was no longer obligated to make
additional milestone payments or royalty payments to us (previously achieved
milestones had been paid in full prior to December 31, 2000). At the time the
agreement was terminated, there were remaining milestone payments in the
aggregate amount of $32 million. Of this total, $16 million was related to
commencement of clinical trials or regulatory submissions and $16 million was
related to regulatory approvals in the U.S. and overseas. While the Company does
not track costs on a specific research and development basis, management
estimates that Unigene's direct and indirect costs were approximately $4 million
per year (of which indirect costs represented approximately 33% of the total)
related to the Warner-Lambert program, based upon an estimate of research
personnel time and a review of batch production records. These costs primarily
consist of personnel costs, supplies, outside consultants and indirect costs and
are included in research and development expenses.

18. Legal Matters

In addition to the arbitration proceedings discussed in Note 7, Reseau de Voyage
Sterling, Inc. (Reseau) filed suit against Unigene in July 2000. Reseau, which
purchased from a third party a warrant to purchase one million shares of Unigene
common stock, alleges that Unigene breached a verbal agreement to extend the
term of the warrant beyond its expiration date. Reseau is seeking damages of $2
million. Unigene believes that the suit is completely without merit and intends
to continue to vigorously contest the claim.

19. Selected Quarterly Financial Data (Unaudited)

2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------- ----------- ----------- ----------- -----------

Revenue $ 273,775 $ 88,042 $ 267,654 $ 235,174
Operating loss $(2,636,210) $(2,806,962) $(2,702,972) $(2,810,782)
Net loss $(3,125,111) $(3,308,729) $(3,231,666) $(2,806,840)
Net loss per share, basic
and diluted $ (.07) $ (.07) $ (.07) $ (.05)

2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------- ----------- ----------- ----------- -----------

Revenue $ 1,201,250 $ 200,776 $ 1,559,164 $ 325,771
Operating loss $(1,396,831) $(3,748,686) $(2,146,838) $(4,092,528)
Loss before cumulative
effect of accounting
change $(1,639,288) $(4,016,917) $(2,454,532) $(3,358,668)
Net loss $(2,639,288) $(4,016,917) $(2,454,532) $(3,358,668)
Loss per share, before
cumulative effect of
accounting change $ (0.04) $ (0.09) $ (0.06) $ (0.07)
Net loss per share, basic
and diluted $ (0.06) $ (0.09) $ (0.06) $ (0.07)

The quarterly financial data for the first three quarters of 2000 reported above
differ from the data for those periods originally reported by us on Form 10-Q as
described below:

First Quarter Second Quarter Third Quarter
------------------------- ------------------------- -------------------------
Originally Originally Originally
Reported As Adjusted Reported As Adjusted Reported As Adjusted
----------- ----------- ----------- ----------- ----------- -----------

Revenue $ 1,001,250 $ 1,201,250 $ 776 $ 200,776 $ 1,359,164 $ 1,559,164
Operating loss $(1,596,831) $(1,396,831) $(3,948,686) $(3,748,686) $(2,346,838) $(2,146,838)
Net loss $(1,839,288) $(2,639,288) $(4,216,917) $(4,016,917) $(2,654,532) $(2,454,532)
Net loss per
share, basic
and diluted $ (.04) $ (.06) $ (.10) $ (.09) $ (.06) $ (.06)

As described in Note 3, we adopted SAB 101 in 2000, changing our revenue
recognition policy for up-front licensing fees that require services to be
performed in the future from immediate revenue recognition to deferral of
revenue with the up-front fee recognized over the life of the agreement. In
1997, we recognized $3,000,000 in revenue from an up-front licensing fee from
Pfizer. With the adoption of SAB 101, we are now recognizing this

F-20

revenue over a 45 month period, equivalent to the term of our oral calcitonin
agreement with Pfizer which was terminated in March 2001. We therefore
recognized a non-cash cumulative effect adjustment of $1,000,000 as of January
1, 2000 representing a revenue deferral over the remaining 15 months of the
agreement. We recognized $800,000 in revenue in 2000 and $200,000 of revenue in
2001 as a result of this deferral.

The quarterly financial data above has been adjusted to reflect retroactive
application of SAB 101. Therefore, in each of the first three quarters of 2000
we recognized $200,000 in additional revenue and $1,000,000 in the first quarter
of 2000 for the cumulative effect adjustment.

F-21