Unigene Laboratories is looking for a new partner to commercialize its oral formulation of recombinantly produced parathyroid hormone osteoporosis drug for postmenopausal women after GlaxsoSmithKline (NYSE:GSK) decided to end a nine-year-old licensing deal with the Boonton, New Jersey drug developer.

Unigene hosted a conference call following the announcement in which CEO Ashleigh Palmer was forced to parry some tough questions from analysts uncommonly frank in questioning the company’s future over the deal’s derailment.

Under the terms of the original agreement, GSK was to receive an exclusive worldwide license to develop and commercialize the product. In return, it agreed to make an up-front payment to Unigene and subsequent milestone payments totaling $150 million subject to the progress of the compound through clinical development and through to the market.

Unigene will be reimbursed by GSK, which operates its U.S. headquarters in Research Triangle Park, N.C., for all invoiced work in connection with the conduct of the study through Nov. 30, according to the statement.

Unigene said it expects cash flow to fund business operations into the second half of 2012.

In a statement Palmer said: “We respect GSK’s decision and remain extremely pleased with the positive and statistically significant phase 2 data reported last month. These results have further validated Unigene’s proprietary oral peptide drug-delivery technology and, importantly, clearly demonstrate the viability of an oral PTH product, having successfully achieved proof-of-concept.”

Analysts did not take the news well and did not hide their disappointment about the deal’s collapse. The conference call laid bare the grim realities of a small company’s survival in an industry that can take years to get a product to market. Although analysts came armed with tough questions, Palmer did not leave his boxing gloves at home and parried questions evenly.

Dueling with Analysts

One analyst opened with:

“I want to apologize for the bluntness of this question … First of all, the stock is down 20 percent so that’s not a value proposition. Secondly, I give you all the credit in the world for being a glass-half-full individual, but Glaxo is not exactly an unsophisticated organization … and I know there are a lot of delicate issues here that you would rather not share with us but … I wonder if you could speculate with us on why they have come to this conclusion because we have been in this situation before and we have heard people go from having a relationship with someone like Glaxo and then the customer decides no, and there are enormous expectations they can be replaced, but at the end of the day you are talking about a company that really looked this over and concluded it wasn’t for them.”

Palmer said: “I welcome the blunt question because if we wanted to shy away from questions we would not have had a conference call. I do not know the internal machinations of GSK … But one can imagine that companies like [GSK] are constantly evaluating their programs, their objectives, investments and evaluations that go on completely independent of the partner or the asset … I respect GSK and think they are an amazing partner and … I see absolutely no indication they have fallen out with us or our drug-delivery platform and I am confident this asset will be evaluated differently by other partners and am confident this data set that we have will engage other companies.”

Pants Down?

Another analyst said:

“I am surprised that you are not shocked with your pants down because you led investors to believe this was a close thing to be happening.”

Palmer replied:

“I am frankly disappointed you would say something like this because you have been following this for several years and everything we have said has been transparent and crystal clear. Was I surprised? Yes, I was surprised … they made their decision so quickly.”

One analyst asked of its financing partner Victory Park Capital Partners:

“What’s to prevent Victory [Park Capital Partners] from taking this company into bankruptcy, which they probably should have done a long time ago? I don’t see you having any source of money in the next 12 to 18 months.”

Palmer said Victory Park Capital is pleased with its progress on diversifying the company since Palmer took over in 2010.

“We have a joint development deal going on with Nordic Bioscience. It has management confidence, we’re creative, we have a great R&D function. This company … is thriving and has tremendous growth potential. I have not gone out to the market and done a sleazy deal or gone back to Victory Partners to borrow more money. This company is not deserving of bankruptcy and it absolutely has a future.”

Chairman Defends Management

At one point Richard Levy of Victory Park and chairman of Unigene’s board of directors got on the call to defend Unigene and its management team:

“GSK not moving forward is a disappointment to some, maybe to many. As chair of the board it does not come as a complete shock. People discount the reality of big pharma and what their IRs and their budgets are moving forward. Given what will come out about the efficacy and safety of this program — do I think we will find a new partner? Yes. I think what’s far more important from our standpoint is our oral delivery technology has been proven because at the end of the day we have repositioned this company. While we will work very hard on re-licensing, it is not the end of the world for Unigene as a share partner. Ashleigh has our full confidence and so does his management team. It is what it is the world of pharma — the good and the bad. Yes, one can be disappointed … but I don’t believe it changes the value proposition of this company. Some will vote with their feet and sell the stock today, but there will also be the new set of believers in Unigene and this management team. They are not in control of whether GSK moves forward or not. “

Palmer in both the statement and call said its oral PTH candidate has the potential to help a patient population of an estimated 75 million people in Europe, the U.S. and Japan with osteoporosis, while redefining the $5 billion global marketplace for pharmaceutical treatments for it. He said the PTH injectable market alone currently represents about $1 billion with sales expected to double over the next two to three years.

He added: “We are diversifying away from the drug’s historic dependence on osteoporosis to include cardiovascular, endocrinology disease and CMS including pain therapeutics.”

Palmer added at the call’s conclusion: “We have our marching orders and will make our best efforts to find new partners. This company definitely has a strong future — we regret your disappointment and appreciate your patience.”

Unigene’s management team will have to be just as scrappy in securing partners as its CEO was on the call. Facing an uncertain pharmaceutical landscape in the coming year, it will be interesting to see whether it can deliver on the ambitions and aspirations Palmer and Levy have passionately promoted.

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