A.P. Pharma sells future royalty rights for up to $30 million, regains compliance for Nasdaq listing

By E. Janene Geiss

Philadelphia, Jan. 18 - A.P. Pharma, Inc. said Wednesday that it has sold rights to future royalties on sales of Retin-A Micro and Carac to an affiliate of the Paul Royalty Fund for up to $30 million.

Proceeds of $25 million were received upon the closing of the transaction and will be used primarily to fund pivotal clinical development of APF530, the company's drug candidate for the prevention of acute and delayed chemotherapy-induced nausea and vomiting, according to a company news release.

The remaining $5 million will be paid based on the satisfaction of certain predetermined milestones over the next four years, officials said.

In a separate announcement, A.P. Pharma said that based on its recording of the gain on the sale of the royalty rights, the company believes it has regained compliance for continued listing on the Nasdaq market by satisfying the market's $10 million minimum stockholders' equity requirement. The company was advised Nov. 16 that it was under review by Nasdaq for continued listing.

Company officials said the financing is non-dilutive to shareholders and generates considerable cash to fund pivotal clinical trials with APF530.

APF530 has demonstrated promising data in a phase 2 trial and potentially has significant advantages over the currently available therapy for the prevention of acute and delayed chemotherapy-induced nausea and vomiting, about a $1 billion annual market in the United States, officials said.

"While our strategy remains to secure a corporate partner for APF530, these funds will allow us to continue development of the product and to negotiate from a position of strength in seeking favorable partnership terms," Michael O'Connell, president and chief executive officer, said in the release.

"Retin-A Micro and Carac demonstrate our ability to develop commercially successful products. The sale of these future royalties to Paul Royalty supports the development of our higher-value pharmaceutical products based on our proprietary Biochronomer bioerodible polymer delivery systems, having moved our focus away from the Microsponge system-based topical dermatology business," he added in the release.

Nasdaq said it will continue to monitor the company's ongoing compliance with the stockholders' equity requirement, officials said in the release.

A.P. Pharma said it is entitled to receive royalties on the sales of Retin-A Micro and Carac based on the terms of its license agreements with Ortho Neutrogena (formerly Ortho Dermatological), a member of the Johnson & Johnson family of companies and Dermik Laboratories, a sanofi-aventis company.

Paul Capital Partners manages close to $5 billion in equity capital commitments for its three investment platforms. The Paul Royalty Fund comprises one of the largest dedicated health care funds globally, with about $1 billion in equity capital commitments.

A.P. Pharma is a Redwood City, Calif., specialty pharmaceutical company focused on the development of pharmaceutical products using its proprietary polymer-based drug delivery systems.

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