West Coast Editor

As investors watch and wait for a U.S. marketing partner that would sell A.P. Pharma Inc.'s lead drug candidate - APF530 (granisetron) in Phase III trials for chemotherapy-induced nausea and vomiting - the company's $35 million financing comes just in time.

A.P. had $9.4 million cash, cash equivalents and marketable securities as of March 31, not enough to fund operations through fiscal year 2007, when spending is expected to reach $30 million. In April, the company filed a registration statement for a proposed public offering of up to $28.8 million in stock, but ended up doing even better and updated the prospectus.

Involving about 21.2 million shares sold at $1.65 each, the deal is expected to close June 19, with a 30-day option for underwriters to buy about 3.1 million more shares to cover overallotments, if any. Earlier this month, A.P. picked up $2.5 million from an affiliate of the Paul Royalty Fund, stemming from the October agreement to sell royalty rights to dermatology products Regin-A Micro and Carac.

About $18 million of the proceeds will go toward work with APF530, and $12 million toward research on other candidates, with the remainder, if any, set aside for general corporate purposes.

A.P.'s stock (NASDAQ:APPA) trading under the temporary ticker "APPAD" due to a recent reverse stock split, closed Thursday at $2.05, up 9 cents. Michael O'Connell, chief financial officer for A.P., said the firm is limited regarding statements because of SEC rules, but "the object is to have the Phase III trials [done] in the early part of next year," and then begin shopping seriously for a partner.

APF530 is a product of A.P.'s polymer-based Biochronomer bioerodible drug delivery system. One subcutaneous shot before chemo is designed to provide therapeutic plasma levels of granisetron for four to five days.

Near the end of last year, Redwood City, Calif.-based A.P. said it probably would miss the previously disclosed target of a 2007 filing of its new drug application for APF530, due to a slower-than-expected rate of sites being activated in the 1,350-patient Phase III trial - news that put a 19 percent dent in the stock. The firm now expects to complete enrollment in the first half of 2008, unveil results in the third quarter of that year and file for a new drug application in the fourth quarter.

Last October, A.P. signed an overseas development and marketing deal for APF530 with RHEI Pharmaceuticals Inc., of New Haven, Conn., granting an exclusive license in China, Taiwan, Hong Kong and Macau. The agreement brought an undisclosed up-front payment and made A.P. eligible for milestone payments and double-digit percentage royalties on future net sales.

Also in the pipeline, A.P. has APF112 (mepivicaine) for postsurgical pain, which has completed Phase IIa trials and is intended to provide relief for up to 36 hours. Some expected November's $202 million marketing deal between Cupertino, Calif.-based Durect Corp. and Nycomed A/S, of Roskilde, Denmark, for the post-surgical pain product Posidur would spark interest in APF112. O'Connell said A.P. plans to accrue more value in the product before going after a partner. (See BioWorld Today, Dec. 1, 2006.)

Phase IIb trials with APF112 are slated to start in the first half of next year, according to a prospectus.