Talk:AP Pharma, Inc. (APPA)
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The company’s stock currently is largely a call option to its lead candidate, APF530. The sold its royalty rights to CARAC and Retin-A Micro earlier this year to strengthen its balance sheet and buy the company more time and financial resources to develop APF530, at the cost of depriving the company of cash inflow.
APF530, which is extended release reformulation of Granisetron (Roche’s Kytril), was designed to treat both acute and delayed chronic chemotherapy induced nausea and vomiting (CINV) or emesis. Most approved products in the class like Kytril and Zofran are approved to treat acute CINV. Last year, MGI pharma launched Aloxi was the first drug approved to treat delayed CINV, due to its superior ADME profile to 5HT3 inhibitors previously in the market. Therefore I realistically APF530’s peak revenue potential might be lower than management’s $1 billion estimate. For comparison, MGI’s management set $500 milion as Aloxi’s peak sales potential. It is crucial that the Phase III trial demonstrate that APF530 is superior to Aloxi since APF 530 will enter market at least 3 years behind and that the FDA will use Aloxi as benchmark. The clinical data from the phase III trial is scheduled to be released in 2nd half of 2007.
- Note: in December 2006, AP Pharma announced that it will not meet a previous target of 2007 New Drug Application (NDA) Filing for APF530, due to slower than expected enrollment for the phase III clinical trial. Link to the news release.
The company is currently facing financial constraint and probably will not be able to afford APF530 trial completely on its own, especially if he FDA requires more clinical trials in the future. News about co-development deal for APF530 will certainly have positive effect on the company’s valuation. Recently the company announced that it licensed APF530 to RHEI for development in greater China. The stock gained 12% following the news. Roche is probably the most logical partner for APF530 development, as it could be used as extension to Kytril whose patent expires in 2007. However if Roche was interested, it probably would have come in earlier. I think AP’s weakened financial position also affects its bargaining position in any deal negotiation, thus it might not realize maximum value from the deal.
Any bad news regarding APF530 might wipe out the company. Furthermore, if AP’s book value of shareholder equity goes below $10 million, there is risk the stock might get delisted from NasdaqNM, reducing the stock’s liquidity significantly.
On 6/30/2006, the company has no long term debt and about $21 million in cash and marketable securities. In 3 month period ending June 30 2006, it burnt $4.5 million in operating cash flow, compared to $7.5 million in 2005 (full year). The burn rate significant increase in net operating cash outflow is due to the absence of revenue stream and added expenses related to AP530 Phase III trial. Financial data obtained from company's latest 10Q
