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A.P. Pharma Inc. Reports Operating Results (10-Q)

November 15, 2010 | About:
10qk

10qk

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A.P. Pharma Inc. (APPA) filed Quarterly Report for the period ended 2010-09-30.

A.p. Pharma Inc. has a market cap of $31.29 million; its shares were traded at around $0.78 with and P/S ratio of 24.81. APPA is in the portfolios of Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Contract revenue, which is derived from work performed under collaborative research and development arrangements, was $0.4 million and $1.1 million for the three months ended September 30, 2010 and 2009, respectively and $1.1 million for both the nine months ended September 30, 2010 and 2009. The majority of our contract revenue for the three and nine months ended September 30, 2010 was derived from an agreement with Merial Limited we entered into in September 2009 for a long-acting pain management product for companion animals. Contract revenues for the three and nine months ended September 30, 2009 included $1.0 million of revenue recognized upon termination of our agreement with RHEI Pharmaceuticals, Inc.

Research and development expense for the three months ended September 30, 2010 increased by $0.1 million from $1.4 million for the three months ended September 30, 2009 to $1.5 million. The slight increase was primarily due to costs associated with the development, manufacturing and project-related expenses related to our NDA submission to the FDA. Research and development expense for the nine months ended September 30, 2010 decreased by $0.6 million from $6.4 million for the nine months ended September 30, 2009 to $5.8 million. The decrease in research and development expenses for the nine months ended September 30, 2010 as compared with the comparable period in 2009 was primarily due to headcount reductions in May 2009 and the suspension of other research and development projects to conserve resources which were partially offset by increased development, manufacturing and project-related expenses related to our NDA submission to the FDA. Research and development expense for the year 2010 is expected to be slightly lower as compared to 2009 for the same reasons mentioned above related to the decrease for the nine months ended September 30, 2010.

General and administrative expense for the three months ended September 30, 2010 decreased by $0.5 million from $0.9 million for the three months ended September 30, 2009 to $0.4 million. The net decrease in the three months ended September 30, 2010 was primarily a result of cost containment measures associated with our headcount reductions in May 2009 and outside services. General and administrative expense for the nine months ended September 30, 2010 increased by $0.7 million from $2.9 million for the nine months ended September 30, 2009 to $3.6 million. The net increase in the nine months ended September 30, 2010 included compensation expense incurred in the three months ended June 30, 2010 related to the resignation of our chief executive officer which was partially offset by lower expense resulting from the cost containment measures associated with our headcount reductions in May 2009 and outside services. General and administrative expense is expected to be higher in 2010, as compared to 2009, primarily due to the compensation expense related to the resignation of our former chief executive officer.

In October 2009, we sold 7,954,543 shares of our common stock in a private placement at $0.88 per share and warrants to purchase 3,977,270 shares of our common stock, exercisable through January 7, 2015, at $0.88 per share (the Private Placement). The purchasers paid an additional $0.125 per underlying share for the warrants. Additionally the purchasers had a right to purchase up to an additional 5,165,286 shares at $0.97 per share prior to May 14, 2010 and paid $0.125 per underlying share for the right to purchase such additional shares. No purchasers exercised their right to purchase up to an additional 5,165,286 shares of our common stock at $0.97 per share under the Private Placement and the right expired unexercised on May 14, 2010. Total proceeds were approximately $7.9 million, after deducting expenses associated with the issuance. We were required to prepare and file Form S-3 registration statements, as permissible under SEC rules and regulations, with the SEC for the purpose of registering for resale the securities sold in this transaction. On November 6, 2009, we filed a Form S-3 covering 7,532,617 shares of our common stock sold in a private placement, which was declared effective by the SEC on November 17, 2009. On June 30, 2010, we filed a Form S-3 covering the remaining 421,926 shares of our common stock related to the Private Placement and the 3,977,270 shares of our common stock underlying the warrants, which was declared effective by the SEC on July 8, 2010.

Net cash used in continuing operating activities for the nine months ended September 30, 2010 was $4.6 million, compared to net cash used of $9.0 million for the nine months ended September 30, 2009. The $4.4 million decrease in net cash used by continuing operating activities from 2009 to 2010 was primarily due to the $2.4 million decrease in net loss for the nine months ended September 30, 2010, as compared to the same period in 2009, a $0.9 million decrease from non-cash changes primarily related to stock compensation expense and deferred revenue and a $1.1 million net change in other operating assets and liabilities.

On May 18, 2010, we received a letter from the Nasdaq Stock Market (Nasdaq) indicating that the minimum closing bid price of our common stock had fallen below $1.00 for 30 consecutive days, and therefore, we were not in compliance with the listing standards. As of September 30, 2010, our stockholders equity met the $2.5 million minimum required for continued listing on the NASDAQ Capital Market. We have been provided 180 calendar days, or until November 15, 2010, to regain compliance with the minimum bid price requirement. To regain compliance, our share price must exceed $1.00 for a minimum of 10 consecutive business days prior to November 15, 2010. Since as of the filing of this 10Q report, our share price has remained below $1.00, we anticipate receiving a written notification that our shares are subject to delisting. We will have the opportunity to appeal this notice and present Nasdaq with a plan for regaining compliance.

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