A.P. Pharma, Inc. (NASDAQ: APPA), a specialty pharmaceutical company, today reported financial results for its third quarter ended September 30, 2010.

Operational Highlights

“A. P. Pharma has been working diligently to address the issues raised in the U.S. Food and Drug Administration’s Complete Response Letter of March 2010,” said John Whelan, A.P. Pharma’s acting chief executive officer. “Our goal is to schedule what we hope will be a productive End of Review meeting with the agency as soon as the necessary information is available. The primary focus of a meeting with the agency would be to discuss the next steps for the APF530 New Drug Application."

In November, A.P. Pharma received notice that it was awarded a non-taxable grant from the United States government under the Qualifying Therapeutics Discovery Project (QTDP) program in the amount of $244,479. Grants were awarded to projects that show reasonable potential to produce new therapies, address unmet medical needs, and reduce the long-term growth of health care costs in the U.S. The QTDP program is a part of the Patient Protection and Affordable Health Care Act of 2010.

Results of Operations

A.P. Pharma’s net loss for the third quarter of 2010 was $1.7 million, or $0.04 per share, compared with a net loss of $1.2 million, or $0.04 per share, for the third quarter of 2009. Net loss was higher in the current fiscal quarter primarily due to $1.0 million of income recognized in the prior year quarter in connection with the termination of a license agreement for APF530 with RHEI Pharmaceuticals, N.V. Revenue for the third quarter of 2010 was $0.4 million compared with revenue of $1.1 million for the third quarter of 2009. Revenue in 2010 was primarily related to research and development work performed under an agreement with Merial Limited entered into in September 2009 for a long-acting pain management product for companion animals. The $0.7 million decrease in revenue in the current fiscal quarter was partially offset by $0.3 million of lower spending resulting from continuing cost containment actions undertaken by the Company.