818033--3/30/2007--AP_PHARMA_INC

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{product, candidate, development}

{product, liability, claim}

{stock, price, share}

{control, financial, internal}

{property, intellectual, protect}

{regulation, change, law}

{acquisition, growth, future}

{provision, law, control}

{personnel, key, retain}

{cost, regulation, environmental}

{competitive, industry, competition}

{customer, product, revenue}

{stock, price, operating}

Risks Related To Our Business We have a history of losses, we expect to generate losses in the near future, and we may never achieve or maintain profitability. We may require additional capital to conduct our operations and to develop our products. Such funding may not be available on commercially favorable terms and may cause dilution to our existing stockholders. We are substantially dependent upon the success of our APF530 product candidate. Clinical trials for this product may not demonstrate efficacy or lead to regulatory approval. We may not obtain regulatory approval for our products. Regulatory approval may also be delayed or cancelled or may entail limitations on the indicated uses of a proposed product. Clinical trials are expensive and may not result in commercially viable products. Delays in clinical testing could increase our costs and delay our ability to obtain regulatory approval and commercialize our product candidates. We rely on third parties to conduct our clinical trials, and their failure to perform their obligations in a timely and competent manner may delay development and commercialization of our product candidates. Our polymer-based drug delivery technology is at an early stage of development, and we cannot be certain that such development will be successful. Recent changes in management may be disruptive. If any products that we or our collaborators may develop do not attain adequate market acceptance by healthcare professionals and patients, our business prospects and results of operations will suffer. We depend on contract manufacturers and collaborators for manufacturing our products; if they do not perform as expected, our revenue and customer relations will suffer. If we fail to comply with continuing federal, state and foreign regulations, we could lose our approvals to market drugs and our business would be seriously harmed. If we are unable to recruit and retain skilled employees, we may not be able to achieve our objectives. We face intense competition from other companies. Because we or our collaborators must obtain regulatory approval to market our products in the United States and foreign jurisdictions, we cannot predict whether or when we will be permitted to commercialize our products. We depend on our collaborators to help us complete the process of developing and testing our products. Our business strategy includes the entry into additional collaborative agreements. We may not be able to enter into additional collaborative agreements or may not be able to negotiate commercially acceptable terms for these agreements. If we or our collaborators cannot arrange for adequate third-party reimbursement for our products, our revenue will suffer. Our inability to obtain specialized materials could slow down our research and development process. If we are unable to adequately protect or enforce our intellectual property rights or secure rights to third-party patents, we may lose valuable assets, experience reduced market share or incur costly litigation to protect our rights or our third-party collaborators may choose to terminate their agreements with us. We may infringe on the intellectual property rights of others, and any litigation could force us to stop developing or selling potential products and could be costly, divert management attention and harm our business. We are exposed to risks and increased expenses as a result of laws requiring non-accelerated filers to evaluate internal controls over financial reporting. Legislative actions, potential new accounting pronouncements and higher insurance costs are likely to impact our future financial position or results of operations. We could be exposed to significant product liability claims that could be time consuming and costly to defend, divert management attention and adversely impact our ability to obtain and maintain insurance coverage Our use of hazardous materials could subject us to liabilities, fines and sanctions. Risks Related To Our Common Stock The price of our common stock may be volatile. Our common stock may be delisted from The NASDAQ Global Market, which could negatively impact the price of our common stock and our ability to access the capital markets. Our certificate of incorporation, our bylaws, Delaware law and our stockholder rights plan contain provisions that could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management.

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818033--3/30/2007--AP_PHARMA_INC_/DE/