The deal would add the Innocoll's suite of collagen-based medicines to Gurnet Point's portfolio of life science businesses.

Should the negotiations be completed successfully, a deal could be announced as early as this week, the people said.

Gurnet's offer includes a cash component and a performance-based payment that could greatly enhance the value of the deal if certain milestones are reached, the people added.

The sources asked not to be identified because the negotiations are confidential. Gurnet Point declined to comment. Innocoll did not immediately respond to requests for comment.

Innocoll's stock dropped by as much as 65 percent late last year after the U.S. Food and Drug Administration rejected its application to market a drug called Xaracoll, which was to be used in treatment of post surgical pain.

Since then, its stock has partly recovered. Innocoll has a market capitalization of around $50 million (£40.18 million).

In March, Innocoll said regulators had pointed to a path forward for Xaracoll that would require additional research and development and could result in a resubmission of its new drug application by the end of the year.

Innocoll's pharmaceutical portfolio aims to treat a variety of ailments, including post-surgical pain management, diabetic foot infections, and the prevention of surgical adhesions.

Its products, some of which are currently marketed and some of which are still in development, rely on a collagen-based technology aimed at improving drug delivery and performance.

Collagen is a protein that is found in skin and other connective tissues, and is frequently used in cosmetic surgery treatments.

Gurnet Point Capital is backed by Waypoint Group, a family office headquartered in Geneva that invests on behalf of biotechnology billionaire Ernesto Bertarelli and his family.

(Reporting by Carl O'Donnell in New York; Editing by Tom Brown)

By Carl O'Donnell