Columbia Laboratories' fourth-quarter 2009 net revenues up 21%

Mar 11 2010

Columbia Laboratories, Inc. (Nasdaq: CBRX) today reported financial results of the three- and twelve-months periods ended December 31, 2009.

“Our 2009 revenues were only 3% less than 2008 levels, once adjusted for the one-time recognition of STRIANT licensing fees in 2008, primarily due to foreign pricing pressures.”

Fourth Quarter Highlights

• Net revenues increased 21% to $8.5 million, as compared to $7.1 million for the fourth quarter of 2008.
• Total progesterone sales increased 23% with domestic sales of CRINONE^® 8% (progesterone gel) increasing 31% and international sales increasing 24%, partially offset by a decline in sales of PROCHIEVE^® 8% (progesterone gel), as compared to the fourth quarter of 2008.
• Net loss of $5.4 million ($0.09 per basic and diluted share) compared to a net loss of $3.5 million ($0.06 per basic and diluted share) in the fourth quarter of 2008.
• Advanced enrollment in the PREGNANT Study and added 11 new study centers to accelerate enrollment in 2010.
• Four presentations of new data supporting the use of CRINONE 8% over other progesterone formulations were given at the annual meeting of the American Society of Reproductive Medicine.
• $10.7 million in net proceeds raised through the sale of common stock and warrants.
• Frank C. Condella, Jr. appointed interim chief executive officer.

2009 Highlights

• Net revenues decreased 11% to $32.2 million, compared to net revenues of $36.2 million in 2008 which included $2.9 million in previously deferred revenue for STRIANT^® (testosterone buccal system) licensing fees from Ardana as a results of its bankruptcy.
• Domestic progesterone product net revenues rose 5%, driven by a 14% increase in CRINONE prescriptions, as compared to 2008 levels.
• Net loss of $21.9 million ($0.39 per basic and diluted share) versus a net loss of $14.1 million ($0.27 per basic and diluted share) in 2008, due to the combination of lower revenues and higher operating expenses, including higher costs of the PREGNANT Study.

“In 2009, we effectively executed our strategy to grow CRINONE in the United States. Unit volumes increased 10%, and total prescriptions were up 14%, despite the harsh economic climate which negatively impacted the substantially patient-paid infertility market,” said Frank C. Condella, Jr., Columbia’s interim chief executive officer. “Our 2009 revenues were only 3% less than 2008 levels, once adjusted for the one-time recognition of STRIANT licensing fees in 2008, primarily due to foreign pricing pressures.”

“We continued to invest in the PREGNANT study of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix at mid-pregnancy. With 393 of the planned 450 patients now enrolled and very strong monthly enrollment rates, we remain confident that this study will be fully enrolled in the second quarter of 2010. We look forward to reporting results shortly after the last infant is born and the analysis of results is completed in late 2010 and, if positive, to filing with the FDA in 2011 for this promising new indication.”

Subsequent Material Events

Watson Agreement

On March 3, 2010, Columbia entered into a definitive agreement to sell substantially all of its progesterone related assets and 11.2 million shares of common stock to Watson Pharmaceuticals, Inc. (NYSE: WPI) for a $47 million upfront payment plus royalties of 10 to 20 percent of annual net sales of certain progesterone products. Additional payments up to $45.5 million can be earned by the successful completion of clinical development milestones in the PREGNANT Study, regulatory filings, receipt of regulatory approvals and product launches. Watson will fund the development of a second-generation vaginal progesterone product as part of a comprehensive life-cycle management strategy. Watson will also have the right to designate a member of Columbia's Board of Directors.

After the sale of these assets, Columbia’s business will consist of domestic and international royalties and milestone payments, manufacturing revenues from CRINONE and PROCHIEVE, STRIANT sales, and its bioadhesive drug delivery technologies, which include bioadhesive vaginal gel, buccal system and progressive hydration tablet delivery mechanisms. Expenses related to sales, marketing, and related support functions will be eliminated. Also, Columbia will retain certain assets and rights to its progesterone business, including all rights necessary to perform its obligations under its agreement with Merck Serono S.A.

The transaction was unanimously approved by Columbia’s Board of Directors. Its closing is subject to customary conditions, including approval by Columbia’s stockholders. It is expected to close during the second quarter of 2010.

Debt Pre-payment Agreements

On March 3, 2010, Columbia entered into a contingent agreement with PharmaBio Development, an affiliate of Quintiles Transnational Corp., to pre-pay the approximately $16 million balance of the minimum royalty payments on U.S. net sales of STRIANT due in November 2010.

On March 3, 2010, Columbia entered into contingent agreements to pre-pay the $40 million in convertible notes due December 31, 2011. Note holders will receive their proportional share of the following:

• $26 million in cash (plus accrued and unpaid interest up to, but excluding, the closing date),
• Warrants to purchase 7.75 million shares of Columbia's common stock, and,
• $10 million in shares of Columbia's common stock.

The strike price of the warrants and the pricing of the common shares of $1.35 was determined by taking a 10% premium to the 10-day closing average prior to the announcement of the transaction but no less than 100% of the last closing price prior to the time of signing. The warrants become exercisable 180 days after the closing and expire five years later, unless earlier exercised or terminated.

The closings of the transactions under the note pre-payment agreements are subject to various closing conditions, including stockholder approval and the closing of the Watson transaction. In connection with the contingent note pre-payment agreements, the notes were amended so that the Watson transaction would not trigger the change of control put right in the notes. This amendment expires on August 31, 2010, if the closings do not occur on or prior to that date. The net effect of these contingent agreements is that at the closing of the Watson transaction, Columbia’s debt will be retired.

“We believe this agreement with Watson Pharmaceuticals represents the best interests of the Company and our stockholders. It offers a fair value for our current infertility business, and places our products with a well-respected pharmaceutical company with a strong presence in and commitment to women's health, and a clear understanding of the importance of product lifecycle management. It protects holders of our common stock against downside risk while preserving for them the significant upside potential of the preterm birth opportunity. With stockholder approval of this transaction, Columbia will emerge debt-free with a stronger balance sheet, ongoing royalty revenues and potential milestone revenues, significantly lower operating costs, and a clear path to profitability,” concluded Condella.

Fourth Quarter Financial Results

Net revenues for the fourth quarter of 2009 were $8.5 million compared to $7.1 million for the fourth quarter of 2008.

Total net revenues from Progesterone Products increased 23% to $6.3 million in the fourth quarter of 2009, as compared to $5.2 million in the fourth quarter of 2008. Net revenues from domestic CRINONE sales increased 31%, and foreign CRINONE net revenues increased 24%, from the fourth quarter of 2008. Net revenues for PROCHIEVE 8%, which the Company is no longer actively promoting for infertility, were $0.1 million lower than for the same period in 2008.

Net revenues from Other Products, primarily RepHresh^®, Replens^®, and STRIANT, were $2.1 million in the fourth quarter of 2009, compared to $1.9 million in the fourth quarter of 2008. Our supply agreement with Lil’ Drug Store Products, Inc., (“LDS”) for RepHresh and Replens expired on October 31, 2009, and Columbia no longer supplies LDS with RepHresh and Replens and expects no further revenues from these products.

Gross profit was $6.0 million in the fourth quarter of 2009, compared to $4.9 million in the fourth quarter of 2008, with gross margins improving to 71% from 69% last year. The increase is primarily attributable to the improved sales of higher margin Progesterone Products.

Total operating expenses were $9.5 million in the fourth quarter of 2009, compared to $7.3 million in the prior year period. The increase is attributable to the following:

• Selling and distribution expenses were $3.0 million in the fourth quarter of 2009, up slightly from $2.9 million in 2008.
• General and administrative costs were $2.9 million in the fourth quarter of 2009, up from $2.0 million in 2008, primarily reflecting higher legal expenses.
• Research and development costs increased to $2.4 million in the fourth quarter of 2009 from $1.2 million in 2008, reflecting higher clinical trial expenses for the PREGNANT Study due to increased patient enrollments. The Company amortized $1.3 million of the acquisition cost for the U.S. license rights to CRINONE in the fourth quarters of both 2009 and 2008.

Other income and expense aggregated to a net expense of $2.4 million for the fourth quarter of 2009, compared to a net expense of $1.9 million in the fourth quarter of 2008, primarily reflecting higher non-cash interest expense attributable to the amortization of warrant costs related to the extension of the PharmaBio debt.

As a result, the Company reported a net loss of $5.4 million, or $0.09 per basic and diluted share, for the fourth quarter of 2009, as compared to a net loss of $3.5 million, or $0.06 per basic and diluted share, for the fourth quarter of 2008.

Full Year Financial Results

Net revenues for the year ended December 31, 2009, were $32.2 million compared to net revenues of $36.2 million for the year ended December 31, 2008.

Net revenues from Progesterone Products decreased 1% to $23.8 million from $24.1 million in 2008, primarily due to decreased sales of CRINONE outside the U.S. and PROCHIEVE® in the U.S.

• Net revenues from domestic CRINONE sales increased by 10% over 2008. Total prescriptions for CRINONE were 14% higher in 2009. These increases were achieved despite a major economic downturn during 2009, impacting patients’ decisions to postpone or forego elective infertility procedures, which are not reimbursed by health insurers in many major markets.
• CRINONE net revenues from foreign sales were 6% lower than in 2008, which is attributable to lower selling prices due to foreign exchange rates relative to the dollar and price adjustments for government tenders. Sales volumes for CRINONE for non-U.S. markets were 8% higher than in 2008.
• PROCHIEVE net revenues in 2009 were $1.6 million, or $0.5 million below net revenues of $2.1 million for the same period last year.

Net revenues from Other Products decreased 31% to $8.4 million from $12.1 million in 2008. During the third quarter of 2008, the Company recognized $2.9 million of deferred revenue from the cancellation of the Ardana contract for STRIANT due to Ardana’s bankruptcy. Combined net revenues for RepHresh and Replens under the Lil' Drug Store contract were unchanged from 2008 levels. That contract ended in October 2009; Columbia no longer supplies LDS with RepHresh and Replens and, excluding some residual volumes in 2010, expects no further revenues from these products. STRIANT net revenues were lower due to the absence of international sales in 2009 related to Ardana's bankruptcy and a $0.2 million decrease in domestic sales.

Gross profit as a percentage of net revenues was 71% in 2009 compared to 70% in 2008, reflecting the improved product sales mix in 2009.

Total operating expenses were $36.2 million, an 11% increase, compared to $32.6 million in the prior year.

• Selling and distribution expenses decreased 6% to $12.0 million from $12.7 million in 2008. The decrease primarily reflects the leveling off of marketing expenditures from 2008 levels, when the sales organization was increased by more than 30%, and expenses incurred in generating marketing materials to support CRINONE promotions.
• General and administration expenses increased 23% to $10.6 million from $8.6 million in 2008, reflecting additional legal fees for patent applications for preterm birth, the Bio-Mimetics litigation, business development activities and severance costs.
• Research and development costs increased by 38% to $8.6 million from $6.2 million in 2008. The increase is primarily related to the PREGNANT Study.
• The Company amortized $5.0 million in both 2009 and 2008 for the U.S. rights to CRINONE.

Other income and expense netted $9.1 million in 2009 compared to $7.7 million in 2008, primarily reflecting higher non-cash amortization of interest costs, warrants and beneficial conversion features associated with the PharmaBio debt and convertible notes.

As a result, the Company reported a net loss of $21.9 million, or $0.39 per basic and diluted share, for 2009, as compared to a net loss of $14.1 million, or $0.27 per basic and diluted share, for 2008.

Cash and Equivalents

As of December 31, 2009, Columbia had cash and cash equivalents of $14.8 million. This compares to cash and cash equivalents of $7.3 million at September 30, 2009, and $12.5 million at December 31, 2008. On October 28, 2009, the Company raised $10.7 million in net proceeds from the sale of 10,900,000 shares of common stock and warrants to purchase 5,450,000 shares of common stock in a registered direct offering with an exercise price of $1.52. Cash and cash equivalents should be sufficient to cover projected cash needs for at least the next 12 months.