Columbia second-quarter net revenues from progesterone products increase 48% to $8.4 million

Aug 5 2010

Columbia Laboratories, Inc. (Nasdaq: CBRX) today announced financial results for the three- and six-month periods ended June 30, 2010. Key financial results for the quarter and subsequent events include:

“Our progesterone business grew nicely in the second quarter and first half of 2010”

• Net revenues increased 13% to $9.4 million in the second quarter of 2010 compared to $8.4 million in the second quarter of 2009.
• Net revenues from U.S. progesterone products increased 41% over the second quarter of 2009 on a 44% volume increase.
• Net revenues from Merck Serono for international sales of CRINONE^® 8% (progesterone gel) increased 62% over the second quarter of 2009 on a 50% volume increase.
• Total progesterone net revenues increased 48% over the second quarter of 2009 on a 49% volume increase.
• License and supply agreement with Merck Serono renewed for an additional five years.
• Enrollment completed in the PREGNANT Study of PROCHIEVE^® 8% to reduce the risk of preterm birth in women with a short cervix at mid-pregnancy.
• The sale of substantially all of our progesterone assets and 11.2 million shares of Common Stock to Watson Pharmaceuticals closed on July 2, 2010. A majority of our U.S. sales and marketing operation transferred to Watson.
• All debt was retired on July 2, 2010.

"Our progesterone business grew nicely in the second quarter and first half of 2010," said Frank C. Condella, Jr., Columbia's president and chief executive officer. "With the close of the Watson Transactions in early July, Columbia's future profit outlook is greatly improved. We are debt free with over $25 million in cash, significantly reduced operating costs, and royalty revenues from a growing product coming from both Watson and Merck Serono going forward.

"Our focus now is completing the PREGNANT Study. We eagerly anticipate reporting top-line results of this pivotal Phase III clinical trial, and expect to do so before the end of December. Positive data would trigger a $6 or $8 million milestone payment from Watson and pave the way for an NDA filing in the first half of 2011," concluded Condella.

Second Quarter Financial Results

Net revenues for the second quarter of 2010 were $9.4 million, compared to $8.4 million for the second quarter of 2009.

Net revenues from progesterone products were $8.4 million in the second quarter of 2010 compared with $5.7 million in the second quarter of 2009, a 48% increase.

• Net revenues from U.S. progesterone products increased 41% on a 44% volume increase. Domestic CRINONE net sales increased by 59% as a result of a 62% volume increase despite an increase in sales returns reserves.
• Net revenues from CRINONE sold in foreign markets increased by 62% on a 50% volume increase.

As expected, net revenues from other products were $1.0 million in the second quarter of 2010 as compared with $2.7 million in the second quarter of 2009. $1.4 million of this decrease was due to the expiration in October 2009 of Columbia's contract with Lil' Drug Store Products, Inc. for the OTC products, RepHresh^® and Replens^®. In addition, STRIANT^® (testosterone buccal system) net revenues were $0.2 million lower in the 2010 period.

Gross profit margin increased from 72% to 78% reflecting the shift in product mix toward higher-margin progesterone products and a stronger dollar, which reduced our third-party overseas contract manufacturing costs.

Total operating expenses were $10.2 million in the second quarter of 2010, a 12% increase compared to $9.1 million in the prior year period.

• Selling and distribution expenses decreased to $2.7 million in the second quarter of 2010 compared to $3.1 million in the second quarter of 2009 primarily due to lower marketing expenses.
• General and administrative costs increased to $4.0 million in the second quarter of 2010 compared to $3.1 million in the same period a year ago due to $1.0 million in Watson transaction costs and an incremental $0.4 million in severance expense offset, in part, by lower consulting costs.
• Research and development costs increased to $2.2 million in the second quarter of 2010 compared to $1.7 million in the second quarter of 2009 driven by higher costs of the PREGNANT Study, which culminated in completion of enrollment in the 2010 quarter.
• The Company amortized $1.3 million of the acquisition cost for the U.S. license rights to CRINONE in the second quarters of both 2010 and 2009.

Other income and expense for the second quarter of 2010 was a net expense of $1.4 million versus a net expense of $2.2 million in the second quarter of 2009 reflecting primarily the reduction in the non-cash charge for the derivative embedded in the convertible notes retired subsequent to the 2010 quarter end. Interest expense also increased from $2.2 million last year to $2.5 million in 2010 for the non-cash interest costs associated with the convertible notes and PharmaBio debt.

As a result, the Company reported a net loss of $4.2 million, or $(0.06) per basic and diluted share, for the second quarter of 2010 as compared to a net loss of $5.2 million, or $(0.10) per basic and diluted share, for the second quarter of 2009.

As of June 30, 2010, Columbia had cash and cash equivalents of $24.9 million. This compares to cash and cash equivalents of $14.8 million at December 31, 2009 and $11.3 million at March 31, 2010. The increase in cash in the second quarter reflects the $15 million loan advanced to us by Watson on June 1, 2010, offset by cash use of approximately $1.4 million in the second quarter. Cash used in the first half of 2010 was $4.9 million, or $1.1 million better than projected. The Watson loan was forgiven with the closing of the Watson transaction on July 2, 2010 as described below.

Financial Outlook

With the closing of the Watson transaction, the Company emerges with over $25 million in cash, no debt, and 84.2 million shares outstanding. We expect our cash balance at December 31, 2010, to be approximately $23 million. Under our agreement with Watson, we are committed to spend up to $7 million to complete the PREGNANT Study and file the NDA. Through June 2010, we have spent $3.1 million. Regardless of the study outcome, the Company expects to be cash flow neutral in 2011. However, with a successful PREGNANT Study, we expect to turn the corner to profitability and to begin to realize the benefits of tax-sheltered income through our significant net operating loss carryforwards.

Subsequent Material Events

On July 1, 2010, Columbia's stockholders approved the sale of substantially all of Columbia's progesterone related assets to Watson Pharmaceuticals, and voted to increase the number of authorized shares of Columbia's common stock, $0.01 par value per share, from 100,000,000 to 150,000,000.

On July 2, 2010, Columbia closed the sale of substantially all of its progesterone related assets and 11.2 million shares of Common Stock to Watson Pharmaceuticals. Columbia's business now consists of its royalty and manufacturing revenues, potential milestone payments, its collaboration with Watson on the development of next-generation progesterone products, and its novel bioadhesive drug delivery technologies and other products.

At the closing, Columbia received from Watson $47 million in cash. In addition, Watson forgave all principal and accrued interest on the $15 million subordinated term loan dated June 1, 2010. Columbia will receive from Watson royalties of 10 to 20 percent of annual net sales of certain progesterone products. The Company is also eligible for additional amounts of up to $45.5 million based on success milestones in the potential preterm birth indication. Watson will fund the development of second-generation vaginal progesterone products as part of a comprehensive life-cycle management strategy.

Columbia retains certain assets and rights to its progesterone business, including all rights necessary to perform its obligations under its agreement with Merck Serono S.A. Merck Serono holds marketing rights to and makes payments to Columbia related to CRINONE sales in all countries outside the United States.

On July 2, 2010, Columbia used approximately $16 million of the initial proceeds of the Watson Transaction to pre-pay the balance of the minimum royalty payments due in November 2010 to PharmaBio Development, and $26 million, together with stock and warrants, to pre-pay 100% of the $40 million in convertible notes due December 31, 2011. These transactions rendered Columbia debt-free, with over $25 million in cash and approximately 84 million shares of Common Stock outstanding.

On July 8, 2010, the Company's Board of Directors appointed G. Frederick Wilkinson, Executive Vice President, Global Brands, of Watson Pharmaceuticals, Inc., as a director of the Company. Mr. Wilkinson was nominated by Watson pursuant to the Watson Agreement.