Columbia Laboratories net revenues increase 74% to $12.5 million

Columbia Laboratories, Inc. (Nasdaq: CBRX) today reported financial results for the three-month period ended March 31, 2011. Highlights of and subsequent to the first quarter include:

Total net revenues increased 74% to $12.5 million, as compared to $7.2 million for the first quarter of 2010, driven primarily by the amortization over four quarters of the $34 million gain on the sale of the progesterone assets in July 2010 to Watson Pharmaceuticals, Inc. ("Watson") (NYSE:WPI).

• Net product revenues decreased by $3.6 million to $3.5 million in the first quarter of 2011 compared to $7.1 million in the first quarter of 2010, primarily as a result of the transfer to Watson of the U.S. CRINONE^® and PROCHIEVE^® (progesterone gel) assets as part of the sale transaction, including responsibility for domestic product sales.
• Operating income in the first quarter of 2011 was $6.7 million, compared to a loss of $5.0 million in the prior year period, primarily reflecting the $8.4 million in revenue related to the gain on the sale of the progesterone assets to Watson plus a reduction in operating expenses.
• Net loss of $1.2 million, or $0.01 per basic and diluted share, compared to a net loss of $13.2 million, or $0.20 per basic and diluted share, in the first quarter of 2010, with higher operating income more than offset by $7.8 million in non-cash warrant valuation accounting expense.
• A key U.S. patent for the use of progesterone to treat women with a short cervix at mid-pregnancy to prevent spontaneous preterm birth was issued to Watson. The patent expires in February 2028.
• On April 6, 2011, data from the PREGNANT study of PROCHIEVE to reduce the risk of preterm birth in women with premature cervical shortening were published by Ultrasound in Obstetrics and Gynecology.
• Sold U.S. rights to STRIANT^® (testosterone buccal system) to Actient Pharmaceuticals LLC on April 20, 2011.
• Submitted the New Drug Application (NDA) for PROCHIEVE to the U.S. Food and Drug Administration (FDA) on April 26, 2011.

"We are off to a solid start in 2011. To date, we have achieved three strategic objectives: publication of PREGNANT study data in a peer-reviewed medical journal, the sale of U.S. rights to STRIANT, and submitting the NDA for PROCHIEVE," said Frank C. Condella, Jr., Columbia's President and Chief Executive Officer. "I am very pleased that we have met each of these goals already in the second quarter. We are now focused on working with FDA to ensure a thorough review of the NDA with the ultimate aim of having it approved as expeditiously as possible. We are also evaluating growth opportunities for Columbia moving forward."

First Quarter Financial Results

Total net revenues for the first quarter of 2011 were comprised of the gain on the sale of progesterone assets to Watson, net product revenues primarily for domestic and international sales of CRINONE, sales of STRIANT, and royalties primarily from Watson. Total net revenues for the first quarter of 2011 were $12.5 million, compared to $7.2 million for the first quarter of 2010. The increase in total net revenues was driven primarily by $8.4 million in revenue related to the gain on the sale of the progesterone assets to Watson in July 2010, offset by the absence of in-market sales of CRINONE and PROCHIEVE by Columbia in the U.S.

Net product revenues were $3.5 million in the first quarter of 2011, compared to $7.1 million in the first quarter of 2010, primarily as a result of the transfer to Watson on July 2, 2010, of the U.S. CRINONE and PROCHIEVE assets as part of the sale transaction, including responsibility for U.S. product sales. Other factors affecting net product revenues were a 12% increase in net product revenues from Merck Serono for international sales of CRINONE 8% and by product sold to Watson under the new supply agreement. Royalties on sales by Watson were approximately $0.5 million.

Gross profit margin was essentially unchanged at 84% in the first quarter of 2011, compared to 84% in the first quarter of 2010, including the recognition of the deferred gain on the sale of the progesterone assets to Watson. Excluding the deferred gain recognition, the gross profit margin for the first quarter of 2011 would have been 50%, primarily reflecting the product sales to Watson on a cost-plus-10% basis and lower unit selling prices to Merck Serono.

Total operating expenses were $3.8 million in the first quarter of 2011, compared to $11.0 million in the prior year period. The decrease is attributable to the following:

• Selling and distribution expenses decreased by $3.2 million to $0.1 million in the first quarter of 2011, compared to $3.3 million in the 2010 quarter, reflecting the termination of sales and marketing activities following Watson's assumption of those responsibilities in July 2010.
• General and administrative costs decreased by $1.8 million to $2.4 million in the first quarter of 2011, compared to $4.1 million in the 2010 quarter, primarily reflecting the absence of Watson transaction costs and lower intellectual property costs.
• Research and development costs decreased by $1.0 million to $1.3 million in the first quarter of 2011, compared to $2.3 million in the 2010 quarter, reflecting lower expenses following the completion of the PREGNANT study in the fourth quarter of 2010.
• There was no amortization for the acquisition cost for the U.S. rights to CRINONE in the first quarter of 2011 as a result of the 2010 sale to Watson of these assets.

Operating income in the first quarter of 2011 was $6.7 million, compared to an operating loss of $5.0 million in the prior year period. The increase primarily reflects the $8.4 million in revenue related to the gain on the sale of the progesterone assets to Watson plus the reduction in operating expenses.

Other income and expense aggregated to a net expense of $7.9 million for the first quarter of 2011, compared to a net expense of $8.3 million in the first quarter of 2010, primarily reflecting the elimination of interest expense as a result of the debt repayment in July 2010. This was more than offset by the recognition of the $7.8 million change in fair value of the warrants issued in conjunction with the July 2010 convertible note retirement and the October 2009 stock issuance resulting from the 66% increase in Columbia's stock price from the end of the fourth quarter of 2010 to the end of the first quarter of 2011.

As a result, the Company reported a net loss of $1.2 million, or $0.01 per basic and diluted share, for the first quarter of 2011, compared to a net loss of $13.2 million, or $0.20 per basic and diluted share, for the first quarter of 2010.

Cash and Equivalents

At March 31, 2011, Columbia had cash and cash equivalents of $20.1 million, compared to cash and cash equivalents of $21.6 million at December 31, 2010. The decline in cash primarily reflected the payment of the Bio-Mimetics settlement, directors and officers insurance, company bonus payments and product returns, offset, in part, by cash received for the exercise of options and warrants.

Financial Outlook

Pursuant to the Company's Purchase and Collaboration Agreement with Watson, Columbia would be eligible to receive either a $6 million or $8 million milestone payment based upon achievement of certain statistical results of the PREGNANT Study on the primary endpoint, reduction of preterm birth < 33 weeks gestation, and the secondary endpoint, infant outcomes composite score. The Company provided written notice to Watson that the Company had achieved the $6 million milestone. Watson provided written notice to the Company that the milestone had not been achieved. The parties expect to resolve the dispute pursuant to the terms of the Purchase and Collaboration Agreement. No revenue has been recognized to date for this potential milestone payment.

The Company expects notice from the FDA on whether the NDA submission for PROCHIEVE has been accepted for filing within 60 days. Acceptance for filing will trigger a $5 million milestone payment from Watson. If we are successful in obtaining FDA approval of PROCHIEVE for the preterm birth indication, we will receive a $30 million milestone payment from Watson upon commercial launch in the U.S. The Company will be making investments to increase manufacturing capacity to ensure its ability to meet Watson's forecasts for the anticipated launch of PROCHEIVE.

Depending on the timing and achievement of these milestones and the expected investment in manufacturing capacity, cash balances will fluctuate throughout the remainder of 2011.