Columbia Laboratories reports 34% increase in net revenues from U.S. sales of progesterone products

Columbia Laboratories, Inc. (Nasdaq: CBRX) today announced financial results for the three-month period ended March 31, 2010. Key financial results of the quarter and subsequent events include:

“Our domestic progesterone business grew dramatically during the first quarter of 2010”

• Net revenues from U.S. progesterone products increased 34% over the first quarter of 2009 on a 46% volume increase. This increase was dampened by higher reserves for returned goods.
• Net revenues from international sales of CRINONE^® 8% (progesterone gel) increased 11% over the first quarter of 2009 on a 15% volume increase.
• Total progesterone net revenues increased 25% over the first quarter of 2009 on a 20% volume increase.
• With the previously disclosed cessation of sales of the OTC products, net revenues decreased 2% to $7.2 million in the first quarter of 2010 compared to $7.3 million in the first quarter of 2009.
• The PREGNANT Study of PROCHIEVE^® 8% (progesterone gel) to reduce the risk of preterm birth in women with short cervix at mid-pregnancy has enrolled the planned 450 patients.

"Our domestic progesterone business grew dramatically during the first quarter of 2010," said Frank C. Condella, Jr., Columbia's president and chief executive officer. "This growth was driven in part by our sales force's efforts capitalizing on the clinical data on CRINONE that were reported at the 2009 Annual Meeting of the American Society for Reproductive Medicine ("ASRM"), coupled with some effect of a temporary backorder with CRINONE's main vaginally-administered progesterone competitor. The exposure to and experience with CRINONE among new patients and medical practices may have a lasting positive impact on CRINONE sales and prescriptions, particularly when reinforced by strong clinical data on CRINONE's efficacy, safety and patient preference.

"The PREGNANT Study has enrolled the planned 450 patients; enrollment will continue to enter patients currently in the study screening process. With a five-to-six-month treatment period and four to six weeks for data analysis, we expect to report top-line results around the end of the year or very early in 2011. If data are positive, we expect to file an NDA for PROCHIEVE 8% in this new indication with the FDA in the first half of 2011. Assuming stockholder approval of the Watson Transactions and FDA approval for this new indication, we are confident that Watson will execute a strong launch in the new preterm birth indication," concluded Condella.

First Quarter Financial Results

Net revenues for the first quarter of 2010 were $7.2 million, compared to $7.3 million for the first quarter of 2009.

Net revenues from progesterone products were $6.8 million in the first quarter of 2010 compared with $5.4 million in the first quarter of 2009, a 25% increase.

• Net revenues from U.S. progesterone products increased 34% on a 46% volume increase. This increase was dampened by higher reserves for returned goods. Domestic CRINONE net sales increased by 33%, despite additional sales returns reserves, as a result of a 55% volume increase.
• Net revenues for CRINONE sold in foreign markets increased by 11% due to a 15% volume increase, partially offset by lower selling prices attributable to price adjustments for government tenders and a weaker dollar.

Net revenues from other products were $0.4 million in the first quarter of 2010 as compared with $1.9 million in the first quarter of 2009, a 78% decrease. $1.1 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 $0.3 million lower in the 2010 period, attributable primarily to higher sales return reserves.

Gross profit margin increased from 76% to 84% reflecting the shift in product mix toward higher-margin progesterone products which were offset, in part, by higher contract manufacturing costs resulting from a weaker dollar.

Total operating expenses were $11.0 million in the first quarter of 2010, a 25% increase compared to $8.8 million in the prior year period.

• Selling and distribution expenses were $3.3 million in the first quarter of 2010, a 16% increase from $2.8 million in the first quarter of 2009 primarily due to increased spending on marketing programs highlighting the several favorable papers and abstracts for CRINONE presented at the ASRM 2009 Annual Meeting.
• General and administrative costs were $4.1 million in the first quarter of 2010 compared to $2.5 million in the same period a year ago. The increased expense in the 2010 quarter was attributable entirely to the $1.6 million in costs related to the Watson Transactions.
• Research and development costs increased 4% to $2.3 million in the first quarter of 2010 from $2.2 million in the first quarter of 2009. The increase was driven by higher costs of the PREGNANT Study in the 2010 quarter.
• The Company amortized $1.3 million of the acquisition cost for the U.S. license rights to CRINONE in the first quarters of both 2010 and 2009.
• Other income and expense for the first quarter of 2010 was a net expense of $5.2 million versus a net expense of $2.1 million in the first quarter of 2009. During the first quarter of 2010, $2.4 million of primarily interest expense was accompanied by a non-cash charge of $2.8 million, which was recorded in anticipation of the Watson Transactions being approved by Columbia's stockholders, closing, and the concurrent retiring of Columbia's convertible notes due December 31, 2011.

As a result, the Company reported a net loss of $10.2 million, or $(0.16) per basic and diluted share, for the first quarter of 2010 as compared to a net loss of $5.3 million, or $(0.10) per basic and diluted share, for the first quarter of 2009.

As of March 31, 2010, Columbia had cash and cash equivalents of $11.3 million. This compares to cash and cash equivalents of $14.8 million at December 31, 2009.

Watson Transactions

On March, 3, 2010, Columbia entered into a definitive agreement to sell, subject to stockholder approval, substantially all of its progesterone related assets, including its preterm birth patents and applications and 11.2 million shares of common stock, to Watson Pharmaceuticals, Inc. (the "Watson Transactions") for upfront and milestone payments of up to $92.5 million. These include 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 ongoing 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. The closing of the transaction is subject to customary conditions, including approval by Columbia's stockholders. 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.

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
• 7.4 million shares of Columbia's common stock.

The strike price of the warrants and the pricing of the common shares of $1.35 were determined by taking a 10% premium to the 10-day closing average prior to the announcement of the Watson Transactions 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 Transactions. In connection with the contingent note pre-payment agreements, the notes were amended so that the Watson Transactions would not trigger the put right in the notes upon the sale of the Company's progesterone assets. 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 Transactions, all of Columbia's debt will be retired.

Subsequent Material Events

On April 15, 2010, Robert S. Mills resigned from his positions as president and chief operating officer and as a director of Columbia Laboratories.

On May 4, 2010, Frank C. Condella, Jr., previously interim chief executive officer, was named president and chief executive officer of Columbia Laboratories.