Columbia Laboratories to sell progesterone related assets and 11.2M shares to Watson Pharmaceuticals

Columbia Laboratories, Inc. (Nasdaq: CBRX) has 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 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. Watson will also have the right to designate a member of Columbia's Board of Directors. 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.

“With a strong heritage in women’s health, an expanding pipeline of additional distinctive products in this category, and a sales team committed to serving OB/GYNs and women’s health providers, Watson is uniquely positioned to make this agreement a significant win-win for both parties, and for patients.”

“With their commitment to women’s health and significant sales resources, Watson is a great strategic fit for our progesterone business,” said Frank C. Condella, Jr., Columbia’s interim chief executive officer. “Watson has a field force of 350 representatives calling on OB/GYNs and urologists, plus specialists to focus on infertility clinics. Because of the structure of its sales force, Watson has the capability to expand sales resources for CRINONE^® as required, and we are confident in their ability to execute a strong launch in the new short cervix preterm birth indication, assuming data from the PREGNANT Study are positive and the product is approved for this new indication by the FDA.”

“The addition of CRINONE^® to our branded products business is in line with our stated objective to grow our women’s health franchise,” said Paul Bisaro, president and chief executive officer of Watson. “With a strong heritage in women’s health, an expanding pipeline of additional distinctive products in this category, and a sales team committed to serving OB/GYNs and women’s health providers, Watson is uniquely positioned to make this agreement a significant win-win for both parties, and for patients.”

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. 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.

Torreya Partners LLC acted as financial advisor to Columbia, Kaye Scholer LLP acted as legal advisor to Columbia, and RBC Capital Markets provided a fairness opinion to Columbia’s Board of Directors in connection with the transaction.

In a separate transaction, Columbia has 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^® (testosterone buccal system) due in November 2010. Columbia has also entered into contingent agreements to pre-pay 100% of 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.

“With stockholder approval of the Watson transaction, Columbia will emerge a focused development company, debt-free, with a clearer path to profitability,” said Condella. “Our infrastructure costs will decrease significantly, and we will benefit from ongoing royalty and manufacturing revenues and payments that can be earned by the successful achievement of certain milestones as PROCHIEVE advances toward commercialization in the preterm birth indication. As a result, Columbia will be well positioned to leverage our drug delivery expertise to develop new products.”