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CBRX > SEC Filings for CBRX > Form 10-Q on 7-Aug-2013All Recent SEC Filings

Show all filings for COLUMBIA LABORATORIES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for COLUMBIA LABORATORIES INC


7-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements, that involve risk and uncertainties. The words "may," "will," "plan," "believe," "expect," "intend," "anticipate," "potential," "should," "estimate," "predict," "project," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those projected in the forward-looking statements.

These forward-looking statements include, among other things, statements about,

• successful marketing of CRINONE® by Actavis and Merck Serono in their respective markets;

• the anticipated timing of future batch orders of CRINONE from our customers;

• the successful development by Actavis of a next-generation vaginal progesterone product for the U.S. market;

• our ability to manufacture our product with minimal difficulties and delays;

• the availability and pricing of third-party sourced products and materials;

• our compliance with FDA and other governmental regulations applicable to manufacturing facilities, products, and/or business;

• our intellectual property portfolio;

• our strategy of growing through acquisition;

• our ability to regain compliance with the Nasdaq listing requirements; and

• our estimates regarding expenses, future revenues, and capital requirements.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, particularly in Part 1 - Item 1A and in our other public filings with the Securities and Exchange Commission that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report and the documents that we have filed as exhibits to the Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Company Overview

We are in the business of developing, manufacturing and selling to our marketing partners pharmaceutical products that utilize our proprietary bioadhesive drug delivery technologies to treat various medical conditions. Our focus is drug delivery across mucosal membranes, an area where we have a rich heritage and proven capabilities. To date, we have developed and brought to market six products: five bioadhesive vaginal gel products that provide patient friendly solutions for infertility, pregnancy support, amenorrhea, and other women's health conditions, and a testosterone bioadhesive buccal system for male hypogonadism. Our primary product is CRINONE (progesterone gel) which is formulated in a 4% and an 8% solution. We have licensed CRINONE to Merck Serono S.A. ("Merck Serono"), internationally, and to Actavis, Inc. ("Actavis", formerly Watson Pharmaceuticals, Inc.), in the United States.

Currently, we sell CRINONE 8% to Merck Serono at a price determined on a country-by-country basis that is the greater of (i) thirty percent (30%) of the net selling price in the country, or (ii) our direct manufacturing cost plus 20%. Certain quantity discounts apply to annual purchases over 10 million, 20 million, and 30 million units.

On April 4, 2013, our license and supply agreement with Merck Serono for the sale of CRINONE 8% outside the U.S. was renewed for an additional five year term, extending the expiration date from May 19, 2015, to May 19, 2020.

Under the terms of the amended license and supply agreement, we will continue to sell CRINONE to Merck Serono on a country by country basis at the greater of
(i) cost plus 20% or (ii) a percentage of Merck Serono's net selling price. From 2014 through 2020, the percentage of net selling price will convert to a tiered structure. Current volumes will be eligible to receive slightly lower rates than in 2013. As volumes reach higher thresholds, incremental sales will earn a lower percentage of net selling price. These thresholds have been agreed in order to incentivize Merck Serono to continue to develop existing markets and to enter new markets. Additionally, the parties will jointly cooperate to evaluate and implement manufacturing cost reduction measures, with both parties sharing any reductions realized from these initiatives. All other material terms remain substantially as before.


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We manufacture and sell product to Actavis at our cost plus 10%; these revenues are recorded within net product revenues from related party. In addition, we receive royalties equal to a minimum of 10% of annual net sales by Actavis for annual net sales up to $150 million, 15% for sales above $150 million but less than $250 million; and 20% for annual net sales of $250 million and over. Due to a build-up of inventory by Actavis in advance of filing for FDA approval of 8% progesterone gel for use in the prevention of preterm birth in women with premature cervical shortening, and Actavis' decision, in light of the FDA's denial of both Actavis' application and subsequent appeal, not to continue development of the proposed indication, Actavis currently has sufficient inventories of CRINONE; therefore we do not expect any material orders for the remainder of 2013. We continue to receive royalties on net sales of CRINONE by Actavis.

Future recurring revenues will be derived primarily from product sales to and royalty streams from our partners, Actavis and Merck Serono. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause operating results to vary significantly from quarter to quarter. Because products shipped to our two major customers occur only in full batches, quarterly sales can vary widely and affect comparisons with prior periods and may not correlate to our customers' in-market sales.

All of our products are manufactured in Europe by third parties on behalf of our foreign subsidiaries who sell the products to our worldwide licensees, and to us, in the case of the products supplied for resale in the United States. Because our foreign subsidiaries recognize these sales and are reduced only by our product manufacturing costs, we have historically shown a profit from our foreign operations.

Workforce Reduction and Corporate Office Relocation

On March 1, 2012, we announced a 42% workforce reduction from 24 employees at December 31, 2011, to 14 employees. We recorded a severance charge of approximately $0.5 million in the six months ended June 30, 2012. The reduction impacted research and development and general and administrative positions. Our remaining staff focuses its efforts on supporting its customers through existing product supply agreements, assuring compliance with all financial reporting requirements, and evaluating strategic options to build value for shareholders.

During the six months ended June 30, 2013, we relocated our corporate facilities from Livingston, New Jersey to Boston, Massachusetts. On March 15, 2013, we entered into a lease agreement for our new location in Boston. We expect this lease will provide a significant cost saving compared to our current lease for our corporate facilities in Livingston, which expires in October 2013. We completed our process of hiring employees for the Boston office, which is comprised of accounting and finance, operations and other administrative staff. We have incurred a charge of $0.6 million for the six months ended June 30, 2013, related to severance and other relocation costs associated with the elimination of certain positions at the Livingston location. With the relocation now complete, going forward we expect reduced personnel and other related costs.

Nasdaq Listing

On October 24, 2012, we received a letter from the Nasdaq Stock Market indicating that we no longer meet the minimum bid price requirement for continued listing on the Nasdaq Global Market as set forth in Listing Rule 5450(a)(1) (the "Rule"). The notice stated that the bid price of our common stock closed below the required minimum $1.00 per share for the previous 30 consecutive business days. In accordance with Nasdaq rules, we have 180 calendar days to regain compliance with the Rule, but can apply for additional time if necessary.

On April 24, 2013, Nasdaq granted our application to list our common stock on the Nasdaq Capital Market and granted the Company an additional 180-day period, expiring October 21, 2013, in which to regain compliance with the Rule. The Company's common stock were transferred to the Nasdaq Capital Market at the opening of business on April 25, 2013.

On July 26, 2013, our Board of Directors, to meet the Rule requirements and maintain our listing on the Nasdaq Capital Market, set a ratio of 1-for-8 for the previously approved reverse stock split of our common stock, and an anticipated effective date for the reverse stock split of the later of (i) the filing with the Secretary of the State of Delaware of a certificate of amendment with respect to the reverse stock split or (ii) August 9, 2013. The reverse split was approved by the stockholders at our annual meeting of stockholders on May 1, 2013.

Results of Operations

The following table contains selected income statements information, which serves as the basis of the discussion surrounding our results of operations for the three months ended June 30, 2013 and 2012, respectively:


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                                                           Three Months Ended
                                                                June 30,
                                                2013                               2012
                                                      As a %  of                         As a %  of
                                                        Total                              Total              $               %
                                      Amount           Revenues          Amount           Revenues          Change         Change
Net product revenues                $ 7,019,080                88 %    $ 7,361,829                90 %   $   (342,749 )         (5 )%
Royalties                               927,488                12          834,211                10           93,277           11
Other revenues                           31,250                -            34,496                -            (3,426 )         (9 )

Total net revenues                    7,977,818               100        8,230,536               100         (252,718 )         (3 )
Cost of revenues                      2,830,596                35        4,465,846                54       (1,635,250 )        (37 )

Gross profit                          5,147,222                65        3,764,690                46        1,382,532           37
Operating expenses
Research and development (net of
reimbursement from related party:
$3,092 for the three months ended
June 30, 2012)                               -                 -           159,072                 2         (159,072 )       (100 )
General and administrative            2,319,594                29        1,923,356                23          396,238           21

Total operating expenses              2,319,594                29        2,082,428                25          237,166           11

Income from operations                2,827,628                35        1,682,262                20        1,145,366           68
Interest income, net                     42,545                 1           63,624                 1          (21,079 )        (33 )
Change in fair value of stock
warrants                               (154,746 )              (2 )        205,700                 3         (360,446 )       (175 )
Other expense, net                      (55,874 )              (1 )         (8,776 )              -           (47,098 )        537

Income before income taxes            2,659,553                33        1,942,810                24          716,743           37
Income tax provision                      2,674                -                -                 -             2,674          100

Net income                          $ 2,656,879                33 %    $ 1,942,810                24 %   $    714,069           37 %

Revenues



                                  Three Months Ended
                                       June 30,                   $              %
                                 2013            2012           Change        Change
       Net product revenues   $ 7,019,080     $ 7,361,829     $ (342,749 )         (5 )%
       Royalties                  927,488         834,211         93,277           11
       Other revenues              31,250          34,496         (3,246 )         (9 )

       Total net revenues     $ 7,977,818     $ 8,230,536     $ (252,718 )         (3 )%

Total net revenues in the three months ended June 30, 2013 were $8.0 million as compared to $8.2 million in the three months ended June 30, 2012. Net revenues include net product revenues (sales of Progesterone Products to Actavis and Merck Serono), royalty revenues (primarily royalty revenues from Actavis on sales of Progesterone Products), and other revenues.

Total net product revenues were $7.0 million in the three months ended June 30, 2013 as compared to $7.4 million in the three months ended June 30, 2012. This decrease primarily relates to the absence of product revenue from Actavis in the three months ended June 30, 2013, as compared with $1.9 million in the three months ended June 30, 2012 due to sufficient inventory on hand at Actavis. This was offset by higher revenues from Merck Serono in the three months ended June 30, 2013 as compared with the three months ended June 30, 2012. Higher revenues from Merck Serono are a result of a 23% increase in volume quarter over quarter, coupled with shipments to countries with higher net selling prices. In the three months ended June 30, 2013, a shift in the timing of batch orders contributed to a 29% increase in our net product revenues from Merck Serono as compared with the three months ended June 30, 2012.

Royalty revenues were $0.9 million in the three months ended June 30, 2013, as compared with $0.8 million in the three months ended June 30, 2012, as a result of royalties on higher revenues from Actavis on Progesterone Products sold by Actavis.


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Cost of revenues

                                              Three Months Ended
                                                   June 30,                        $                 %
                                           2013               2012               Change           Change
Cost of revenues                        $ 2,830,596        $ 4,465,846        $ (1,635,250 )           37 %
Cost of revenues (as a percentage
of total revenues)                               35 %               54 %

Total cost of revenues decreased $1.6 million, or 37%, to $2.8 million for the three months ended June 30, 2013, as compared to $4.5 million for the three months ended June 30, 2012. This decrease was primarily a result of the absence of product sales to Actavis for the three months ended June 30, 2013 as compared to $1.9 million of sales for the three months ended June 30, 2012. Total cost of revenues as a percentage of total revenues decreased to 35% for the three months ended June 30, 2013, from 54% for the three months ended June 30, 2012, primarily due to a more favorable sales mix.

Research and development

                                             Three Months Ended
                                                 June  30,                       $                 %
                                          2013              2012               Change           Change
Research and development                $      -         $   159,072        $   (159,072 )         (100 )%
Research and development (as a
percentage of total revenues)                  -  %                2 %

There were no research and development expenses in the three months ended June 30, 2013, as compared to $0.2 million in the three months ended June 30, 2012. Research and development expenses in the three months ended June 30, 2012 included costs for product development, clinical development and regulatory fees, which were a combination of internal and third-party costs. There were no research and development expenses in the second quarter of 2013 as we have eliminated our research and development activities.

General and administrative

                                              Three Months Ended
                                                   June 30,                        $               %
                                           2013               2012              Change          Change
General and administrative              $ 2,319,594        $ 1,923,356        $   396,238            21 %
General and administrative (as a
percentage of total revenues)                    29 %               23 %

Total general and administrative expenses increased by $0.4 million to $2.3 million for the three months ended June 30, 2013, compared with $1.9 million for the three months ended June 30, 2012. This increase reflects severance and relocation costs of $0.4 million incurred during the three months ended June 30, 2013.

Other income and expense

                                               Three Months Ended
                                                    June 30,                       $                %
                                             2013              2012              Change          Change
Interest income, net                      $    42,545       $    63,624       $    (21,079 )         (33 )%
Change in fair value of stock warrants       (154,746 )         205,700           (360,446 )        (175 )%
Other expense, net                            (55,874 )          (8,776 )          (47,098 )         537 %

The decrease in interest income, net primarily relates to an overall decrease in interest rates from our interest-bearing securities.

Change in fair value of stock warrants for the three months ended June 30, 2013 was due to a $0.2 million charge associated with the fair value of the warrants issued in conjunction with the October 2009 stock issuance resulting from an increase in our stock price. Change in fair value of stock warrants for the three months ended June 30, 2012 amounted to $0.2 million of income due to the change in the fair value of the warrants issued in conjunction with the October 2009 stock issuance resulting from a decrease in our stock price.


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The increase in other expense, net primarily relates to the sale of our short-term investments in the three months ended June 30, 2013.

Six Months Ended June 30, 2013 and June 30, 2012



                                                                 Six Months Ended
                                                                     June 30,
                                                     2013                                2012
                                                           As a %  of                          As a %  of
                                                             Total                               Total               $               %
                                           Amount           Revenues           Amount           Revenues           Change         Change
Net product revenues                    $ 12,392,028                87 %    $ 10,480,461                87 %    $  1,911,567           18 %
Royalties                                  1,813,706                12         1,514,588                12           299,118           20
Other revenues                                87,808                 1            69,028                 1            18,780           27

Total net revenues                        14,293,542               100        12,064,077               100         2,229,465           18
Cost of revenues                           5,672,335                40         6,468,832                54          (796,497 )        (12 )

Gross profit                               8,621,207                60         5,595,245                46         3,025,962           54
Operating expenses
Research and development (net of
reimbursement from related party:
$435,199 for the six months ended
June 30, 2012)                                    -                 -            712,750                 6          (712,750 )       (100 )
General and administrative                 4,780,157                33         4,474,681                37           305,476            7

Total operating expenses                   4,780,157                33         5,187,431                43          (407,274 )         (8 )

Income from operations                     3,841,050                27           407,814                 3         3,433,236          842
Interest income, net                          95,355                 1           122,745                 1           (27,390 )        (22 )
Change in fair value of stock
warrants                                      50,026                -          6,465,067                54        (6,415,041 )        (99 )
Other expense, net                           (82,362 )              (1 )         (95,747 )              (1 )          13,385           14

Income before income taxes                 3,904,069                27         6,899,879                57        (2,995,810 )        (43 )
Income tax provision                           5,550                -              2,676                -              2,874          107

Net income                              $  3,898,519                27 %    $  6,897,203                57 %    $ (2,998,684 )        (43 )%

Revenues



                                   Six Months Ended
                                       June 30,                     $             %
                                 2013             2012           Change        Change
      Net product revenues   $ 12,392,028     $ 10,480,461     $ 1,911,567          18 %
      Royalties                 1,813,706        1,514,588         299,118          20
      Other revenues               87,808           69,028          18,780          27

      Total net revenues     $ 14,293,542     $ 12,064,077     $ 2,229,465          18 %

Total net revenues in the six months ended June 30, 2013 were $14.3 million as compared to $12.1 million in the six months ended June 30, 2012. Net revenues include net product revenues (sales of Progesterone Products to Actavis and Merck Serono), royalty revenues (primarily royalty revenues from Actavis on sales of Progesterone Products), and other revenues.

Total net product revenues were $12.4 million in the six months ended June 30, 2013 as compared to $10.5 million in the six months ended June 30, 2012. This increase primarily reflects higher revenues over last year from Merck Serono offset by a decrease in sales from Actavis. Higher revenues from Merck Serono are a result of a 43% increase in volume from the 2012 period to the 2013 period, coupled with shipments to countries with higher net selling prices. There were no product revenues from Actavis in the six months ended June 30, 2013 as compared with $2.2 million in the six months ended June 30, 2012. In the six months ended June 30, 2013, a shift in the timing of batch orders contributed to a 51% increase in our net product revenues from Merck Serono as compared with the six months ended June 30, 2012. Due to this timing shift, we anticipate that product revenues from Merck Serono will be lower in the second half of the year than in the first half. We continue to expect ongoing year-over-year growth in net product revenues from Merck Serono.


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Royalty revenues were $1.8 million in the six months ended June 30, 2013 as compared with $1.5 million in the six months ended June 30, 2012 as a result of royalties on higher revenues from Actavis on Progesterone products sold by Actavis.

Cost of revenues

                                                             Six Months Ended
                                                                 June 30,                    $               %
                                                          2013             2012            Change          Change
Cost of revenues                                       $ 5,672,335      $ 6,468,832      $ (796,497 )           (12 )%
Cost of revenues (as a percentage of total revenues)            40 %             54 %

Total cost of revenues decreased $0.8 million, or 12%, to $5.7 million for the six months ended June 30, 2013, as compared to $6.5 million for the three months ended June 30, 2012. This decrease was primarily a result of the absence of product sales to Actavis during the six months ended June 30, 2013 as compared to $2.2 million of sales for the six months ended June 30, 2012, partially offset by increased revenues from Merck Serono. Total cost of revenues decreased as a percentage of total revenues to 40% for the six months ended June 30, 2013, from 54%, for the six months ended June 30, 2012, primarily due to a more favorable sales mix.

Research and development

                                              Six Months Ended
                                                  June 30,                       $                 %
                                          2013              2012               Change           Change
Research and development                $      -         $   712,750        $   (712,750 )         (100 )%
Research and development (as a
percentage of total revenues)                  -  %                6 %

There were no research and development expenses in the six months ended June 30, 2013, as compared to $0.7 million in the six months ended June 30, 2012. Research and development expenses in the six months ended June 30, 2012 included costs for product development, clinical development and regulatory fees, which were a combination of internal and third-party costs. There were no research and development expenses in the six months ended June 30, 2013 as we have eliminated our research and development activities. . . .

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