Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CBRX > SEC Filings for CBRX > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for COLUMBIA LABORATORIES INC

Form 10-Q for COLUMBIA LABORATORIES INC


2-May-2014

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 risks 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, Inc. and Merck Serono S.A. in their respective markets;

• The anticipated timing of future batch orders of CRINONE from our licensee, Merck Serono;

• Our ability to manufacture product for our licensee and our clinical trial manufacturing clients and deliver services with minimal difficulties and delays;

• The timely and successful renewal by Merck Serono of marketing licenses for CRINONE in major ex-U.S. markets;

• Our dependence on single source third-party manufacturers and suppliers;

• Our ability to retain current and attract new customers;

• Our ability to successfully and timely achieve development milestones under our services contracts;

• Our compliance with cGMP, cGCP and other governmental regulations applicable to our services, manufacturing facilities, and/or products;

• Our intellectual property portfolio;

• Our strategy of growing through acquisitions;

• Our ability to develop a portfolio of new therapeutic entities; and.

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

Because forward-looking statements relate to the future they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside our control. 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, 2013, 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 statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

Company Overview

We provide pharmaceutical development, clinical trial manufacturing, product supply, and advanced analytical and consulting services to the pharmaceutical industry.

Historically we have been in the business of developing, licensing, manufacturing and selling to our marketing partner's pharmaceutical products that utilize proprietary drug delivery technologies to treat various medical conditions.

To date we have developed six prescription and "over-the-counter" pharmaceutical 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 8% (progesterone gel). We have licensed CRINONE to Merck Serono, internationally, and sold the rights to CRINONE to Actavis, Inc. in the United States.

Presently, our focus is on:

• the supply of CRINONE to our marketing partner;

• the growth of our pharmaceutical development services; and

• building an in-house proprietary product pipeline of new therapeutic entities.


Table of Contents

Supply of CRINONE.

We manufacture and supply our internally developed product, CRINONE, to our marketing partner, Merck Serono. For the 2013 period, we sold CRINONE 8% to Merck Serono at a price determined on a country-by-country basis that is the greater of (i) cost plus 20%, or (ii) thirty percent (30%) of the net selling price in the country. Certain quantity discounts applied to annual purchases over 10 million, 20 million, and 30 million units.

In April 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 to May 2020.

Under the terms of this amendment, 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 be determined based on a tiered structure. As sales volumes increase, our percentage of incremental sales will decrease.

During the quarter ended March 31, 2014, we completed the transfer of operations and quality management of CRINONE to our Nottingham site, paving the way for savings of approximately $0.4 million.

Pharmaceutical Development Services:

We are expanding our pharmaceutical development and clinical trial manufacturing services and focusing on enabling technologies that facilitate processing of difficult-to-progress molecules. In April 2014, we completed a significant investment in GMP hot melt extrusion (HME) technology along with further milling equipment, enabling us to accelerate formulation development for our clients. Also, in April 2014, we expanded our distribution channels and added a U.S. sales resource.

In-house Proprietary Product Pipeline:

In March 2014, we completed our commercial and intellectual property assessment on COL-1077, extended-release lidocaine vaginal gel. Pending completion of our regulatory and clinical diligence of this potential product, we hope to advance COL-1077 to full development later this year with its target indication planned to be gynecological procedure related pain, a sizeable market opportunity with no approved products.

We generate revenues from the sale of products, services and certain royalties. During the three months ended March 31, 2014, we derived approximately 48% of our revenues from sales of our products, 37% of our revenues from the sale of our services and 15% of our revenues from royalties. During the three months ended March 31, 2013, we derived approximately 85% of our revenues from the sales of our products and 15% of our revenues from royalties and certain other revenues. Generally, we recognize revenue from the sale of our products upon shipment to our customers, revenues from services as the work is performed and revenues from royalties as sales are made by the licensees.

We expect that future recurring revenues will be derived from product sales to Merck Serono, royalty streams from Actavis and from pharmaceutical development, clinical trial manufacturing, and analytical and consulting services. 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 Merck Serono occur only in full batches, quarterly sales can vary widely and affect comparisons with prior periods and may not correlate to our customer's in-market sales. Likewise, our service revenues are driven by obtaining and retaining our customer contracts and may vary widely from quarter to quarter.

CRINONE is manufactured in Europe by third parties under contract on behalf of our foreign subsidiaries who sell the products to our worldwide licensees. We oversee CRINONE manufacturing and quality assurance and provide our pharmaceutical development, clinical trial manufacturing, and analytical and consulting services from our facility in Nottingham, U.K.


Table of Contents

Results of Operations

The following tables contain selected consolidated statement of operations
information, which serves as the basis of the discussion surrounding the results
of our operations for the three months ended March 31, 2014 and 2013:



                                                                     Three Months Ended
                                                                          March 31,
                                                            2014                            2013
                                                                 As a % of                       As a % of
                                                                   Total                           Total             $              %
(in thousands, except for percentages)            Amount         Revenues         Amount         Revenues          Change        Change
Product revenues                                  $ 3,461                48 %     $ 5,373                85 %     $ (1,912 )         (36 )%
Service revenues                                    2,710                37            -                 -           2,710           100
Royalties                                           1,077                15           886                14            191            22
Other revenues                                         -                 -             57                 1            (57 )        (100 )

Total revenues                                      7,248               100         6,316               100            932            15
Cost of product revenues                            2,426                33         2,842                45           (416 )         (15 )
Cost of service revenues                            1,846                25            -                 -           1,846           100

Total cost of revenues                              4,272                59         2,842                45          1,430            50
Gross profit                                        2,976                41         3,474                55           (498 )         (14 )
Operating expenses:
Sales and marketing                                   401                 6            -                 -             401           100
Acquisition related expenses                           -                 -            483                 8           (483 )        (100 )
General and administrative                          2,451                34         1,978                31            473            24

Total operating expenses                            2,852                39         2,461                39            391            16

Income from operations                                124                 2         1,013                16           (889 )         (88 )
Interest (expense) income, net                        (34 )              -             53                 1            (87 )        (164 )
Change in fair value of common stock warrant
liability                                             309                 4           205                 3            104            51
Other income (expense), net                            42                 1           (26 )              -              68          (262 )

Income before income taxes                            441                 6         1,245                20           (804 )         (65 )
Provision for income taxes                             12                -              3                -               9           300

Net income                                        $   429                 6 %     $ 1,242                20 %     $   (813 )         (65 )%


Table of Contents

Revenues



                                            Three Months Ended
                                                 March 31,               $             %
 (in thousands, except for percentages)      2014          2013        Change       Change
 Product revenues                         $    3,461      $ 5,373     $ (1,912 )        (36 )%
 Service revenues                              2,710           -         2,710          100
 Royalties                                     1,077          886          191           22
 Other revenues                                   -            57          (57 )       (100 )

 Total revenues                           $    7,248      $ 6,316     $    932           15 %

Revenues in the three months ended March 31, 2014 increased from the three months ended March 31, 2013 by $0.9 million, or 15%. The increase was attributable to a number of factors including the following:

• Revenues from the sale of products decreased by approximately $1.9 million, or 36%, from the 2013 period primarily due to the absence of CRINONE orders from one of Merck Serono's higher-volume markets during the three months ended March 31, 2014.

• Service revenues of $2.7 million in the 2014 period were from our pharmaceutical development, consulting and analytic services portfolio, which began in September 2013 with our acquisition of Molecular Profiles.

• Royalty revenues increased by $0.2 million, or 22%, for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to higher sales of progesterone products by Actavis in the 2014 period.

Cost of revenues

                                                 Three Months Ended
                                                      March 31,                   $              %
(in thousands, except for percentages)          2014             2013          Change          Change
Cost of product revenues                      $   2,426         $ 2,842        $  (416 )           (15 )%
Cost of service revenues                          1,846              -           1,846             100

Total cost of revenues                        $   4,272         $ 2,842        $ 1,430              50 %

Total cost of revenues (as a percentage
of total revenues)                                   59 %            45 %

Total cost of revenues was $4.3 million and $2.8 million for the three months ended March 31, 2014 and 2013, respectively. Cost of product revenues decreased due to lower product revenues in the 2014 period offset by lower volume shipped to higher margin markets in the 2013 period. Cost of service revenues consist mainly of personnel costs, external consultant fees, depreciation and materials used in connection with generating our service revenues.

Sales and marketing expenses

                                                 Three Months Ended
                                                      March 31,                    $              %
(in thousands, except for percentages)          2014              2013           Change         Change
Sales and marketing                           $     401          $    -         $    401            100 %
Sales and marketing (as a percentage of
total revenues)                                       6 %             -  %

Sales and marketing expenses generated during the three months ended March 31, 2014 are attributable to the sales and marketing activities associated with our services portfolio. These expenses consist of personnel costs for our sales force as well as marketing costs consisting of tradeshows and conference fees.


Table of Contents

Acquisition related expenses

                                                  Three Months Ended
                                                      March 31,                    $              %
(in thousands, except for percentages)         2014              2013            Change        Change
Acquisition related expenses                  $    -           $     483        $    483          (100 )%
Acquisition related expenses (as a
percentage of total revenues)                      -  %                8 %

There were no acquisition related expenses for the three months ended March 31, 2014. Acquisition related expenses for the three months ended March 31, 2013 related to a failed transaction in the first quarter of 2013.

General and administrative expenses

                                                  Three Months Ended
                                                       March 31,                   $              %
(in thousands, except for percentages)           2014             2014           Change        Change
General and administrative                     $   2,451         $ 1,978        $    473            24 %
General and administrative (as a
percentage of total revenues)                         34 %            31 %

Total general and administrative expenses increased by $0.5 million to $2.5 million for the three months ended March 31, 2014, compared with $2.0 million for the three months ended March 31, 2013. This increase is primarily due to administrative costs related to our facility in the United Kingdom, which we acquired in September 2013, in addition to legal expenses incurred with the restatement of our previously issued consolidated financial statements for the three and nine month periods ended September 30, 2013, and the Actavis share buyback each of which occurred in March 2014.

Non-operating income and expense

                                                  Three Months Ended
                                                      March 31,                   $               %
(in thousands, except for percentages)           2014             2013          Change         Change
Interest (expense) income, net                 $    (34 )        $   53        $    (87 )         (164 )%
Change in fair value of common stock
warrant liability                              $    309          $  205        $    104             51 %
Other income (expense), net                    $     42          $  (26 )      $     68           (262 )%

The decrease in interest (expense) income, net, primarily relates to interest paid in the 2014 period on the debt assumed in the Molecular Profiles acquisition, compared to the realized gain recognized on the sale of our marketable securities during the 2013 period. The debt assumed is a mortgage on our facilities in Nottingham, United Kingdom.


Table of Contents

The income of $0.3 million associated with the change in fair value of stock warrant liability for the three months ended March 31, 2014 is related to the October 2009 stock issuance and resulted from a stabilization of the volatility rate used in our Black-Scholes model as the warrants approach their expiration date. The change in fair value of stock warrant liability for the period ended March 31, 2013 resulted in $0.2 million in income associated with a decrease in our stock price during the three months ended March 31, 2013.

Other income (expense), net, for the three months ended March 31, 2014 increased primarily due to income associated with the Regional Growth Fund grant recognized in the 2014 period as compared to net foreign currency transaction losses related to the strengthening of the Euro and the British pound against the U.S. dollar in the 2013 period.

Provision for income taxes

                                                  Three Months Ended
                                                      March 31,                    $             %
(in thousands, except for percentages)         2014              2013           Change         Change
Provision for income taxes                    $    12          $       3        $     9            300 %
Provision for income taxes (as a
percentage of income before income taxes)           3 %              0.2 %

The difference in our effective tax rate between the three months ended March 31, 2014 and 2013 is primarily due to the taxable income generated in our foreign jurisdictions in the 2014 period as compared to state true-up adjustments in the 2013 period. The 2014 effective tax rate represents state minimum taxes owed and foreign tax expense calculated on the investment in a foreign subsidiary. All other items are offset by tax net operating loss carryforwards, which are offset by a full valuation allowance.

Liquidity and Capital Resources

We require cash to pay our operating expenses, fund working capital needs, make capital expenditures and fund acquisitions.

At March 31, 2014, our cash and cash equivalents were $12.2 million. Our cash and cash equivalents are highly liquid investments with original maturities of 90 days or less at date of purchase and consist of cash in operating accounts.

Prior to our March 7, 2014 stock buy back from Actavis, Actavis beneficially owned approximately 11.5% of our outstanding common stock. Immediately following the closing of the stock repurchase and as of March 31, 2014, Actavis did not own any of our outstanding common stock. We purchased the 1.4 million shares held by Actavis at a price of $6.08 per share, which represented a 10.75% discount to the market closing price on March 6, 2014. The total purchase price was approximately $8.5 million.

We assumed debt of $3.9 million in connection with our acquisition of Molecular Profiles. Molecular Profiles had entered into a Business Loan Agreement ("Loan Agreement") to fund the construction and completion of a second facility, which includes analytical labs, office space, and a manufacturing facility in the United Kingdom, covering three loan facilities with Lloyds TSB Bank ("Lloyds"), as administrative agent. Prior to the acquisition, Molecular Profiles had drawn down $3.9 million under the loan facilities and as of March 31, 2014 owes $4.0 million under the Loan Agreement due to foreign currency revaluation. The three loan facilities are each repayable in monthly installments, beginning in February 2013 for one of the facilities and in October 2013 for the other two facilities. Repayment under all three facilities are payable over a 15 year period from the date of drawdown. Two of the facilities bear interest at the Bank of England's base rate plus 1.95% and 2.55%, respectively. The interest rate at March 31, 2014 for these two facilities was 2.45% and 3.05%, respectively. The third facility is a fixed rate agreement bearing interest at 3.52% per annum. The weighted average interest rate for the three loan facilities for the three months ended March 31, 2014 was 3.00%. Borrowings under the Loan Agreement are secured by the mortgaged property and an unlimited lien on other assets of Molecular Profiles. The Loan Agreement contains financial covenants that limit the amount of indebtedness we may incur, requires us to maintain certain levels of net worth, and restricts our ability to materially alter the character of its business. We remain in compliance with all of the covenants under the Loan Agreement.

We assumed a $2.5 million obligation under a grant arrangement with the Regional Growth Fund on behalf of the Secretary of State for Business, Innovation, and Skills in the United Kingdom. Molecular Profiles used this grant to fund the building of its second facility. As a part of the arrangement, we are required to create and maintain certain full-time equivalent personnel levels through October 2017. As of March 31, 2014, we remain in compliance with the covenants of the arrangement.


Table of Contents

The income from the Regional Growth Fund will be recognized on a decelerated basis over the next four years. As of March 31, 2014, the obligation is valued at $2.5 million due to foreign currency revaluation and is recorded in deferred revenue on the consolidated balance sheets. The amount of other income on the obligation that will be recognized provided Molecular Profiles remains in compliance with the covenants will be the following (in thousands):

                           Year                 Total
                           Remainder of 2014   $   266
                           2015                    599
                           2016                    865
                           2017                    799

                           Total               $ 2,529

Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future service and product portfolios and the resources we devote to developing and supporting the same. Our capital expenditures increased for the three months ended March 31, 2014, as compared to the three months ended March 31, 2013, due primarily to investments of capital equipment made at our Nottingham, United Kingdom site and our contract manufacturer sites. We expect our capital expenditures to increase in the year ending December 31, 2014 as compared to the year ended December 31, 2013 primarily due to investments made at the Nottingham site.

As of March 31, 2014, we had 491,793 exercisable options, and 1,236,682 exercisable warrants outstanding that, if exercised, would result in approximately $18.6 million of additional capital and would cause the number of shares outstanding to increase; provided, however, that the cashless exercise feature of certain warrants will result in no cash to us. There can be no assurance that any such options or warrants will be exercised. There was no aggregate intrinsic value of exercisable options and warrants for the three months ended March 31, 2014 and 2013.

We believe that our current cash and cash equivalents, as well as cash generated from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future.

Cash Flows

Net cash provided by operating activities for the three months ended March 31, 2014 was $0.9 million and resulted primarily from $0.4 million of net income for the period, increased by approximately $0.6 million in depreciation and amortization and stock-based compensation expense and decreased by $0.3 million for the change in fair value of stock warrant liability. Net changes in working capital items increased cash from operating activities by approximately $0.1 million, primarily due to a decrease in accounts receivable of $0.9 million offset by decreases in accrued expenses and deferred revenue. Net cash used in investing activities was $0.8 million for the three months ended March 31, 2014, which resulted primarily from the purchase of property plant and equipment. Net . . .

  Add CBRX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CBRX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.