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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-10352

 

 

COLUMBIA LABORATORIES, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   59-2758596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4 Liberty Square

Boston, Massachusetts

  02109
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (617) 639-1500

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock as of October 27, 2014: 10,771,851.

 

 

 


Table of Contents

Columbia Laboratories, Inc.

Table of Contents

 

         Page  
Part I—Financial Information   
Item 1.  

Financial Statements (unaudited)

  
 

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

     3   
 

Consolidated Statements of Operations for the three and nine month periods ended September 30, 2014 and 2013

     4   
 

Consolidated Statements of Comprehensive Income for the three and nine month periods ended September  30, 2014 and 2013

     5   
 

Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2014 and 2013

     6   
 

Notes to Consolidated Financial Statements (unaudited)

     7   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     15   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     26   
Item 4.  

Controls and Procedures

     26   
Part II—Other Information   
Item 1.  

Legal Proceedings

     27   
Item 1A.  

Risk Factors

     27   
Item 6.  

Exhibits

     28   

Signatures

     29   

 

2


Table of Contents

Columbia Laboratories, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

 

     September 30,
2014
    December 31,
2013
 
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 16,397      $ 20,715   

Accounts receivable, net

     5,252        7,197   

Amounts due from related parties

     —         900   

Inventories

     2,857        2,584   

Prepaid expenses and other current assets

     1,328        831   
  

 

 

   

 

 

 

Total current assets

     25,834        32,227   

Property and equipment, net

     13,482        13,226   

Intangible assets, net

     2,418        2,828   

Goodwill

     10,982        11,152   

Deferred tax assets

     917        570   

Other assets

     89        89   
  

 

 

   

 

 

 

Total assets

   $ 53,722      $ 60,092   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 1,134      $ 2,805   

Accrued expenses

     2,891        2,488   

Deferred revenue

     904        754   

Notes payable

     252        250   
  

 

 

   

 

 

 

Total current liabilities

     5,181        6,297   

Deferred revenue, net of current portion

     1,818        2,243   

Notes payable, net of current portion

     3,503        3,745   

Common stock warrant liability

     —          379   
  

 

 

   

 

 

 

Total liabilities

     10,502        12,664   
  

 

 

   

 

 

 

Commitments and contingencies

    

Contingently redeemable series C preferred stock, 0.55 shares issued and outstanding (liquidation preference of $550)

     550        550   
  

 

 

   

 

 

 

Shareholders’ equity:

    

Preferred stock, $0.01 par value; 1,000 shares authorized Series B convertible preferred stock, 0.13 shares issued and outstanding (liquidation preference of $13)

     —         —    

Common stock $0.01 par value; 150,000 shares authorized; 12,183 issued and 10,772 outstanding at September 30, 2014 and 12,152 shares issued and outstanding at December 31, 2013

     122        122   

Additional paid-in capital

     287,501        287,048   

Treasury stock (at cost), 1,411 shares at September 30, 2014

     (8,579     —    

Accumulated deficit

     (237,370     (241,662

Accumulated other comprehensive income

     996        1,370   
  

 

 

   

 

 

 

Total shareholders’ equity

     42,670        46,878   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 53,722      $ 60,092   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

Columbia Laboratories, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

    

Three Months Ended

September 30,

    

Nine Months Ended

September 30,

 
     2014     2013      2014     2013  

Revenues

         

Product revenues

   $ 5,905      $ 5,456       $ 12,707      $ 17,848   

Product revenues from related party

     —         —          167        —    

Service revenues

     2,304        644        7,327        644  

Royalties

     3,254        107         4,653        284   

Royalties from related party

     —         888         714        2,524   

Other revenues

     —         31         —         119   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total net revenues

     11,463        7,126         25,568        21,419   

Cost of product revenues

     3,383        2,748         7,762        8,420   

Cost of service revenues

     1,717        491        5,479        491  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total cost of revenues

     5,100        3,239         13,241        8,911   

Gross profit

     6,363        3,887         12,327        12,508   

Operating expenses

         

Sales and marketing

     467        79        1,335        79  

Acquisition-related expenses

     —         947         —         1,440   

Research and development

     236       —          312        —    

General and administrative

     2,148        1,594         6,762        5,881   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     2,851        2,620         8,409        7,400   

Income from operations

     3,512        1,267         3,918        5,108   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest (expense) income, net

     (29     1         (92     96   

Change in fair value of common stock warrant liability

     1        428         380        478   

Other income (expense), net

     76        25         154        (57
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-operating income

     48        454         442        517   

Income before income taxes

     3,560        1,721         4,360        5,625   

(Benefit from) provision for income taxes

     (110     3         68        8   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income

   $ 3,670      $ 1,718       $ 4,292      $ 5,617   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic net income per common share

   $ 0.34      $ 0.15       $ 0.38      $ 0.51   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted net income per common share

   $ 0.34      $ 0.11       $ 0.34      $ 0.46   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic weighted average common shares outstanding

     10,749        11,138         11,339        10,994   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     10,758        11,293         11,355        11,148   
  

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

Columbia Laboratories, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014     2013      2014     2013  

Net income

   $ 3,670      $ 1,718       $ 4,292      $ 5,617   

Other comprehensive income (loss) components:

         

Foreign currency translation

     (1,191     638         (374     635   

Unrealized loss on short term investments

     —         —           —         (80

Reclassification adjustment for gains included in net income

     —         —           —         (17
  

 

 

   

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     (1,191     638         (374     538   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 2,479      $ 2,356       $ 3,918      $ 6,155   
  

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

Columbia Laboratories, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     Nine Months Ended
September 30,
 
     2014     2013  

Operating activities:

    

Net income

   $ 4,292      $ 5,617   

Reconciliation of net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,464        376   

Change in fair value of common stock warrant liability

     (380     (478

Provision for sales returns

     —         (26

Stock-based compensation expense

     457        338   

Deferred income taxes

     (354     —    

Gain on short-term investments

     —         (17

Loss on disposal of fixed assets

     —         37   

Changes in operating assets and liabilities:

    

Accounts receivable

     1,888        (2,026

Due from related party

     900        1,294   

Inventories

     (273     635   

Prepaid expenses and other current assets

     (510     (547

Other non-current assets

     —         (86

Accounts payable

     (1,672     95   

Accrued expenses

     364        (137

Deferred revenue

     (236     (160
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,940        4,915   

Investing activities:

    

Purchases of property and equipment

     (1,542     (247

Cash paid for acquisition, net of cash received

     —          (14,516

Proceeds from the sale of short-term investments

     —         15,354   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (1,542     591   

Financing activities:

    

Proceeds from exercise of common stock options

     17        10  

Purchase of treasury stock

     (8,509     —    

Principal payments on notes payable

     (184     (7

Dividends paid

     (21     (21
  

 

 

   

 

 

 

Net cash used in financing activities

     (8,697     (18

Effect of exchange rate changes on cash and cash equivalents

     (19     125   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (4,318     5,613   

Cash and cash equivalents, beginning of period

     20,715        13,204   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 16,397      $ 18,817   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for interest

   $ 93      $ 5  
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 3      $ 3   
  

 

 

   

 

 

 

Supplemental noncash financing activities

    

Common stock issued in connection with the acquisition of Molecular Profiles

   $ —        $ 8,106   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


Table of Contents

Columbia Laboratories, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(1) Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Columbia Laboratories, Inc. (“Columbia” or the “Company”) for the year ended December 31, 2013 filed with the SEC on March 5, 2014. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the consolidated financial information for the interim periods reported have been made. Results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results for the year ending December 31, 2014 or any period thereafter.

Reclassifications

For comparability purposes, certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period’s presentation within the consolidated statements of operations.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures at the date of the financial statements during the reporting period. Significant estimates are used for, but are not limited to revenue recognition, sales return reserves, allowance for doubtful accounts, inventory reserve, impairment analysis of goodwill and intangibles including their useful lives, deferred tax assets, liabilities and valuation allowances, common stock warrant valuations, and fair value of stock options. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates.

(2) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Components of inventory cost include materials, labor and manufacturing overhead. Inventories consist of the following (in thousands):

 

     September 30,
2014
     December 31,
2013
 

Raw materials

   $ 480       $ 771   

Work in process

     1,677         775   

Finished goods

     700         1,038   
  

 

 

    

 

 

 

Total

   $ 2,857       $ 2,584   
  

 

 

    

 

 

 

 

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Table of Contents

(3) Goodwill and Intangible Assets

Changes to goodwill during the nine months ended September 30, 2014 were as follows (in thousands):

 

     Total  

Balance—December 31, 2013

   $ 11,152   

Effects of foreign currency translation

     (170
  

 

 

 

Balance—September 30, 2014

   $ 10,982   
  

 

 

 

Intangible assets consist of the following at September 30, 2014 and December 31, 2013 (in thousands):

 

     Trademark     Developed
Technology
    Customer
Relationships
    Total  

Gross carrying amount—September 30, 2014

   $ 300      $ 1,370      $ 1,240      $ 2,910   

Translation adjustment

     9        41        37        87   

Accumulated amortization

     (107     (282     (190     (579
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance—September 30, 2014

   $ 202      $ 1,129      $ 1,087      $ 2,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Trademark     Developed
Technology
    Customer
Relationships
    Total  

Gross carrying amount—December 31, 2013

   $ 300      $ 1,370      $ 1,240      $ 2,910   

Translation adjustment

     13        62        56        131   

Accumulated amortization

     (36     (91     (86     (213
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance—December 31, 2013

   $ 277      $ 1,341      $ 1,210      $ 2,828   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization expense related to the developed technology is classified as a component of cost of service revenues in the accompanying consolidated statements of operations. Amortization expense related to trademark and customer relationships is classified as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Amortization expense for the three months ended September 30, 2014 was $0.1 million. Amortization expense for the nine months ended September 30, 2014 was $0.4 million. There was no amortization expense for the three and nine months ended September 30, 2013. As of September 30, 2014, amortization expense on existing intangible assets for the next five years and beyond is as follows (in thousands):

 

Year ending December 31,

   Total  

Remainder of 2014

   $ 137   

2015

     527   

2016

     478   

2017

     380   

2018

     348   

2019 and thereafter

     548   
  

 

 

 

Total

   $ 2,418   
  

 

 

 

(4) Debt and other Contractual Obligations

In September 2013, Columbia assumed debt of $3.9 million in connection with its acquisition of Molecular Profiles. Molecular Profiles had entered into a Business Loan Agreement (“Loan Agreement”) covering three loan facilities with Lloyds TSB Bank (“Lloyds”), as administrative agent, to fund the construction and expansion of the facility, which includes analytical labs, office space, and a manufacturing facility in the United Kingdom. Prior to the acquisition, Molecular Profiles had drawn down $3.9 million under the loan facilities and as of September 30, 2014 owes $3.8 million under the Loan Agreement. The three loan facilities are each repayable in monthly installments, that began in February 2013 for one of the facilities and in October 2013 for the other two facilities. Repayment of the three facilities is scheduled to occur 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 September 30, 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 and nine months ended September 30, 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 the Company may incur, requires the Company to maintain certain levels of net worth, and restricts the Company’s ability to materially alter the character of its business. As of September 30, 2014, the Company is in compliance with all of the covenants under the Loan Agreement.

 

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Table of Contents

Columbia 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 expansion of its facility. As part of the arrangement, the Company is required to create and maintain certain full-time equivalent personnel levels through October 2017. As of September 30, 2014, the Company is in compliance with the covenants of the arrangement.

The Regional Growth Fund obligation is recognized in the other income (expense), net line item in the consolidated statement of operations and is recognized on a decelerated basis over the obligation period through October 2017. As of September 30, 2014, the obligation is valued at $2.3 million and is recorded as deferred revenue on the consolidated balance sheets. The amount of other income on the obligation that will be recognized provided the Company remains in compliance with the covenants will be the following (in thousands):

 

Year

   Total  

Remainder of 2014

   $ 130   

2015

     585   

2016

     844   

2017

     779   
  

 

 

 

Total

   $ 2,338   
  

 

 

 

(5) Geographic Information and Concentrations

The Company and its subsidiaries are engaged in one line of business: providing pharmaceutical development, clinical trial manufacturing, and advanced analytical and consulting services to the pharmaceutical industry, developing new product candidates and the manufacture and supply of CRINONE® (progesterone gel) to its licensee, Merck Serono. The Company has consolidated and runs all of its operational functions from one location in Nottingham, United Kingdom. The Company owns certain plant and equipment physically located at third party contractor facilities in the United Kingdom and Switzerland. The Company’s largest customer, Merck Serono, utilizes a Switzerland-based subsidiary to acquire product from us, which it then sells throughout the world excluding the United States.

The following tables show selected information by geographic area (in thousands):

Revenues:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

United States

   $ 4,428       $ 1,026       $ 9,074       $ 2,928   

Switzerland

     6,039         5,456         13,112         17,822   

Other countries

     996         644        3,382         669   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,463       $ 7,126       $ 25,568       $ 21,419   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets:

 

     September 30,
2014
     December 31,
2013
 

United States

   $ 17,251       $ 20,278   

Switzerland

     757         3,063   

United Kingdom

     35,529         36,487   

Other countries

     185         264   
  

 

 

    

 

 

 

Total

   $ 53,722       $ 60,092   
  

 

 

    

 

 

 

 

9


Table of Contents

Long-lived assets:

 

     September 30,
2014
     December 31,
2013
 

United States

   $ 254       $ 306   

Switzerland

     7         22   

United Kingdom

     13,308         12,987   

Other countries

     2         —    
  

 

 

    

 

 

 

Total

   $ 13,571       $ 13,315   
  

 

 

    

 

 

 

No other individual country represented greater than 10% of total revenues, total assets, or total long-lived assets for any period presented.

For the three months ended September 30, 2014 and 2013, Merck Serono, Lil’ Drug Store Products, Inc. (“Lil’ Drug Store”) and Actavis, Inc. (“Actavis”) accounted for 52%, 19% and 9%, and 77%, 2% and 12% of net revenues, respectively. For the nine months ended September 30, 2014, Merck Serono, and Actavis accounted for 49% and 13%, respectively, and for the nine months ended September 30, 2013, Merck Serono and Actavis accounted for 83% and 12% of net revenues, respectively. No additional customers accounted for 10% or more of total revenues for the three or nine months ended September 30, 2014 and 2013.

(6) Property and Equipment

Property and equipment consists of the following (in thousands):

 

     Estimated
Useful Life
(Years)
   September 30, 2014
Cost
    December 31, 2013
Cost
 

Machinery and equipment

   3-10    $ 5,212      $ 4,288   

Furniture and fixtures

   3-5      1,019        1,010   

Computer equipment and software

   3      186        183   

Buildings and leasehold improvements

   Up to 39      9,469        9,616   

Land

   Indefinite      617        627   

Construction in-process

        642        104   
     

 

 

   

 

 

 
        17,145        15,828   

Less: Accumulated depreciation

        (3,663     (2,602
     

 

 

   

 

 

 

Total

      $ 13,482      $ 13,226   
     

 

 

   

 

 

 

Depreciation expense for the three months ended September 30, 2014 and 2013 was $0.4 million and $0.2 million, respectively. Depreciation expense for the nine months ended September 30, 2014 and 2013 was $1.1 million and $0.4 million, respectively.

(7) Sales Returns Reserves

Currently there is no sales returns reserve as the return rights obligation has elapsed for all products for which Columbia provided a right of return. Products sold to Merck Serono and Actavis are not returnable to Columbia nor is Columbia responsible for returns to Merck Serono on international product sales. A sales return reserve previously existed for Columbia’s historic return policy which allowed product to be returned for a period beginning three months prior to the product expiration date and ending twelve months after the product expiration date. Columbia was only responsible for sales returns for CRINONE and PROCHIEVE products sold to domestic customers prior to the Actavis transaction in July 2010, and for STRIANT sold prior to the sale of STRIANT® (testosterone buccal system) to Auxilium Pharmaceuticals LLC (“Auxilium”) in April 2011.

 

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An analysis of the reserve for sales returns at September 30, 2014 is as follows (in thousands):

 

     Total  

Balance—December 31, 2013

   $ 138   

Provision:

  

Related to current period sales

     —    

Related to prior period sales

     (136
  

 

 

 
     2   
  

 

 

 

Returns:

  

Related to current period sales

     —    

Related to prior period sales

     (2
  

 

 

 
     (2
  

 

 

 

Balance—September 30, 2014

   $ —    
  

 

 

 

(8) Net Income Per Common Share

The calculation of basic and diluted income per common and common equivalent share is as follows (in thousands except for per share data):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  

Basic income per common share

        

Net income

   $ 3,670      $ 1,718      $ 4,292      $ 5,617   

Less: Preferred stock dividends

     (7     (7     (21     (21
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income applicable to common stock

   $ 3,663      $ 1,711      $ 4,271      $ 5,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average number of common shares outstanding

     10,749        11,138        11,339        10,994   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per common share

   $ 0.34      $ 0.15      $ 0.38      $ 0.51   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income per common share

        

Net income applicable to common stock

   $ 3,663      $ 1,711      $ 4,271      $ 5,596   

Add: Preferred stock dividends

     7        7        21        21   

Less: Fair value of stock warrants for dilutive warrants

     (1     (428 )     (380     (478
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income applicable to dilutive common stock

   $ 3,669      $ 1,290      $ 3,912      $ 5,139   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average number of common shares outstanding

     10,749        11,138        11,339        10,994   

Effect of dilutive securities

        

Dilutive stock awards

     —         13        —         12   

Dilutive preferred share conversions

     9        142        16        142   
  

 

 

   

 

 

   

 

 

   

 

 

 
     9        155        16        154   

Diluted weighted average number of common shares outstanding

     10,758        11,293        11,355        11,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per common share

   $ 0.34      $ 0.11      $ 0.34      $ 0.46   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per common share is computed by dividing the net income, less preferred dividends by the weighted-average number of shares of common stock outstanding during a period. The diluted earnings per common share calculation gives effect to dilutive options, warrants, convertible notes, convertible preferred stock, and other potential dilutive common stock including selected restricted shares of common stock outstanding during the period. Diluted income per share is based on the treasury stock method and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options, assuming the exercise of all in-the-money stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive.

Shares to be issued upon the exercise of the outstanding options and warrants, convertible preferred stock and selected restricted shares of common stock excluded from the income per share calculation amounted to 1.8 million and 1.6 million in each of the three month periods ended September 30, 2014 and 2013, respectively, because the awards were anti-dilutive. Shares to be issued upon the exercise of the outstanding options and warrants, convertible preferred stock and selected restricted shares of common stock excluded from the income per share calculation amounted to 1.8 million and 1.6 million in each of the nine month periods ended September 30, 2014 and 2013, respectively, because the awards were anti-dilutive.

 

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(9) Accumulated Other Comprehensive Income

Changes to accumulated other comprehensive income during the nine months ended September 30, 2014 were as follows (in thousands):

 

    Translation
Adjustment
    Accumulated Other
Comprehensive
Income
 

Balance—December 31, 2013

  $ 1,370      $ 1,370   

Current period other comprehensive income

    (374     (374
 

 

 

   

 

 

 

Balance—September 30, 2014

  $ 996      $ 996   
 

 

 

   

 

 

 

(10) Stock-Based Compensation

Columbia recorded stock-based compensation expense of $0.1 million for both three month periods ended September 30, 2014 and 2013. Stock-based compensation expense for the nine months ended September 30, 2014 and 2013 was $0.5 million and $0.3 million, respectively.

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individuals holding the respective options as follows (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

Cost of revenues

   $ 15       $ 5       $ 28       $ 10   

Sales and marketing

     13         —          29         —    

General and administrative

     83         60         400         328   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 111       $ 65       $ 457       $ 338   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash received from option exercises for the nine months ended September 30, 2014 and 2013 was $17,000 and $10,000, respectively.

Columbia granted 222,000 and 88,750 stock options during the nine months ended September 30, 2014 and 2013, respectively.

The Company uses the Black-Scholes option pricing model to determine the estimated grant date fair values for stock-based awards. The weighted-average grant date fair values of the options granted during the nine months ended September 30, 2014 and 2013 were $4.51 and $3.52, respectively, using the following assumptions:

 

     Nine Months Ended
September 30,
     2014     2013

Risk free interest rate

     1.64   0.71%-0.76%

Expected term

     4.75 years      4.75 years

Dividend yield

     —       —  

Expected volatility

     81.36   96.52%-97.02%

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Columbia’s estimated expected stock price volatility is based on its own historical volatility. Columbia’s expected term of options granted during the nine months ended September 30, 2014 and 2013 was derived using the simplified method. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

As of September 30, 2014, the total unrecognized compensation cost related to outstanding stock options and restricted stock awards expected to vest was $1.1 million, which the Company expects to recognize over a weighted-average period of 2.94 years.

 

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(11) Legal Proceedings

Claims and lawsuits are filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company believes that it has adequate reserves or adequate insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance coverage in the event of any unfavorable outcome resulting from these actions.

Between February 1, 2012 and February 6, 2012, two putative securities class action complaints were filed against Columbia and certain of its officers and directors in the United States District Court for the District of New Jersey. These actions were filed under the captions Wright v. Columbia Laboratories, Inc., et al., and Shu v. Columbia Laboratories, Inc., et al. and asserted claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”) and Rule 10b-5 promulgated under the Exchange Act on behalf of an alleged class of purchasers of the common stock during the period from December 6, 2010 through January 20, 2012. Both actions were consolidated into a single proceeding entitled In re Columbia Laboratories, Inc., Securities Litigation, under which Actavis and three of its officers have been added as defendants. The Consolidated Amended Complaint alleged that Columbia and two of its officers, one of whom is a director, omitted to state material facts that they were under a duty to disclose, and made materially false and misleading statements that related to the results of Columbia’s PREGNANT study and the likelihood of approval by the U.S. Food and Drug Administration (“FDA”) of a New Drug Application (“NDA”) to market progesterone vaginal gel 8% for the prevention of preterm birth in women with premature cervical shortening. According to the amended complaint, these alleged omissions and misleading statements had the effect of artificially inflating the market price of the common stock. The plaintiffs sought unspecified damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. On June 11, 2013, the Court dismissed the amended complaint for failure to state a claim upon which relief could be granted, holding that the plaintiffs did not adequately plead facts supporting an inference of an intent to deceive investors. The Court permitted the plaintiffs to file a second amended complaint, which they did on July 11, 2013. Columbia moved to dismiss the second amended complaint, which the court did on October 21, 2013. The Court ruled that changes the plaintiffs made to their first amended complaint “still do not create a strong inference that the Defendants acted with an intent to deceive, manipulate or defraud.” The Court ordered that if the plaintiffs sought to attempt to plead a cognizable action in a third amended complaint, they must do so within thirty days and specifically address why the attempt would not be futile. The plaintiffs chose not to file any further amendments and the case was dismissed with prejudice on December 2, 2013. On December 20, 2013, the plaintiffs appealed the dismissal to the United States Court of Appeals for the Third Circuit. Briefing of the appeal is complete, and the Court has scheduled an oral argument in December 2014. Columbia believes that the appealed action is without merit, and intends to defend it vigorously. At this time, it is not possible to determine the likely outcome of, or to estimate the potential liability related to this action, and Columbia has not made any provision for losses in connection with it.

(12) Fair Value of Financial Instruments

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of cash and cash equivalents are classified as Level 1 at September 30, 2014 and December 31, 2013.

The estimated fair value of the common stock warrant liability resulting from the October 2009 registered direct offering of 1,362,500 shares of common stock and warrants to purchase 681,275 shares of common stock was $0.4 million as of December 31, 2013. There was no value associated with the common stock warrant liability as of September 30, 2014. The value as of December 31, 2013 was determined by using the Black-Scholes option pricing model, which is based on the Company’s stock price at measurement date, exercise price of the common stock warrants, risk-free interest rate and historical volatility, and are classified as a Level 2 measurement. During the three months ended September 30, 2014 and 2013, the Company recorded income of $1,000 and $0.4 million, respectively, to adjust the value of the common stock warrant liability to fair value. During the nine months ended September 30, 2014 and 2013, the Company recorded income of $0.4 million and $0.5 million, respectively, to adjust the value of the common stock warrant liability to fair value.

 

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The fair values of accounts receivable and accounts payable approximate their respective carrying amounts. The Company’s long-term debt is carried at amortized face value, which approximates fair value based on current market pricing of similar debt instruments and is categorized as a Level 2 measurement.

(13) Related Party Transactions

On March 7, 2014 the Company acquired all of its common stock beneficially owned by Actavis, which represented approximately 11.5% of the Company’s outstanding common stock. Immediately following the closing of the stock repurchase and as of September 30, 2014, Actavis did not own any of the Company’s outstanding common stock. Columbia 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.

Pursuant to its Purchase and Collaboration Agreement with Actavis, Columbia receives royalties equal to a minimum of 10% of annual net sales of CRINONE 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. Actavis also purchased for $0.2 million the remaining raw materials Columbia had on hand in the nine months ended September 30, 2014.

The table below presents the transactions between the Company and Actavis during the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2014 (prior to the time Actavis ceased to be a related party) and the nine months ended September 30, 2013 (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

Revenues

           

Product revenues

   $ —        $ —        $ 167       $ —    

Royalties

     —          888         714         2,524   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ —        $ 888       $ 881       $ 2,524   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2014 any amounts due from Actavis are now classified as a component of accounts receivable, net on the consolidated balance sheet. At December 31, 2013, amounts due from Actavis for these sales were $0.9 million. There were no amounts due to Actavis at September 30, 2014 and December 31, 2013.

(14) Income Taxes

During the three months ended September 30, 2014 Columbia recorded an income tax benefit of $0.1 million representing an effective tax rate of (3%). During the three months ended September 30, 2013, Columbia recorded income tax expense of $3,000, representing an effective tax rate of 0.2%. During the nine months ended September 30, 2014 and 2013, Columbia recorded income tax expense of $0.1 million and $8,000, respectively, representing an effective tax rate of 2% and 0.1%, respectively. The income tax provision for the three months ended September 30, 2014 is primarily attributable to a benefit recorded due to taxable losses generated in foreign jurisdictions. The income tax provision for the nine months ended September 30, 2014 is primarily attributable to a one-time clawback provision under a New Jersey Economic Development Authority program relating to the sale of the Company’s state net operating losses, offset partially by a benefit recorded due to taxable losses generated in foreign jurisdictions.

Columbia files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Columbia is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2012. Additionally, with few exceptions, Columbia is no longer subject to U.S. state tax examinations for years prior to 2009.

(15) Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers: Topic 606” (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

 

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ASU 2014-09 is effective for us in our first quarter of fiscal 2017 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements.

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 information that may constitute forward-looking statements. Generally, forward-looking statements can be identified by words such as “may,” “will,” “plan,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “should,” “estimate,” “predict,” “project,” “would,” and similar expressions, which are generally not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future—including statements relating to our future operating or financial performance or events, our strategy, goals, plans and projections regarding our financial position, our liquidity and capital resources, and our product development—are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain known and unknown risks, uncertainties and factors that may cause actual results to differ materially from our Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2013, those described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”).

You should read this Quarterly Report and the documents that we have filed as exhibits to this 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 partners 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 solutions for infertility, pregnancy support, amenorrhea, and other women’s health conditions, and a testosterone bioadhesive buccal system for male hypogonadism. Currently, our only product is CRINONE 8% (progesterone gel). We have licensed CRINONE to Merck Serono, internationally, and sold the rights to CRINONE to Actavis in the United States, (“U.S.”).

Presently, our focus is on the following objectives:

 

    supplying CRINONE to our marketing partner, Merck Serono;

 

    growing our pharmaceutical development service offerings; and

 

    progressing an extended-release lidocaine vaginal gel program;

We believe we will be able to generate sufficient cash from operations to execute on our objectives and maintain our strong balance sheet.

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 was 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.

 

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Under the terms of this amendment, we will 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.

CRINONE is manufactured in Europe by third parties under contract on behalf of our foreign subsidiaries who sell the products to Merck Serono. Earlier this year, we completed the transfer of operations and quality management of CRINONE to our Nottingham site, resulting in annual savings of approximately $0.4 million in manufacturing costs.

During the nine months ended September 30, 2013, Merck Serono built up inventory ahead of a routine license renewal in one of their higher-volume markets. As a result, product sales in the 2013 period were higher than in the 2014 period. In September 2014, this license renewal for CRINONE was completed for a 5 year term. We expect normalized shipments to resume into this market by the end of 2014 and beyond which will result in an expansion of product sales and a return to year-over-year growth.

Pharmaceutical Development Services:

We are expanding our pharmaceutical development service offerings inclusive of clinical trial manufacturing services and focusing on enabling technologies that facilitate processing of difficult-to-progress molecules. We also are continuing to seek opportunities to expand our presence in the U.S. market.

 

    In April 2014, we completed the purchase of hot melt extrusion (HME) technology along with further milling equipment, enabling us to accelerate formulation development for our clients.

 

    In October 2014, we unveiled the ROADMAP to Clinical Trial Platform which provides our clients a streamlined pathway to clinic. This new enabling technology screening platform aims to support companies with the rapid development of both standard and complex drug products.

Development of Lidocaine Vaginal Gel Program:

Earlier this year, we completed our commercial and intellectual property assessment on COL-1077, extended-release lidocaine vaginal gel. The target indication is the prevention of gynecological procedure related pain. We are leveraging the technical capabilities of our Nottingham site to advance our extended-release lidocaine vaginal gel development program.

Sources of Revenue:

We generate revenues from the sale of products, services and certain royalties. Included in the results for the three and nine months ended September 30, 2014, there was a one-time benefit of $2.2 million from the sale of intellectual property rights and technology for Legatrin P.M. During the three months ended September 30, 2014, we derived approximately 52% of our revenues from sales of our products, 20% of our revenues from the sale of our services and 28% of our revenues from royalties. During the three months ended September 30, 2013, we derived approximately 77% of our revenues from sales of our products, 9% of our revenues from the sale of our services and 14% of our revenues from royalties. During the nine months ended September 30, 2014, we derived approximately 50% of our revenues from sales of our products, 29% of our revenues from the sale of our services and 21% of our revenues from royalties. During the nine months ended September 30, 2013, we derived approximately 83% of our revenues from sales of our products, 3% of our revenues from the sale of our services and 14% of our revenues from royalties. 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, a royalty stream from Actavis and from offering pharmaceutical development, clinical trial manufacturing, and analytical and consulting services. Revenue results are difficult to predict, 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 Merck Serono’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.

 

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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 September 30, 2014 and 2013:

 

    Three Months Ended
September 30,
             
    2014     2013              
(in thousands, except for percentages)   Amount     As a % of
Total
Revenues
    Amount     As a % of
Total
Revenues
    $
Change
    %
Change
 

Product revenues

  $ 5,905        52   $ 5,456        77   $ 449        8

Service revenues

    2,304        20        644       9       1,660        258   

Royalties

    3,254        28        995        14        2,259        227   

Other revenues

    —         —          31        —         (31     (100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    11,463        100        7,126        100        4,337        61   

Cost of product revenues

    3,383        30        2,748        39        635        23   

Cost of service revenues

    1,717        15        491       7       1,226        250   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    5,100        44        3,239        45        1,861        57   

Gross profit

    6,363        56        3,887        55        2,476        64   

Operating expenses:

           

Sales and marketing

    467        4        79       1       388        491   

Acquisition related expenses

    —         —         947        13       (947     (100

Research and development

    236       2       —         —         236        100   

General and administrative

    2,148        19        1,594        22        554        35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    2,851        25        2,620        37        231        9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    3,512        31        1,267        18        2,245        177   

Interest (expense) income, net

    (29     —         1        —          (30     (3,000

Change in fair value of common stock warrant liability

    1        —          428        6        (427     (100

Other income, net

    76        1        25        —          51        204   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    3,560        31        1,721        24        1,839        107   

(Benefit from) provision for income taxes

    (110     (1     3        —         (113     (3,767
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 3,670        32   $ 1,718        24   $ 1,952        114
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

 

     Three Months Ended
September 30,
     $
Change
    %
Change
 
(in thousands, except for percentages)    2014      2013       

Product revenues

   $ 5,905       $ 5,456       $ 449        8

Service revenues

     2,304         644        1,660        258   

Royalties

     3,254         995         2,259        227   

Other revenues

     —          31         (31     (100
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

   $ 11,463       $ 7,126       $ 4,337        61
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenues in the three months ended September 30, 2014 increased by $4.3 million, or 61%, from the three months ended September 30, 2013. The increase was attributable to a number of factors including the following:

 

    Revenues from the sale of products increased by approximately $0.4 million, or 8%, from the 2013 period primarily due to a 20% increase in units shipped, partially offset with a less favorable mix of product sold;

 

    Service revenues increased $1.7 million in the 2014 period from our pharmaceutical development, consulting and analytic service offerings, which began September 12, 2013 with our acquisition of Molecular Profiles, resulting in only 18 days of service revenues in the 2013 period; and

 

    Royalty revenues increased by $2.3 million, or 227%, primarily due to the one-time benefit of $2.2 million from the sale of intellectual property rights and technology for Legatrin P.M. and higher sales of progesterone products by Actavis for the three months ended September 30, 2014 as compared to the three months ended September 30, 2013. Due to the sale of the intellectual property rights of Legatrin P.M., we no longer expect any further revenues under this royalty stream.

 

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Table of Contents

Cost of revenues

 

     Three Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Cost of product revenues

   $ 3,383      $ 2,748      $ 635         23

Cost of service revenues

     1,717        491       1,226         250   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

   $ 5,100      $ 3,239      $ 1,861         57
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues (as a percentage of total revenues)

     44     45     

Total cost of revenues was $5.1 million and $3.2 million for the three months ended September 30, 2014 and 2013, respectively. Cost of product revenues increased due to a 20% increase of units shipped in the 2014 period as well as a less favorable mix of sales. Cost of service revenues consist mainly of personnel costs, external consultant fees, depreciation and materials used in connection with generating our service revenues from our acquisition of Molecular Profiles which was acquired in September 2013.

Sales and marketing expenses

 

     Three Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Sales and marketing

   $ 467      $ 79     $ 388         491

Sales and marketing (as a percentage of total revenues)

     4     1     

Sales and marketing expenses generated during the three months ended September 30, 2014 are attributable to the sales and marketing activities associated with our service offerings, which we acquired in September 2013 with our acquisition of Molecular Profiles. These expenses consist of personnel costs for our sales force as well as marketing costs consisting of tradeshows and conference fees.

Acquisition-related expenses

 

     Three Months Ended
September 30,
    $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013      

Acquisition-related expenses

   $ —       $ 947      $ (947     (100 )% 

Acquisition-related expenses (as a percentage of total revenues)

     —       13    

There were no acquisition-related expenses for the three months ended September 30, 2014. Acquisition-related expenses for the three months ended September 30, 2013 primarily related to legal fees, accounting services and other transaction costs for the acquisition of Molecular Profiles.

Research and development

 

     Three Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Research and development

   $ 236     $ —        $ 236         100

Research and development (as a percentage of total revenues)

     2     —       

Research and development costs incurred during the three months ended September 30, 2014 are attributable to activities associated with our extended release lidocaine vaginal gel program. These costs mainly consist of personnel-related expenses for employees directly attributed to our product development as well as professional service consultants. There were no research and development costs for the three months ended September 30, 2013. As we continue to advance our lidocaine vaginal gel program, we do expect increased research and development costs for the foreseeable future.

 

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Table of Contents

General and administrative expenses

 

     Three Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

General and administrative

   $ 2,148      $ 1,594      $ 554         35

General and administrative (as a percentage of total revenues)

     19     22     

Total general and administrative expenses increased by $0.6 million to $2.1 million for the three months ended September 30, 2014, compared with $1.6 million for the three months ended September 30, 2013. This increase primarily relates to costs associated with certain organizational changes of $0.3 million in addition to administrative costs related to our facility in the United Kingdom, which we acquired in September 2013.

 

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Non-operating income and expense

 

     Three Months Ended
September 30,
     $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013       

Interest (expense) income, net

   $ (29   $ 1       $ (30     (3,000 )% 

Change in fair value of common stock warrant liability

   $ 1      $ 428       $ (427     (100 )% 

Other income, net

   $ 76      $ 25       $ 51        204

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. The debt assumed is secured by a mortgage on our facilities in Nottingham, United Kingdom.

The change in fair value of common stock warrant liability for the three months ended September 30, 2014 resulted in income of $1,000 as the warrants issued in October 2009 grow closer to expiration in April 2015. The income of $0.4 million associated with the change in fair value of common stock warrant liability for the three months ended September 30, 2013 is related to a stabilization of the volatility rate used in our Black-Scholes model as the warrants move closer to their expiration date.

Other income, net, for the three months ended September 30, 2014 increased primarily due to income associated with the Regional Growth Fund grant recognized in the 2014 period as compared to only 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.

(Benefit from) Provision for income taxes

 

     Three Months Ended
September 30,
    $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013      

(Benefit from) provision for income taxes

   $ (110   $ 3      $ (113     (3,767 )% 

(Benefit from) provision for income taxes (as a percentage of income before income taxes)

     (3 %)      0.2    

The 2014 effective tax rate represents federal alternative minimum tax, state minimum taxes owed, offset by a foreign tax benefit calculated on the investment in a foreign subsidiary. The 2013 effective tax rate represents state minimum tax expenses. Currently we have a full valuation allowance that offsets our net domestic deferred tax asset.

 

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Table of Contents

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 nine months ended September 30, 2014 and 2013:

 

     Nine Months Ended
September 30,
             
     2014     2013              
(in thousands, except for percentages)    Amount     As a % of
Total
Revenues
    Amount     As a % of
Total
Revenues
    $
Change
    %
Change
 

Product revenues

   $ 12,874        50   $ 17,848        83   $ (4,974     (28 )% 

Service revenues

     7,327        29        644       3       6,683        1038   

Royalties

     5,367        21        2,808        13        2,559        91   

Other revenues

     —         —         119        1        (119     (100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     25,568        100        21,419        100        4,149        19   

Cost of product revenues

     7,762        30        8,420        39        (658     (8

Cost of service revenues

     5,479        21        491       2       4,988        1016   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     13,241        52        8,911        42        4,330        49   

Gross profit

     12,327        48        12,508        58        (181     (1

Operating expenses:

            

Sales and marketing

     1,335        5        79       —         1,256        1590   

Acquisition related expenses

     —         —         1,440        7        (1,440     (100

Research and development

     312       1       —          —          312        100   

General and administrative

     6,762        26        5,881        27        881        15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,409        33        7,400        35        1,009        14   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     3,918        15        5,108        24        (1,190     (23

Interest (expense) income, net

     (92     —         96        —          (188     (196

Change in fair value of common stock warrant liability

     380        1        478        2       (98     (21

Other income (expense), net

     154        1        (57     —          211        (370
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     4,360        17        5,625        26        (1,265     (22

Provision for income taxes

     68        —          8        —         60        750   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 4,292        17   $ 5,617        26   $ (1,325     (24 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

 

     Nine Months Ended
September 30,
     $
Change
    %
Change
 
(in thousands, except for percentages)    2014      2013       

Product revenues

   $ 12,874       $ 17,848       $ (4,974     (28 )% 

Service revenues

     7,327         644        6,683        1,038   

Royalties

     5,367         2,808         2,559        91   

Other revenues

     —          119         (119     (100
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

   $ 25,568       $ 21,419       $ 4,149        19
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenues in the nine months ended September 30, 2014 increased from the nine months ended September 30, 2013 by $4.1 million, or 19%. The increase was attributable to a number of factors including the following:

 

    Revenues from the sale of products decreased by approximately $5.0 million, or 28%, from the 2013 period primarily due to reduced shipments of CRINONE in the nine months ended September 30, 2014 to one of Merck Serono’s higher-volume, higher margin markets during a routine license renewal.

 

    Service revenues increased $6.7 million in the 2014 period from our pharmaceutical development, consulting and analytic services portfolio, which began September 12, 2013 with our acquisition of Molecular Profiles, resulting in only 18 days of service revenues in the 2013 period;

 

    Royalty revenues increased by $2.6 million, or 91%, primarily due to the one-time benefit of $2.2 million from the sale of intellectual property rights and technology for Legatrin P.M. and higher sales of progesterone products by Actavis for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013. Due to the sale of the intellectual property rights of Legatrin P.M., we no longer expect any further revenues under this royalty stream.

 

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Table of Contents

Cost of revenues

 

     Nine Months Ended
September 30,
    $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013      

Cost of product revenues

   $ 7,762      $ 8,420      $ (658     (8 )% 

Cost of service revenues

     5,479        491       4,988        1,016   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

   $ 13,241      $ 8,911      $ 4,330        49
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues (as a percentage of total revenues)

     52     42    

Total cost of revenues was $13.2 million and $8.9 million for the nine months ended September 30, 2014 and 2013, respectively. Cost of product revenues decreased due to a 10% reduction of units shipped in the 2014 period as compared to 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 from our acquisition of Molecular Profiles in September 2013.

Sales and marketing expenses

 

     Nine Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Sales and marketing

   $ 1,335      $ 79     $ 1,256         1,590

Sales and marketing (as a percentage of total revenues)

     5     —       

Sales and marketing expenses generated during the nine months ended September 30, 2014 are attributable to the sales and marketing activities associated with our services portfolio, which we acquired in September 2013 with our acquisition of Molecular Profiles. These expenses consist of personnel costs for our sales force as well as marketing costs consisting of tradeshows and conference fees.

Acquisition-related expenses

 

     Nine Months Ended
September 30,
    $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013      

Acquisition-related expenses

   $ —       $ 1,440      $ (1,440     (100 )% 

Acquisition-related expenses (as a percentage of total revenues)

     —       7    

There were no acquisition-related expenses for the nine months ended September 30, 2014. Acquisition-related expenses for the nine months ended September 30, 2013 primarily related to legal fees, accounting services and other transaction costs associated with the acquisition of Molecular Profiles in September 2013 as well as costs associated with a failed transaction in the 2013 period.

Research and development

 

     Nine Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Research and development

   $ 312      $ —        $ 312         100

Research and development (as a percentage of total revenues)

     1     —       

Research and development costs generated during the nine months ended September 30, 2014 are attributable to activities associated with our extended release lidocaine vaginal gel program. These costs mainly consist of personnel-related expenses for employees directly

 

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Table of Contents

attributed to our product development as well as professional service consultants. There were no research and development costs for the nine months ended September 30, 2013. As we continue to advance our lidocaine vaginal gel program, we do expect increased research and development costs for the foreseeable future.

General and administrative expenses

 

     Nine Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

General and administrative

   $ 6,762      $ 5,881      $ 881         15

General and administrative (as a percentage of total revenues)

     26     27     

Total general and administrative expenses increased by $0.9 million to $6.8 million for the nine months ended September 30, 2014, compared with $5.9 million for the nine months ended September 30, 2013. This increase is primarily due to administrative costs related to our facility in the United Kingdom, which we acquired in September 2013.

 

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Table of Contents

Non-operating income and expense

 

     Nine Months Ended
September 30,
    $
Change
    %
Change
 
(in thousands, except for percentages)    2014     2013      

Interest (expense) income, net

   $ (92   $ 96      $ (188     (196 )% 

Change in fair value of common stock warrant liability

   $ 380      $ 478      $ (98     (21 )% 

Other income (expense), net

   $ 154      $ (57   $ 211        (370 )% 

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 secured by a mortgage on our facilities in Nottingham, United Kingdom.

The income of $0.4 million associated with the change in fair value of common stock warrant liability for the nine months ended September 30, 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 in April 2015. The change in fair value of common stock warrant liability for the period ended September 30, 2013 resulted in income of $0.5 million associated with a decrease in our stock price during the nine months ended September 30, 2013.

Other income (expense), net, for the nine months ended September 30, 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

 

     Nine Months Ended
September 30,
    $
Change
     %
Change
 
(in thousands, except for percentages)    2014     2013       

Provision for income taxes

   $ 68      $ 8      $ 60         750

Provision for income taxes (as a percentage of income before income taxes)

     2     0.1     

The 2014 effective tax rate represents federal alternative minimum tax, state minimum taxes owed, and a one-time clawback provision under a New Jersey Economic Development Authority program relating to the sale of the Company’s state net operating losses, which is partially offset by a foreign tax benefit calculated on the investment in a foreign subsidiary. The 2013 effective tax rate represents state minimum tax expenses. Currently we have a full valuation allowance that offsets our net domestic deferred tax asset.

Liquidity and Capital Resources

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

At September 30, 2014, our cash and cash equivalents were $16.4 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.

On March 7, 2014 we acquired all of our common stock beneficially owned by Actavis, which represented 11.5% of our outstanding common stock. Immediately following the closing of the stock repurchase and as of September 30, 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”) covering three loan facilities with Lloyds TSB Bank (“Lloyds”), as administrative agent, to fund the construction and expansion of their facility, which includes analytical labs, office space, and a manufacturing facility in the United Kingdom. Prior to the acquisition, Molecular Profiles had drawn down $3.9 million under the loan facilities and as of September 30, 2014 owes $3.8 million under the Loan Agreement. The three loan facilities are each repayable in monthly installments, that began in February 2013 for one of the facilities and in October 2013 for the other two facilities. Repayment of the three facilities is scheduled to occur over a 15 year period from the date of drawdown. Two of the facilities bear interest at the Bank of

 

24


Table of Contents

England’s base rate plus 1.95% and 2.55%, respectively. The interest rate at September 30, 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 nine months ended September 30, 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 expansion of its 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 September 30, 2014, we remain in compliance with the covenants of the arrangement.

The income from the Regional Growth Fund will be recognized on a decelerated basis over the next four years. As of September 30, 2014, the obligation is valued at $2.3 million and is recorded in deferred revenue on the consolidated balance sheets. The amount of other income on the obligation that will be recognized provided we remain in compliance with the covenants will be the following (in thousands):

 

Year

   Total  

Remainder of 2014

   $ 130   

2015

     585   

2016

     844   

2017

     779   
  

 

 

 

Total

   $ 2,338   
  

 

 

 

Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future services and products and the resources we devote to developing and supporting the same. Our capital expenditures increased for the nine months ended September 30, 2014, as compared to the nine months ended September 30, 2013, due primarily to investments in 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 September 30, 2014, we had 439,870 exercisable options, and 1,236,682 exercisable warrants outstanding which, if exercised, would result in approximately $17.9 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 and nine months ended September 30, 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 nine months ended September 30, 2014 was $5.9 million and resulted primarily from $4.3 million of net income for the period, which is inclusive of the one-time benefit from the sale of intellectual property rights and technology for Legatrin P.M. and increased by approximately $1.9 million in depreciation and amortization and stock-based compensation expense and decreased by $0.4 million for the change in fair value of stock warrant liability. Net changes in working capital items increased cash from operating activities by approximately $0.5 million driven by decreases to accounts receivable from increased collection efforts offset partially by a decrease in accounts payable. Net cash used in investing activities was $1.5 million for the nine months ended September 30, 2014, which resulted primarily from the purchase of property plant and equipment. Net cash used in financing activities was approximately $8.7 million for the nine months ended September 30, 2014, primarily relating to the $8.5 million stock buyback from Actavis and $0.2 million principal payments on the note.

Net cash provided by operating activities for the nine months ended September 30, 2013 was $4.9 million and resulted primarily from $5.6 million of net income for the period, increased by approximately $0.7 million in depreciation and amortization and stock-based compensation expense and partially offset by $0.5 million from the change in fair value of stock warrants. Net changes in working capital items reduced cash from operating activities by approximately $0.9 million, primarily due to an increase in accounts receivable of $2.0 million associated with increased product shipments offset by a decrease in amounts due from related party totaling $1.3 million primarily related to the absence of product shipments to Actavis during the nine months ended

 

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Table of Contents

September 30, 2013. Net cash provided by investing activities was $0.6 million for the nine months ended September 30, 2013, which resulted primarily from the proceeds from the sale of short-term investments totaling $15.4 million offset by cash paid for the Molecular Profiles acquisition of $14.5 million and the purchase of property and equipment of $0.2 million. Net cash used in financing activities was $18,000 for the nine months ended September 30, 2013.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described in our Annual Report on Form 10-K for the year ended December 31, 2013. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies as of September 30, 2014.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Rate Risk

We do not believe that we have material exposure to market rate risk. We may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose us to material market risk.

There has been no material change to our market rate risk exposure since December 31, 2013.

Foreign Currency Exchange

A significant portion of our operations is conducted through operations in countries other than the United States. Revenues from our international operations that were recorded in U.S. dollars represented approximately 63% of our total international revenues for the nine months ended September 30, 2014. The remaining 37% were sales in British pounds. Since we conduct our business in U.S. dollars, our main exposure, if any, results from changes in the exchange rate between the British pound and the U.S. dollar. Our policy is to reduce exposure to exchange rate fluctuations by designating most of our assets and liabilities, as well as most of our revenues and expenditures, in U.S. dollars, or having them be U.S. dollar-linked. We have not historically engaged in hedging activities relating to our non-U.S. dollar operations.

There has been no material change to our foreign currency exchange risk exposure since December 31, 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2014, the Company’s disclosure controls and procedures were effective.

 

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Table of Contents

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2014 that have materiality affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II—Other Information

Item 1. Legal Proceedings

Claims and lawsuits are filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company believes that it has adequate reserves or adequate insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance coverage in the event of any unfavorable outcome resulting from these actions.

Between February 1, 2012 and February 6, 2012, two putative securities class action complaints were filed against Columbia and certain of its officers and directors in the United States District Court for the District of New Jersey. These actions were filed under the captions Wright v. Columbia Laboratories, Inc., et al., and Shu v. Columbia Laboratories, Inc., et al. and asserted claims under sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated under the Exchange Act on behalf of an alleged class of purchasers of the common stock during the period from December 6, 2010 through January 20, 2012. Both actions were consolidated into a single proceeding entitled In re Columbia Laboratories, Inc., Securities Litigation, under which Actavis, Inc., and three of its officers have been added as defendants. The Consolidated Amended Complaint alleged that Columbia and two of its officers, one of whom is a director, omitted to state material facts that they were under a duty to disclose, and made materially false and misleading statements that related to the results of Columbia’s PREGNANT study and the likelihood of approval by the U.S. Food and Drug Administration (“FDA”) of a New Drug Application (“NDA”) to market progesterone vaginal gel 8% for the prevention of preterm birth in women with premature cervical shortening. According to the amended complaint, these alleged omissions and misleading statements had the effect of artificially inflating the market price of the common stock. The plaintiffs sought unspecified damages on behalf of the putative class and an award of costs and expenses, including attorney’s fees. On June 11, 2013, the Court dismissed the amended complaint for failure to state a claim upon which relief could be granted, holding that the plaintiffs did not adequately plead facts supporting an inference of an intent to deceive investors. The Court permitted the plaintiffs to file a second amended complaint, and they did so on July 11, 2013. Columbia moved to dismiss the second amended complaint, which the court did on October 21, 2013. The Court ruled that changes the plaintiffs made to their first amended complaint “still do not create a strong inference that the Defendants acted with an intent to deceive, manipulate or defraud.” The Court ordered that if the plaintiffs sought to attempt to plead a cognizable action in a third amended complaint, they must do so within thirty days and specifically address why the attempt would not be futile. The plaintiffs chose not to file any further amendments and the case was dismissed with prejudice on December 2, 2013. On December 20, 2013, the plaintiffs appealed the dismissal to the United States Court of Appeals for the Third Circuit. Briefing of the appeal is complete, and the Court has scheduled an oral argument for December 2014. Columbia believes that the appealed action is without merit, and intends to defend it vigorously. At this time, it is not possible to determine the likely outcome of, or to estimate the potential liability related to this action, and Columbia has not made any provision for losses in connection with it.

Item 1a. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2013 in addition to the other information included in this Quarterly Report.

 

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Item 6. Exhibits

(a) Exhibits

 

  10.1   Employment Agreement by and between Columbia Laboratories, Inc. and George O. Elston, effective October 1, 2014 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 20, 2014).
  31.1*   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company.
  31.2*   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the Company.
  32.1**   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2**   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*   The following materials from the Columbia Laboratories, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013, (ii) Consolidated Balance Sheets at September 30, 2014 and December 31, 2013, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.

 

* Filed herewith.
** Furnished herewith.

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

COLUMBIA LABORATORIES, INC.

/s/ George O. Elston

George O. Elston
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
DATE: October 31, 2014

 

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