Juniper Pharmaceuticals (JNP) 10-Q 2010 Q1 Quarterly report

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 March 31, 2010

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 001-10352

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.)
354 Eisenhower Parkway Livingston, New Jersey   (Address of principal executive offices)	07039 (Zip Code)

Registrant's telephone number, including area code: (973) 994-3999

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 ___  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 [X]

Non-accelerated filer [ ] (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 Act). [ ] Yes    [X] No

Number of shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding as of May 6, 2010: 65,605,886.

.

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements

The following unaudited, condensed consolidated financial statements of Columbia Laboratories, Inc. (“Columbia” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and therefore omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”).  In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim periods reported have been made.  Results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results for the year ending December 31, 2010. It is suggested that these financial stateme nts be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2009, included in the Company’s Annual Report on Form 10-K/A (the “2009 Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on April 30, 2010.

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents of which $9,220,493 in 2010 and    $12,225,732 in 2009 is interest bearing	$	11,284,243		$	14,757,615
Accounts receivable, net of allowances for doubtful accounts     of $100,000 in 2010 and 2009, respectively		3,297,668			4,262,851
Inventories		3,088,990			2,532,722
Prepaid expenses and other current assets		1,009,323			1,097,525
Total current assets		18,680,224			22,650,713
Property and equipment, net		637,812			691,479
Intangible assets - net		17,509,150			18,770,332
Other assets		1,434,024			1,644,695
TOTAL ASSETS	$	38,261,210		$	43,757,219
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of financing agreements	$	58,563		$	144,897
Accounts payable		2,805,472			3,662,091
Accrued expenses		5,512,142			4,588,088
Derivative embedded within convertible notes, fair value		2,781,660			-
Total current liabilities		11,157,837			8,395,076
Notes payable		33,749,209			32,965,863
Deferred revenue		312,181			328,367
Long-term portion of financing agreements		15,867,735			15,234,406
TOTAL LIABILITIES		61,086,962			56,923,712
COMMITMENTS AND CONTINGENCIES
Contingently Redeemable Series C Preferred Stock,   600 shares issued and outstanding in 2010 and 2009, respectively   (liquidation preference of $600,000)		600,000			600,000
SHAREHOLDERS' DEFICIT:
Preferred stock, $.01 par value;1,000,000 shares authorized
Series B Convertible Preferred Stock, 130 shares issued and    outstanding (liquidation preference of $13,000)		1			1
Series E Convertible Preferred Stock, 59,000 shares issued and    outstanding (liquidation preference of $5,900,000)		590			590
Common Stock $.01 par value; 100,000,000 shares    authorized; 65,761,986 shares issued in 2010 and 2009,    respectively		657,619			657,619
Capital in excess of par value		243,191,797			242,637,646
Less cost of 152,795 and 131,935 treasury shares in      2010 and 2009, respectively		(306,369	)		(280,813	)
Accumulated deficit		(267,158,299	)		(256,979,263	)
Accumulated other comprehensive income		188,909			197,727
Shareholders' deficit		(23,425,752	)		(13,766,493	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	38,261,210		$	43,757,219

See notes to condensed consolidated financial statements

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2010			2009
NET REVENUES	$	7,172,899		$	7,321,187
COST OF REVENUES		1,176,579			1,780,018
Gross profit		5,996,320			5,541,169
OPERATING EXPENSES:
Selling and distribution		3,250,319			2,793,236
General and administrative		4,126,318			2,488,553
Research and development		2,341,818			2,245,385
Amortization of licensing right		1,261,182			1,261,182
Total operating expenses		10,979,637			8,788,356
Loss from operations		(4,983,317	)		(3,247,187	)
OTHER INCOME (EXPENSES):
Interest income		1,620			19,197
Interest expense		(2,302,794	)		(2,048,101	)
Change in fair value of derivative		(2,781,660	)		-
Other, net		(110,685	)		(40,546	)
Total other expenses		(5,193,519	)		(2,069,450	)
Loss before taxes		(10,176,836	)		(5,316,637	)
State income taxes		(2,200	)		(16,930	)
NET LOSS	$	(10,179,036	)	$	(5,333,567	)
NET LOSS PER COMMON SHARE:
Basic and diluted	$	(0.16	)	$	(0.10	)
WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING:
Basic and diluted		65,388,921			54,296,686

See notes to condensed consolidated financial statements

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(Unaudited)

		Three Months Ended
		March 31,
		2010	2009
NET LOSS		$ (10,179,036)	$(5,333,567)
Other comprehensive income (loss):
	Foreign currency translation	(8,818)	12,633
COMPREHENSIVE LOSS		$ (10,187,854)	$(5,320,934)

See notes to condensed consolidated financial statements

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,179,036	)	$	(5,333,567)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization		1,526,916			1,385,300
Amortization on beneficial conversion features		451,490			393,688
Amortization on warrant valuation		331,857			294,219
Change in fair value of derivative		2,781,660			-
Provision for sales returns		1,063,993			404,027
Writedown of inventories		14,001			-
Stock based compensation		561,651			456,757
Non-cash interest expense on financing agreements		546,995			444,263
Changes in assets and liabilities-
(Increase) decrease in:
Accounts receivable		965,183			(527,486)
Inventories		(570,269	)		(637,570)
Prepaid expenses and other current assets		88,202			(15,087)
Other assets		(183	)		(2,711)
Increase (decrease) in:
Accounts payable		(856,619	)		211,125
Accrued expenses		(133,833	)		(281,822)
Deferred revenue		(16,186	)		(12,733)
Net cash used in operating activities		(3,424,178	)		(3,221,597)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,214	)		(4,946)
Net cash used in investing activities		(1,214	)		(4,946)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of common stock		-			750,000
Proceeds from exercise of options		-			-
Payments for purchase of treasury stock		(25,556	)		(23,389)
Payments pursuant to financing agreements		-			-
Dividends paid		(7,500	)		(9,688)
Net cash provided by (used in) financing activities		(33,056	)		716,923

(continued)

See notes to condensed consolidated financial statements

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2010			2009
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(14,924	)		(35,368	)
NET DECREASE IN CASH		(3,473,372	)		(2,544,988	)
CASH, BEGINNING OF PERIOD		14,757,615			12,497,382
CASH END OF PERIOD	$	11,284,243		$	9,952,394
SUPPLEMENTAL INFORMATION
Interest paid	$	800,000		$	800,001
Taxes paid	$	8,500		$	31,617

See notes to condensed consolidated financial statements

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)         SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies followed for quarterly financial reporting are the same as those disclosed in Note (1) of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.

(2)         SALES RETURN RESERVES:

Revenues from the sale of products are recorded at the time goods are shipped to customers. The Company believes that it has not made any shipments in excess of its customers' ordinary course of business inventory levels. The Company’s return policy allows 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. Provisions for returns on sales to wholesalers, distributors and retail chain stores are estimated based on a percentage of sales, using such factors as historical sales information, distributor inventory levels and product prescription data, and are recorded as a reduction to sales in the same period as the related sales are recognized. The Company assumes that its customers are using the first-in, first-out method in fill ing orders so that the oldest saleable product is used first. The Company records a provision for returns on a quarterly basis using an estimated rate and adjusts the provision when necessary.

An analysis of the reserve for sales returns is as follows:

	Three Months Ended March 31,
	2010	2009
Balance at beginning of year	$     1,883,623	$   1,864,316
Provision:
Related to current period sales	319,078	154,027
Related to prior period sales	744,915	250,000
	1,063,993	404,027
Returns:
Related to current period sales	(7,879)	(6,845)
Related to prior period sales	(332,770)	(538,498)
	(340,649)	(545,343)
Balance at end of quarter	$     2,606,967	$   1,723,000

The Company believes that the greatest potential for uncertainty in estimating sales returns is the estimation of future prescriptions. They are wholly dependent on the Company’s ability to sell and market the products. If prescriptions are lower in future periods, then the current reserve may not be adequate.

(3)         INVENTORIES:

Inventories consisted of the following:

	March 31,	December 31,
	2010	2009
Finished goods	$  2,058,683	$   1,343,742
Raw materials	1,030,307	1,188,980
	$  3,088,990	$   2,532,722

(4)         FINANCING AGREEMENTS:

In an agreement dated March 5, 2003 (the “STRIANT Agreement”), PharmaBio agreed to pay the Company $15 million in five quarterly installments commencing with the signing of the STRIANT Agreement. In return, PharmaBio will receive a 9% royalty on net sales of STRIANT in the United States up to agreed annual sales revenues, and a 4.5% royalty on net sales above those levels. The royalty term is seven years. Royalty payments commenced in the 2003 third quarter and are subject to minimum ($30 million) and maximum ($55 million) amounts. Because the minimum amount exceeds the $15 million received by the Company, the Company recorded the amounts received as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the $15 million received by the Company is being recognized as interest expense over the se ven-year term of the STRIANT Agreement, assuming an interest rate of 15%. The Company has paid PharmaBio approximately $13.5 million through March of 2010. Interest expense for the quarters ended March 31, 2010 and 2009 was $0.6 million and $0.5 million, respectively. The balance of the minimum royalty payments, estimated to be $16.5 million, is due November 2010.

Long term liabilities from financing agreements consisted of the following:

	March 31,	December 31,
	2010	2009
STRIANT Agreement	$     15,926,298	$  15,379,303
Less: current portion	58,563	144,897
	$     15,867,735	$  15,234,406

On July 22, 2009, the Company and PharmaBio entered into an amendment (the “Second Amendment”) to the STRIANT Agreement, in which they agreed that when the minimum royalty payment is due the Company may, in its sole discretion, either pay the balance due under the STRIANT Agreement or issue to PharmaBio a secured promissory note for that balance. In consideration for the right to issue the secured promissory note, the Company has (a) agreed that during the period from July 22, 2009 through November 30, 2010, the Company will escrow any proceeds from sales of assets outside the ordinary course of business in excess of $15.0 million but not exceeding the difference between the amount of royalties actually received by PharmaBio under the STRIANT Agreement and $30.0 million, and (b) granted PharmaBio a warrant to purchase 900, 000 shares of the Company’s Common Stock. In further consideration for the right to issue the secured promissory note, the Company has agreed that if it issues the secured promissory note on November 30, 2010, the Company will on that date grant PharmaBio a second warrant to purchase 900,000 shares of the Company’s Common Stock. Each warrant is exercisable beginning November 30, 2010 and expires on the date five years from its issue date. The warrants are exercisable at $1.15 per share, permit cashless exercise, and provide piggyback registration rights. If the Company issues the secured promissory note, it would bear interest quarterly in arrears at the rate of 10% per annum, be due on November 30, 2011, be secured by Columbia’s assets, and contain customary representations, warranties, and events of default.  Using the Black Scholes valuation model, the Company determined the value of the initial warrant to purchase 900,000 shares of the Company’s Common Stock to be $719,9 04, or $0.80 per share, which is being amortized over the 16 months through November 2010.  The amortization expense recorded in the quarter ended March 31, 2010 was approximately $0.1 million.

(5)         NOTES PAYABLE:

On December 22, 2006, the Company raised approximately $40 million in gross proceeds to the Company from the sale of convertible subordinated notes to a group of existing institutional investors. The notes bear interest at a rate of 8% per annum and are subordinated to the PharmaBio financing Agreement (see Note 4) and mature on December 31, 2011. They are convertible into a total of approximately 7.6 million shares of Common Stock at a conversion price of $5.25. Investors also received warrants to purchase 2,285,714 shares of Common Stock at an exercise price of $5.50 per share. The warrants expire on December 22, 2011, unless earlier exercised or terminated.  The Company used the proceeds of this offering to acquire from Merck Serono the U.S. marketing rights to CRINONE for $33.0 million and purchased Merck Serono’s existing inventory of that product. The balance of the proceeds was used to pay other costs related to the transaction and for general corporate purposes.

The Company recorded original issue discounts of $6.3 million to the notes based upon the fair value of warrants granted. In addition, beneficial conversion features totaling $8.5 million have been recorded as a discount to the notes.  These discounts are being amortized at an imputed rate over the five year term of the related notes. For the quarters ended March 31, 2010 and 2009, $0.7 million and $0.8 million, respectively, of amortization related to these discounts were classified as interest expense in our consolidated statements of operations. Unamortized discounts of $6.3 million and $7.0 million have been reflected as a reduction to the face value of the convertible notes in our consolidated balance sheet as of March 31, 2010 and December 31, 2009, respectively.

The notes contain an embedded derivative that allows the holders to redeem the notes at face value in the event of the sale of substantially all of the assets of the Company. This feature was previously assigned a nominal value as the Company assessed the potential for such sale to be remote.   The Watson Transaction, as described in Note 12, if approved by the stockholders, will result in the sale of substantially all of the assets of the Company and, therefore, the associated value of the embedded derivative was increased to the difference between the fair value of the consideration, as determined on March 31, 2010, to be paid at the closing of the Watson Transaction and the carrying value of the notes.  Accordingly the Company recorded a non-cash charge of $2,781,660.

If the notes remain outstanding, the value of the embedded derivative will fluctuate in future periods based on any changes in the fair value of the consideration and the carrying value of the notes.  Should the Watson Transaction not close, and no similar transactions appear likely, the value of the embedded derivative will be reversed.

The embedded derivative is classified as a Level 2 valuation as described in Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 820-10, “Fair Value Measurements and Disclosures.”

(6)         GEOGRAPHIC INFORMATION:

The Company and its subsidiaries are engaged in one line of business, the development, licensing and sale of pharmaceutical products. The Company conducts its international business through its Bermuda subsidiary which contracts with various manufacturers located in the United Kingdom, Switzerland and Italy, to make product for both its international and domestic operations. Most arrangements with licensees are made by the Bermuda company. These customers sell their products into several countries. The Company’s two largest international customers are Merck Serono and to a lesser extent going forward, Lil’ Drug Store Products.

The following table shows selected information by geographic area:

		Net	Identifiable
		Revenues	Assets
As of and for the three months
ended March 31, 2010
	United States	$  4,649,037	$ 32,586,890
	Switzerland	2,363,620	5,674,320
	Other countries	160,242	-
	Total International	2,523,862	5,674,320
	Total	$  7,172,899	$ 38,261,210
As of and for the three months
ended March 31, 2009
	United States	$  5,157,187	$ 35,458,261
	Switzerland	2,164,000	7,421,740
	Other countries	-	-
	Total International	2,164,000	7,421,740
	Total	$  7,321,187	$ 42,880,001

(7)         LOSS PER COMMON AND POTENTIAL COMMON SHARE:

The calculation of basic and diluted loss per common and common equivalent share is as follows:

		Three Months Ended
		March 31,
		2010	2009
Net loss		$ (10,179,036)	$(5,333,567)
	Less: Preferred stock dividends	(7,500)	(9,688)
Net loss applicable to
	common stock	$ (10,186,536)	$(5,343,255)
Basic and diluted:
	Weighted average number of
	common shares outstanding	65,388,921	54,296,686
	Basic and diluted net loss per common share	$          (0.16)	$        (0.10)

Basic loss per share is computed by dividing the net loss plus preferred dividends by the weighted-average number of shares of Common Stock outstanding during the period. The diluted earnings per share calculation gives effect to dilutive options, warrants, convertible notes, convertible preferred stock, and other potential Common Stock including selected Restricted Shares outstanding during the period. Shares to be issued upon the exercise of the outstanding options and warrants or the conversion of the convertible notes and convertible preferred stock are not included in the computation of diluted loss per share as their effect is anti-dilutive. Shares to be issued upon the exercise of the outstanding options and warrants or the conversion of the convertible notes, convertible preferred stock and selected Restricted Shares excluded from the calculation amounted to 27,954,254 and 21,961,179 at March 31, 2010, and 2009, respectively.

(8)         LEGAL PROCEEDINGS:

Claims and lawsuits have been filed against the Company from time to time. Although the results of pending claims are always uncertain, the Company does not believe the results of any such actions, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operation. Additionally, 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 in the event of any unfavorable outcome resulting from these actions.

In connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which assets consisted of the patents underlying the Company's bioadhesive delivery system (BDS), other patent applications, and related technology, the Company agreed to pay Bio-Mimetics a royalty equal to two percent of the net sales of products based on the assets up to an aggregate of $7.5 million or until the last of the relevant patents expired. The Company determined that the obligation to pay royalties on STRIANT, PROCHIEVE, and CRINONE terminated in September of 2006, with the expiration of a certain Canadian patent, but continues on future sales, if any, of Replens® and RepHresh®. On Dec ember 28, 2007, Bio-Mimetics filed a complaint in the United States District Court for Massachusetts (Bio-Mimetics, Inc. v. Columbia Laboratories, Inc.) alleging breach of contract and unfair or deceptive trade practices for the Company’s failure to continue royalty payments on STRIANT, PROCHIEVE, and CRINONE.  Claims, other than the breach of contract, have been dismissed.  To date, the Company has paid approximately $3.9 million in royalty payments and Bio-Mimetics seeks a judgment that we are obligated to pay the remaining $3.6 million in full. The Company has denied all such allegations and believes it has no contractual liability to Bio-Mimetics for the disputed royalty payments and intends to defend this action vigorously.

(9)         STOCK-BASED COMPENSATION:

The Company’s net loss for the three months ended March 31, 2010 and March 31, 2009 included $0.6 million and $0.5 million, respectively, of compensation expense.

	Three Months Ended March 31,
Stock Based Compensation	2010	2009
Cost of revenues	$           23,234	$          32,492
Selling and distribution	231,290	92,003
General and administrative	264,211	295,197
Research and development	42,916	37,065
Total	$         561,651	$        456,757

The Company did not grant any options or restricted stock to employees, consultants or directors, during the three months ended March 31, 2010. During the three months ended March 31, 2010, 72,600 options expired unexercised.

(10)              FAIR VALUE OF FINANCIAL INSTRUMENT

The estimated fair value of the convertible subordinated notes payable and beneficial conversion feature amounted to $ $34,915,364 and $34,507,598 at March 31, 2010 and December 31, 2009, respectively. This value is the aggregate of the estimated future cash flows associated with the settlement of the notes payable, determined through consideration of market conditions, including available interest rates, credit spreads and the Company’s liquidity, and the intrinsic value of the beneficial conversion feature.  The carrying value of the convertible notes payable and beneficial conversion feature amounted to $33,749,209 and $32,965,863 at March 31, 2010 and December 31, 2009, respectively. The fair value of accounts receivable, accounts payable and the financing agreements described in Note 4 approximate their carrying a mount.

The estimated fair value of the convertible notes payable embedded derivative related to the sale of substantially all of the assets of the Company as of March 31, 2010 was $2,781,660 and had a nominal fair value at December 31, 2009.   This value is determined based on the Company’s assessment of the likelihood of such sale and its estimate of the related fair value of consideration to be paid.

(11)              RECENT ACCOUNTING PRONOUNCEMENTS:

In October 2009, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition: Multiple-Element Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for revenue arrangements entered into or materially modified after the fiscal year 2010. Earlier application is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our consolidated financial statements.

(12)              WATSON TRANSACTION AND DEBT RESTRUCTURING

On March 3, 2010, the Company, Watson Pharmaceuticals, Inc., as a guarantor of the Buyer’s obligations (“Watson”), and Coventry Acquisition, Inc., a subsidiary of Watson (the “Buyer”), entered into a Purchase and Collaboration Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company agreed to sell, subject to shareholder approval, to the Buyer (i) substantially all of its assets primarily relating to the research, development, regulatory approval, manufacture, distribution, marketing, sale and promotion of pharmaceutical products containing progesterone as an active ingredient, including CRINONE 8% progesterone gel, PROCHIEVE 4% progesterone gel and PROCHIEVE 8% progesterone gel, each sold by the Company in the U.S. (collectively, the “Progesterone Products”), including certain intellectual property, promotional materials, contracts, product data and regulatory approvals and regulatory filings (the “Purchased Assets”), and (ii) 11,200,000 shares (the “Shares”) of the Company’s Common Stock. After the closing, the Company will retain certain assets and rights relating to its progesterone business, including all rights necessary to perform its obligations under its agreement with Merck Serono. The transactions pursuant to the Purchase Agreement and the ancillary agreements thereto are referred to collectively herein as the “Watson Transaction.”

At the closing of the Watson Transaction, in consideration for the sale of the Purchased Assets and the Shares, the Buyer will pay the Company $47 million in cash and assume certain liabilities associated with the Purchased Assets. In addition, the Buyer agreed to pay the Company up to $45.5 million in cash upon the achievement of several contingent milestones. The Buyer also agreed to make royalty payments to the Company of 10 to 20 percent of annual net sales of certain progesterone products; provided, however that royalty rates would be reduced by 50% in a particular country if a generic entry by a third party occurs in such country and certain other circumstances are fulfilled. In addition, if the Buyer commercializes a product through a third party outside of the U.S., in lieu of royalties, the Company will be entitled to 20% of gross profits associated with such commercialization.  If the Buyer or its affiliates effects a generic entry with respect to a progesterone product in a country in the circumstances permitted by the Purchase Agreement, in lieu of royalties payable in respect of net sales for such generic product, the Company will be entitled to 20% of the gross profits associated with the commercialization of such generic product in such country.

Pursuant to the Purchase Agreement, the Company and the Buyer have also agreed to collaborate with respect to the development of progesterone products. In connection therewith, the parties agreed to establish a joint development committee to oversee and supervise all development activities. The Company will be responsible for completion of the PREGNANT Study and such other activities as determined by the joint development committee. The Company will be responsible for the costs of conducting the PREGNANT Study and the preparation, filing and approval process of the related new drug application (or the supplemental new drug application) up to a maximum of $7 million incurred after January 1, 2010. All other development costs incurred in connection with the development collaboration will be paid by the Buyer.

The parties also agreed to enter into various ancillary agreements, including an Investor’s Rights Agreement (pursuant to which the Buyer will have the right to designate a member of the Company’s board of directors for the period set forth therein, the Buyer will obtain certain registration rights pertaining to the Shares and the Buyer will agree to certain transfer restrictions pertaining to the Shares), a Supply Agreement pursuant to which the Company will supply PROCHIEVE 4%, PROCHIEVE 8% and CRINONE 8% to the Buyer for sale in the U.S. at a price equal to 110% of cost of goods sold, and a License Agreement relating to the grant of certain intellectual property licenses.

The closing of the Watson Transaction is subject to customary closing conditions, including Company stockholder approval.

As part of the Purchase Agreement, from the date of the closing of the Watson Transaction until the second anniversary of the date on which the Company and the Buyer terminate their relationship with respect to the joint development of progesterone products, the Company agreed not to manufacture, develop or commercialize products containing progesterone or any other products for the preterm birth indication, subject to certain exceptions. The joint development collaboration is terminable by either party five years after the closing of the Watson Transaction.

The Shares are being offered and sold to the Buyer under the Purchase Agreement in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder, based on the nature of the Buyer and certain representations made by the Buyer to the Company.

PharmaBio Amendment

On March 3, 2010, the Company entered into an amendment (the “PharmaBio Amendment”) with PharmaBio to the Investment and Royalty Agreement dated March 5, 2003, between the Company and PharmaBio, as previously amended and supplemented (the “PharmaBio Agreement”). The PharmaBio Amendment provides for the early termination of the PharmaBio Agreement by permitting the Company to make certain payments required thereunder on an accelerated and discounted basis on the date the Company consummates (and contingent upon the Company consummating) a transfer of assets, sale of stock, licensing agreement and/or similar transaction yielding gross cash proceeds to the Company of $40 million or more.

Note Purchase and Amendment Agreements

On March 3, 2010, the Company entered into Note Purchase and Amendment Agreements (the “Note Purchase Agreements”) with all of the holders (the “Holders”) of the Company’s Convertible Subordinated Notes due December 31, 2011 (the “Notes”). Under the Note Purchase Agreements, the Company agreed to purchase, subject to the satisfaction of certain conditions, the approximately $40 million in aggregate principal amount of Notes held by the Holders. The aggregate purchase price for the Notes is $26 million in cash (plus accrued and unpaid interest through but excluding the date of the closing of the Note purchases), warrants to purchase 7,750,000 shares of Common Stock at an exercise price of $1.35 per share (the “Warrants”) and 7,407,407 shares of Common Stock. The closings of the transactions contemplated by the Note Purchase Agreements are subject to various conditions, including the consummation of the Watson Transaction. Pursuant to the Note Purchase Agreements, the Holders consented, effective on March 3, 2010, to an amendment to the Notes (the “Amendment”) that eliminates the right of any holder of the Notes to cause the Company to redeem the Notes by virtue of the Watson Transaction. The Amendment terminates if the note purchase closings do not occur on or prior to August 31, 2010 and in certain other circumstances. Each Note Purchase Agreement may be terminated in certain circumstances, including, among others, by any party thereto, if the closings thereunder do not occur on or prior to August 31, 2010.

The warrants to be issued under the Note Purchase Agreements will be exercisable, subject to the limitations set forth therein, during the period commencing 180 days after, and ending on the fifth anniversary of their issuance, unless earlier exercised or terminated as provided in such warrants.

Under the terms of the Note Purchase Agreements, the Company has granted the Holders who are “Affiliates” (as defined under Rule 405 of the Securities Act) of the Company certain registration rights with respect to the resale of the shares of the Company’s Common Stock to be issued under the Note Purchase Agreements and the shares of Company Common Stock issuable upon the exercise of the warrants to be issued under the Note Purchase Agreements.

Under the Note Purchase Agreements, until 45 days after the Company’s announcement of the results of the PREGNANT Study, if the Company issues any shares of Company Common Stock (or common stock equivalents) for a price that is less than $2.00 per share, the Company must offer the Holders, subject to certain exceptions, the right to exchange their warrants for cash payments of up to an aggregate of $3,999,996.

The shares and warrants to be issued under the Note Purchase Agreements are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act pursuant to Section 4(2) under the Securities Act and Rule 506 promulgated thereunder, based on the nature of the Holders and certain representations made by them to the Company.

None of the Shares or the shares and warrants to be issued under the Note Purchase Agreements have been registered under the Securities Act (or the laws of any state or other jurisdiction) and may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirements thereof. This Form 10-Q does not constitute an offer for the sale of any securities of the Company or a solicitation of any offer to buy any securities of the Company.

The foregoing is a summary of the terms of the Purchase Agreement (and the related ancillary agreements), the Note Purchase Agreements, the Warrants, the Amendment and the PharmaBio Amendment, and does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement (and the related ancillary agreements), the Note Purchase Agreements, the Warrants, the Amendment and the PharmaBio Amendment, which were more fully summarized and filed as exhibits to the Company’s current report on Form 8-K filed with the SEC on March 4, 2010.

Accounting Treatment of the Transaction

The Company will allocate the $47 million initial proceeds, net of transaction expenses to 1) the then fair value of the 11.2 million common shares; and 2) the elimination of the remaining book value of the CRINONE intangible assets (which was $17.5 million as of March 31, 2009). The excess, if any, will be recorded as revenue over the remaining research & development period for the PREGNANT study through the Company's filing and FDA acceptance of the new drug application which is expected to occur by mid-2011. The accounting treatment for the debt extinguishments will need to be evaluated at a later date, subject to the timing of the Watson Transaction and the Company's share price at the transaction date.

The notes contain an embedded derivative that allows the holders to redeem the notes at face value in the event of the sale of substantially all of the assets of the Company. This feature was previously assigned a nominal value as the Company assessed the potential for such sale to be remote.  The Watson Transaction, if approved by the stockholders, will result in the sale of substantially all of the assets of the Company and, therefore, the associated value of the embedded derivative was increased to the difference between the fair value of the consideration, as determined on March 31, 2010, to be paid at the closing of the Watson Transaction and the carrying value of the notes.  Accordingly the Company recorded a non-cash charge of $2,781,660.

(13)             SUBSEQUENT EVENTS

In connection with the preparation of the Company’s financial statements at March 31, 2010, subsequent events have been evaluated through the date of the filing of this Form 10-Q.

On April 15, 2010, Robert S. Mills resigned from his positions as President and Chief Operating Officer and as a director of Columbia Laboratories.

On May 4, 2010, Frank C. Condella, Jr., previously Interim Chief Executive Officer, was named President and Chief Executive Officer of Columbia Laboratories.

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

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations Section (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto.

We receive revenues from our Progesterone Products that we either promote through our own sales force to reproductive endocrinologists, obstetricians, and gynecologists, and sell to wholesalers and specialty pharmacies, or sell to licensees. We supplement our Progesterone Product revenue by selling other products that use our Bioadhesive Delivery System (“BDS”) which we refer to as “Other Products.” Most of the Other Product revenue is based on sales of products to licensees.

	Products
Progesterone Products	CRINONE® 8% (progesterone gel) marketed and sold by us in the U.S. CRINONE® 8% sold to Merck Serono for resale outside the U.S. PROCHIEVE® 8% (progesterone gel) sold by us in the U.S. PROCHIEVE® 4% sold to Ascend Therapeutics, Inc., for resale in the U.S., pursuant to an     agreement that will terminate on July 23, 2010.
Other Products	STRIANT® (testosterone buccal system) marketed and sold by us in the U.S. STRIANT® sold to Mipharm, S.p.A. for resale in Italy. Royalty and licensing revenues.

In 2009, we also sold Replens® Vaginal Moisturizer and RepHresh® Vaginal Gel to Lil’ Drug Store Products, Inc. (“Lil’ Drug Store”) for resale pursuant to a supply agreement that expired on October 31, 2009.  During 2010, we have received and intend to fulfill additional orders for Replens and Rephresh products from Lil’ Drug Store.

All of our products are manufactured in Europe by third parties on behalf of our foreign subsidiaries who sell the products to our worldwide licensees, and to the Company, in the case of the products we commercialize ourselves in the United States. Because our European revenues reflect these sales and are reduced only by our product manufacturing costs, we have historically shown a profit from our foreign operations.

Revenues from our United States operations principally relate to the Company’s products that we promote to physicians through our sales representatives, as well as royalty income from products that we have licensed. The Company charges our United States operations all selling and distribution expenses that support our marketing, sales and distribution efforts. Research and development expenses are charged to our United States operations for product development which principally supports new products and new label indications for products to be sold in this country.  In addition, the majority of our general and administrative expenses represent the Company’s management activities as a public company and are charged to our United States operations. The amortization of the repurchase of the U.S. rights to CRINONE is also charged to our United States operations. As a result, we have historically shown a loss from our United States operations that has been significantly greater than, and offsets, the profits from our foreign operations.

On March 3, 2010, we entered into a definitive agreement to sell substantially all of our progesterone related assets and 11.2 million shares of Common Stock to Watson Pharmaceuticals, Inc. for a $47 million upfront payment plus royalties of 10 to 20 percent of annual net sales of certain progesterone products. Additional payments up to $45.5 million can be earned by the successful completion of clinical development milestones in the ongoing PREGNANT Study, regulatory filings, receipt of regulatory approvals and product launches. Watson will fund the development of a second-generation vaginal progesterone product as part of a comprehensive life-cycle management strategy.  See Note 12 included in “Item 1. Financial Statements.”

On March 3, 2010 we also entered into contingent agreements with the holders of our senior debt and our convertible subordinated notes under which, if the Watson Transaction closes and the other conditions to consummation of such agreements are satisfied, we will repay our outstanding debt on an accelerated and discounted basis and issue the holders of convertible subordinated notes shares of common stock and warrants to purchase common stock.  See Note 12 included in “Item 1. Financial Statements.”

Results of Operations - Three Months Ended March 31, 2010 versus Three Months Ended March 31, 2009

Total net revenues decreased 2% in the three months ended March 31, 2010 to $7.2 million as compared to $7.3 million in the three months ended March 31, 2009.

Total net revenues from progesterone products increased 25% to $6.8 million in the three months ended March 31, 2010 as compared to $5.4 million in the three months ended March 31, 2009 on a 20% volume increase.  Combined U.S. net revenues for CRINONE and PROCHIEVE increased 34% in the three months ended March 31, 2010, over the same period in 2009 with unit volume up 46%. This increase was dampened by higher reserves for returned goods.  Domestic CRINONE net revenues increased by 33%, despite additional sales returns reserves, as a result of a 55% increase in volume.  Net revenues from international sales of CRINONE® 8% increased 11% over the first quarter of 2009 on a 15% volume increase.  Net revenues from other products were $0.4 million in the first quarter of 2010 as compared with $1. 9 million in the first quarter of 2009, a 78% decrease.  The expiration in October 2009 of Columbia's contract with Lil’ Drug Store Products, Inc., for the OTC products, RepHresh® and Replens®, resulted in a $1.1 million decrease in net revenues in the 2010 quarter.  In addition, STRIANT net revenues were $0.3 million lower in the 2010 period attributable primarily to higher sales return reserves.

Gross profit improved by 8% from $5.5 million to $6.0 million; gross margin as a percentage of net revenues improved from 76% in the first quarter of 2009 to 84% in the first quarter of 2010, reflecting the shift in product mix toward higher-margin Progesterone Products, offset, in part, by higher contract manufacturing costs resulting from a weaker dollar.

Selling and distribution expenses increased 16% to $3.3 million in the three months ended March 31, 2010, as compared to $2.8 million in the three months ended March 31, 2009, primarily due to increased spending on marketing programs highlighting the several favorable papers and abstracts regarding CRINONE presented at the American Society for Reproductive Medicine Annual Meeting last fall as well as $0.2 million in severance costs.  Selling and distribution expenses include payroll, employee benefits, equity compensation and other personnel-related costs associated with sales and marketing personnel, and advertising, market research, market data capture, promotions, tradeshows, seminars, other marketing related programs and distribution costs. In summary, in the first quarter of 2010, sales force and management costs were $ 2.0 million (including $0.2 million of severance), product marketing expenses of approximately $1.0 million and $0.3 million in sales information and distribution costs.  The comparable costs for the first quarter of 2009 were $1.7 million for sales force and management costs, $0.9 million in product marketing expenses and $0.2 million for sales information and distribution costs.

General and administrative expenses increased 66% to $4.1 million in the three months ended March 31, 2010 as compared to $2.5 million in the three months ended March 31, 2009.  The increased expense in the 2010 quarter was attributable entirely to the $1.6 million in costs related to the Watson Transaction.  General and administrative expenses include payroll, employee benefits, equity compensation and other personnel-related costs associated with the finance, legal, regulatory affairs, information technology, facilities, certain human resources and other administrative personnel, as well as legal costs and other administrative fees.

Research and development expenses increased 4% to $2.3 million in the three months ended March 31, 2010, as compared to $2.2 million in the three months ended March 31, 2009. The increase was driven by higher costs of the PREGNANT Study in the 2010 quarter.   Research and development expenses include payroll, employee benefits, equity compensation and other personnel-related costs associated with product development, as well as the cost of conducting and administering clinical studies and the cost of regulatory filings for our products.

We purchased the marketing rights for U.S. sales of CRINONE from Merck Serono in December 2006 for $33.0 million. In the second quarter of 2007, we recognized a $1.0 million adjustment to the purchase price to reflect contingent liabilities for Merck Serono sales returns. The $33.0 million charge is being amortized over 6.75 years, and the $1.0 million charge is being amortized over 6.5 years.  Amortization of the acquisition cost for the CRINONE U.S. marketing rights in each of  the quarters ended March 31, 2010 and 2009 was $1.3 million.

Other income/expense for the quarter ended March 31, 2010 consisted primarily of interest expense of $2.3 million associated with the $40 million convertible notes, the financing agreements and warrant amortization with PharmaBio, and $2.8 million representing the non-cash charge for the embedded derivative related to the Notes that are to be repaid as part of the Watson Transactions.

Interest expense for the quarter ended March 31, 2009 was $2.0 million.

As a result, the net loss for the three months ended March 31, 2010 was $10.2 million or $(0.16) per share as compared to the net loss for the three months ended March 31, 2009 of $5.3 million or $(0.10) per share.

Liquidity and Capital Resources

Cash and cash equivalents were $11.3 million and $14.8 million at March 31, 2010 and December 31, 2009, respectively.

The Company believes the $11.3 million of cash on hand at March 31, 2010 will allow it to sustain its operations for at least the next twelve months.

Cash provided by (used in) operating, investing and financing activities is summarized as follows:

	Three Months Ended
	March 31,
	2010	2009
Cash flows:
Operating activities	$(3,334,178)	$(3,221,597)
Investing activities	(1,214)	(4,946)
Financing activities	(33,056)	716,923

Operating Activities:

Net cash used in operating activities for the three months ended March 31, 2010 resulted primarily from $2.9 million net operating losses after applying non-cash charges and increases in working capital of $0.5 million.  The net loss of $10.2 million in the first quarter of 2010 included non-cash items for depreciation, amortization, a change in the fair value of a derivative, stock-based compensation, provision for sales returns, and non-cash interest expense, which totaled $7.3 million in aggregate, leaving a net cash loss, net of non-cash items, of $2.9 million for the first quarter of 2010.  Accounts receivable decreased by $1.0 million as a result of higher sales late in the fourth quarter of 2009 which payment was made in the first quarter of 2010.  Inventories grew by $0.6 million during the period to meet specific customer orders. Accounts payable decreased by $0.9 million and accrued expenses decreased by $0.1 million.  The decrease in accounts payable is due primarily to payments for marketing programs and for the PREGNANT  STUDY. The reduction in accrued expenses of $0.1 million related to the distributor service fees and professional fees paid during the quarter.

Net cash used in operating activities for the three months ended March 31, 2009 resulted primarily from $2.0 million net operating losses after applying non-cash charges and increases working capital of $1.3 million.  The net loss of $5.3 million in the first quarter of 2009 included non-cash items for depreciation, amortization, stock-based compensation, provision for sales returns and non-cash interest expense, which totaled $3.3 million in aggregate, leaving a net cash loss, net of non-cash items, of $2.0 million for the first quarter of 2009.  Accounts receivable increased by $0.5 million as a result of sales later in the quarter for which payment is due in the following quarter.  Inventories grew by $0.6 million during the period to meet specific customer orders. Accounts payable increased by $0.2 mi llion and accrued expenses decreased by $0.3 million.  The increase in accounts payable is due primarily to higher inventory levels and increased expenses for the clinical trials. The reduction in accrued expenses of $0.3 million related to the distributor service fees and professional fees paid during the quarter.

Investing activities:

Net cash used in investing activities was insignificant in the first quarter of 2010 and 2009.

Financing Activities:

Net cash used in financing activities in the first quarter of 2010 was similarly insignificant.

Net cash provided by financing activities in 2009 was $0.7 million which included the sale of 451,807 shares of Common Stock for proceeds of $0.75 million.

The Company has an effective registration statement that we filed with the SEC using a shelf registration process. Under the shelf registration process, we may offer from time to time Common Stock, preferred stock, debt securities and warrants up to an aggregate amount of $50 million. To date the Company has sold approximately $12.5 million in Common Stock under the registration statement. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital when required or on acceptable terms, or at all, we may have to sig nificantly delay, scale back or discontinue the marketing of one or more of our products and the development and/or commercialization of one or more of our product candidates.

On July 22, 2009, the Company and PharmaBio entered into an amendment (the “Second Amendment”) to the STRIANT Agreement, in which they agreed that when the minimum royalty payment is due the Company may, in its sole discretion, either pay the balance due under the STRIANT Agreement or issue to PharmaBio a secured promissory note for that balance. In consideration for the right to issue the secured promissory note, the Company has (a) agreed that during the period from July 22, 2009 through November 30, 2010, the Company will escrow any proceeds from sales of assets outside the ordinary course of business in excess of $15.0 million but not exceeding the difference between the amount of royalties actually received by PharmaBio under the STRIANT Agreement and $30.0 million, and (b) granted PharmaBio a warrant to purchase 900, 000 shares of the Company’s Common Stock. In further consideration for the right to issue the secured promissory note, the Company has agreed that if it issues the secured promissory note on November 30, 2010, the Company will on that date grant PharmaBio a second warrant to purchase 900,000 shares of the Company’s Common Stock. Each warrant is exercisable beginning on November 30, 2010 and expires on the date five years from its issue date. The warrants are exercisable at $1.15 per share, permit cashless exercise, and provide piggyback registration rights. If the Company issues the secured promissory note, it would bear interest quarterly in arrears at the rate of 10% per annum, be due on November 30, 2011, be secured by Columbia’s assets, and contain customary representations, warranties, and events of default.  See Note 4 included in “Item 1. Financial Statements.”

In connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which assets consisted of certain patents underlying the Company’s BDS, other patent applications and related technology, the Company pays Bio-Mimetics, Inc. a royalty equal to two percent (2%) of the net sales of products based on the assets purchased from Bio-Mimetics, Inc., up to an aggregate of $7.5 million or until the last of the relevant patents expire. The Company is required to prepay 25% of the remaining maximum royalty obligation, in cash or stock at the option of the Company, within 30 days of March 2 of any year in which the closing price on that date of the Company’s Common Stock on any national securities exchange is $20 or more. Through March 31, 2010, the Company has paid approximately $3.9 million in royalty payments to Bio-Mimetics . Due to expiration in September 2006 of certain patents purchased from Bio-Mimetics, Inc., royalties to Bio-Mimetics, Inc. are no longer paid on CRINONE®, PROCHIEVE®, or STRIANT® products. Bio-Mimetics, Inc. has sued us for breach of contract and seeks a judgment that we are obligated to pay the remaining $3.6 million in full. The Company has denied all such allegations and believes it has no contractual liability to Bio-Mimetics, Inc. for disputed royalty payments and intends to defend this action vigorously.

On October 22, 2009, the Company entered into a Placement Agent Agreement with Oppenheimer & Co. Inc. (Oppenheimer") and The Benchmark Company, LLC ("Benchmark"), as placement agents (collectively, the “Placement Agents”), relating to a registered direct offering of 10,900,000 shares of the Company’s Common Stock and warrants to purchase 5,450,000 shares of Common Stock (the “Offering”).  On October 28, 2009 the Company consummated the sale of 10,900,000 shares of its Common Stock and warrants to purchase 5,450,000 shares of its Common Stock in a registered direct offering for gross proceeds of $11,722,000. The Common Stock and warrants were sold in units, with each unit consisting of one share of Common Stock and a warrant to purchase 0.5 shares of Common Stock at a price of $1.08 per unit.   The warrants will be exercisable at an exercise price of $1.52 per share of Common Stock, subject to adjustments, at any time on or after April 30, 2010 and ending on April 30, 2015. The Company received net proceeds of approximately $10,709,000 from the offering after offering-related fees and expenses. The Company paid the Placement Agents a fee equal to 6.5% of the gross proceeds received by the Company from the Offering (the “Placement Fee”).  The shares and warrants were offered pursuant to an existing effective shelf registration statement on Form S-3 (Registration No. 333-155530) which was declared effective by the SEC on December 5, 2008.

On March 3, 2010, we entered into contingent agreements with PharmaBio and the holders of our Convertible Notes under which, if the Watson Transaction closes and the other conditions to consummation of such agreements are satisfied, we will repay our outstanding debt on an accelerated and discounted basis and issue the holders of Convertible Notes shares of common stock and warrants to purchase common stock.  See Note 12 included in "Item 1. Financial Statements.”

As of March 31, 2010, the Company had outstanding exercisable options and warrants that, if exercised, would result in approximately $52.4 million of additional capital and would cause the number of shares outstanding to increase. Options and warrants outstanding at March 31, 2010 were 5,887,704 and 10,942,755, respectively.  However, there can be no assurance that any such options or warrants will be exercised. The aggregate intrinsic value of exercisable options and warrants at March 31, 2010 and March 31, 2009 was $0.0 million and $0.0 million respectively.

Significant expenditures anticipated by the Company in the near future are concentrated on research and development related to new products and new indications for currently approved products.

Watson Transactions

On March, 3, 2010, Columbia entered into a definitive agreement to sell, subject to stockholder approval, substantially all of its progesterone related assets, including its preterm birth patents and applications and 11.2 million shares of common stock, to Watson Pharmaceuticals, Inc. (the “Watson Transactions”) for upfront and milestone payments of up to $92.5 million.  These include a $47 million upfront payment plus royalties of 10 to 20 percent of annual net sales of certain progesterone products. Additional payments up to $45.5 million can be earned by the successful completion of clinical development milestones in the ongoing PREGNANT Study, regulatory filings, receipt of regulatory approvals and product launches. Watson will fund the development of a second-generation vaginal progesterone product as part o f a comprehensive life-cycle management strategy. The closing of the transaction is subject to customary conditions, including approval by Columbia’s stockholders. Columbia will retain certain assets and rights to its progesterone business, including all rights necessary to perform its obligations under its agreement with Merck Serono S.A.    See Note 12 included in "Item 1. Financial Statements.”

ADDITIONAL INFORMATION ABOUT THE WATSON TRANSACTIONS AND WHERE TO FIND IT

This communication is not a solicitation of a proxy from any security holder of Columbia. In connection with stockholder approval of the sale of the assets contemplated by the Purchase and Collaboration Agreement and certain other matters, Columbia has filed with the SEC a preliminary proxy statement and intends to file a definitive proxy statement and to mail to its security holders a definitive proxy statement and other materials. THE PROXY STATEMENT WILL BE SENT TO COLUMBIA SECURITY HOLDERS AND WILL CONTAIN IMPORTANT INFORMATION ABOUT COLUMBIA, WATSON, THE SALE OF THE ASSETS PURSUANT TO THE PURCHASE AND COLLABORATION AGREEMENT, AND RELATED MATTERS. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY WHEN THEY ARE AVAILABLE BEFORE MAKING ANY VOTING OR INV ESTMENT DECISION WITH RESPECT TO THE PROPOSED SALE OF THE ASSETS AND THE OTHER MATTERS DESCRIBED THEREIN. Free copies of the proxy statement and other documents filed with the SEC by Columbia, when they become available, can be obtained through the website maintained by the SEC at www.sec.gov. In addition, free copies of the proxy statement will be available from Columbia by contacting Lawrence A. Gyenes at (973) 486-8860 or lgyenes@columbialabs.com, or on Columbia’s investor relations website at www.cbrxir.com.

PARTICIPATION IN THE SOLICITATION

Columbia and its directors and executive officers and certain other members of management may be deemed to be participants in the solicitation of proxies from Columbia's stockholders in connection with the proposed transactions described herein. Information regarding the special interests of these directors, executive officers and members of management in the proposed transactions will be included in the proxy statement and other relevant documents filed with the SEC. Additional information regarding Columbia’s directors and executive officers is also included in Columbia’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009, which was filed with the SEC on April 30, 2010. Columbia’s Form 10-K/A is available free of charge at the SEC’s website at www.sec.gov and from Columbia by contacting it as described above.

Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements

The Company’s contractual obligations, commercial commitments and off-balance sheet arrangements disclosures in its Annual Report on Form 10-K/A for the year ended December 31, 2009, have not materially changed since that report was filed.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition: Multiple-Element Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement con sideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for revenue arrangements entered into or materially modified after the fiscal year 2010. Earlier application is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our consolidated financial statements.

Critical Accounting Policies and Estimates

TheCompany has identified the policies below as critical to its business operations and the understanding of itsresults of operations. For a detailed discussion on the application of these and other accounting policies, see  Note 1 of the consolidated financial statements included in Item 15 of the Annual Report on Form 10-K/A for the year ended December 31, 2009, beginning on page F-10. Note that the preparation of this Quarterly Report on Form 10-Q requires the Company to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses duri ng the reporting period. There can be no assurance that actual results will not differ from those estimates.

Revenue Recognition. The Company’s revenue recognition is significant because revenue is a key component of our results of operations. In addition, revenue recognition determines the timing of certain expenses, such as commissions and royalties. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause operating results to vary significantly from quarter to quarter. License fees are recorded over the life of the license.  Royalty revenues, based on sales by licensees, are recorded as revenues as those sales are made by licensees.

Sales Returns.Revenues from the sale of products are recorded at the time goods are shipped to customers. The Company believes that it has not made any shipments in excess of its customers' ordinary course of business inventory levels. Our return policy allows 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. Provisions for returns on sales to wholesalers, distributors and retail chain stores are estimated based on a percentage of sales, using such factors as historical sales informat ion, distributor inventory levels and product prescription data, and are recorded as a reduction to sales in the same period as the related sales are recognized. We also continually analyze the reserve for future sales returns and increase such reserve if deemed appropriate. The Company purchases prescription data on all its products from IMS Health, a leading provider of market intelligence to the pharmaceutical and healthcare industries. The Company also purchases certain information regarding inventory levels from its larger wholesale customers. This information includes for each of the Company’ products, the quantity on hand, the number of days of inventory on hand, and a 28 day forecast of sales by units. Using this information and historical information, the Company estimates potential returns by taking the number of product units sold by the Company by expiration date and then subtracting actual units and potential units that may be sold to end users (consumers) based on prescription data up to five months prior to the product’s expiration date. The Company records a provision for returns on a quarterly basis using an estimated rate and adjusts the provision if its analysis indicates that the potential for product non-salability exists. Sales adjustments for international sales are estimated to recognize changes in foreign exchange rates and government tenders that may fluctuate within a year.

Accounting For PharmaBio Agreements. In March 2003, the Company entered into the STRIANT Agreement with PharmaBio under which the Company received upfront money paid in quarterly installments in exchange for royalty payments on certain of the Company’s products to be paid to PharmaBio for a fixed period of time. The royalty payments are subject to minimum and maximum amounts. Because the minimum amount exceeds the amount received by the Company, the Company has recorded the monies received as liabilities. We are recording the excess of the minimum to be paid by the Company over the amount received by the Company as interest expense over the term of the agreement.

Stock-Based Compensation – Employee Stock-Based Awards. Commencing January 1, 2006, the Company adopted ASC 718, “Share Based Payment”, formerly SFAS 123(R),  which requires all share based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing supplemental implementation guidance for SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of ASC 718.

	Three Months Ended
	March 31,
	2010	2009
Risk free interest rate	-	1.78%
Expected term	-	4.6 years
Dividend yield	-	0
Expected volatility	-	0.9295

Fair Value of Financial Instruments- The estimated fair value of the convertible subordinated notes payable and beneficial conversion feature amounted to $34,915,364 and $34,507,598 at March 31, 2010 and December 31, 2009, respectively. This value is the aggregate of the estimated future cash flows associated with the settlement of the notes payable, determined through consideration of market conditions, including available interest rates, credit spreads and the Company’s liquidity, and the intrinsic value of the beneficial conversion feature.  The carrying value of the convertible notes payable and beneficial conversion feature amounted to $33,749,209 and $32,965,863 at March 31, 2010 and December 31, 2009, respectively. The fair value of accounts receivable, ac counts payable and the financing agreements described in Note 4 approximate their carrying amount.

Forward-Looking Information

This communication contains forward-looking statements, which statements are indicated by the words “may,” “will,” “plans,” “believes,” “expects,” “anticipates,” “potential,” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those projected in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Factors that might cause future results to differ include, but are not limited to, the following: approval of the sale of the assets and other matters contemplated by the Purchase and Collaboration Agreement with W atson Pharmaceuticals, Inc., by Columbia's stockholders; the successful marketing of CRINONE® and STRIANT® in the United States; the successful marketing of CRINONE by Merck Serono outside the United States; the timely and successful completion of the ongoing Phase III PREGNANT (PROCHIEVE® Extending Gestation A New Therapy) Study of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix at mid-pregnancy; successful development of a next-generation vaginal progesterone product; success in obtaining acceptance and approval of new products and new indications for current products by the United States Food and Drug Administration and international regulatory agencies; the impact of competitive products and pricing; our ability to obtain financing in order to fund our operations and repay our debt as it becomes due; the timely and successful negotiation of partnerships or other transactions; the strength of the United States dollar relative to international currencies, partic ularly the euro; competitive economic and regulatory factors in the pharmaceutical and healthcare industry; general economic conditions; and other risks and uncertainties that may be detailed, from time-to-time, in Columbia’s reports filed with the SEC. Completion of the sale of the assets under the Purchase and Collaboration Agreement with Watson Pharmaceuticals, Inc., and the other transactions disclosed in the Company's press release dated March 4, 2010, are subject to various conditions to closing, and there can be no assurance those conditions will be satisfied or that such sale or other transactions will be completed on the terms described in the Purchase and Collaboration Agreement with Watson Pharmaceuticals, Inc., or other agreements related thereto or at all. All forward-looking statements contained herein are neither promises nor guarantees. Columbia does not undertake any responsibility to revise or update any forward-looking statements contained herein.

Item 3.                 Quantitative and Qualitative Disclosures About Market Risk

The Company does not believe that it has material exposure to market rate risk. The Company 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 the Company to material market risk.

Expenditures primarily related to manufacturing in the three months ended March 31, 2010 would remain the same if the average 2009 exchange rates had been in effect in 2010.

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 reason able, 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.

Based on their evaluation at March 31, 2010, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.                      Legal Proceedings

Claims and lawsuits have been filed against the Company and its subsidiaries from time to time. Although the results of pending claims are always uncertain, the Company does not believe the results of any such actions, individually or in the aggregate, will have a material adverse effect on the Company’s financial position or results of operation. Additionally, the Company believes that it has adequate reserves or insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance in the event of any unfavorable outcome resulting from these actions.

In connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which assets consisted of the patents underlying the Company's bioadhesive delivery system (BDS), other patent applications, and related technology, the Company agreed to pay Bio-Mimetics a royalty equal to two percent of the net sales of products based on the assets up to an aggregate of $7.5 million or until the last of the relevant patents expired. The Company determined that the obligation to pay royalties on STRIANT, PROCHIEVE, and CRINONE terminated in September of 2006, with the expiration of a certain Canadian patent, but continues on future sales, if any, of Replens® and RepHresh®. On Dec ember 28, 2007, Bio-Mimetics filed a complaint in the United States District Court for Massachusetts (Bio-Mimetics, Inc. v. Columbia Laboratories, Inc.) alleging breach of contract and unfair or deceptive trade practices for the Company’s failure to continue royalty payments on STRIANT, PROCHIEVE, and CRINONE.  Claims, other than the breach of contract, have been dismissed.  To date, the Company has paid approximately $3.9 million in royalty payments and Bio-Mimetics seeks a judgment that we are obligated to pay the remaining $3.6 million in full. The Company has denied all such allegations and believes it has no contractual liability to Bio-Mimetics for the disputed royalty payments and intends to defend this action vigorously.

Item 1A.                 Risk Factors

There have been no material changes to the factors disclosed in Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2009.

Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.                 Defaults upon Senior Securities

None.

Item 4.                 Removed and Reserved

None.

Item 5.                 Other Information

None.

Item 6.                 Exhibits

(a)   Exhibits

2.1	Purchase and Collaboration Agreement, dated as of March 3, 2010, by and among Columbia Laboratories, Inc., Watson Pharmaceuticals, Inc. and Coventry Acquisition, Inc. (1)
10.1	Note Purchase and Amendment Agreements, each dated as of March 3, 2010, between Columbia Laboratories, Inc. and the Holders named therein (1)
10.2	Amendment No. 1, dated as of March 3, 2010, to the Company’s Convertible Subordinated Notes due December 31, 2011 (1)
10.3	Letter Agreement, dated March 3, 2010, between Columbia Laboratories, Inc. and PharmaBio Development Inc., relating to the Investment and Royalty Agreement, dated March 5, 2003, between Columbia Laboratories, Inc. and PharmaBio Development Inc., as previously amended and supplemented (1)
10.4 †	Amended and Restated Employment Agreement by and between Columbia Laboratories, Inc. and Frank C. Condella, Jr., dated May 4, 2010. (2)
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.*

* Filed herewith.

† Management contract or compensatory plans or arrangements

(1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 4, 2010

(2) Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 4, 2010

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/ Lawrence A. Gyenes                                           

Lawrence A. Gyenes

Senior Vice President,

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

DATE: May 6, 2010