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, 1999
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 Company as specified in its charter)
DELAWARE 59-2758596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2875 N.E. 191ST STREET, SUITE 400
AVENTURA, FLORIDA 33180
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (305) 933-6089
Indicate by check mark whether the Company (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 Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of the Common Stock of Columbia Laboratories, Inc.
issued and outstanding as of April 30, 1999: 28,684,687
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited, condensed consolidated financial statements of
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. 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, 1999 are not
necessarily indicative of the results for the year ending December 31, 1999.
Except for historical information contained herein, the matters discussed
in this document are forward looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. Such statements
involve risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products and prices, and other factors discussed elsewhere
in this report.
Page 2 OF 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
---------------- ---------------
(Unaudited)
ASSETS
Current assets-
Cash and cash equivalents $ 2,921,497 $ 315,288
Accounts receivable, net 3,805,417 1,323,271
Inventories 1,782,463 2,411,434
Prepaid expenses 726,363 472,538
Other current assets 288,639 288,639
---------------- ---------------
Total current assets 9,524,379 4,811,170
Property and equipment, net 1,255,116 1,373,451
Intangible assets, net 5,246,294 5,283,277
Other assets 405,586 411,648
================ ===============
TOTAL ASSETS $ 16,431,375 $11,879,546
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities-
Accounts payable $ 3,053,200 $ 4,153,151
Accrued expenses 1,145,290 1,480,839
Deferred revenue 578,150 578,150
---------------- ---------------
Total current liabilities 4,776,640 6,212,140
Convertible subordinated note payable 10,000,000 10,000,000
---------------- ---------------
TOTAL LIABILITIES 14,776,640 16,212,140
---------------- ---------------
Stockholders' equity (deficiency)-
Preferred stock, $.01 par value; 1,000,000 shares authorized:
Series A Convertible Preferred Stock, 923
shares issued and outstanding in 1999 and 1998 9 9
Series B Convertible Preferred Stock, 1,630
shares issued and outstanding in 1999 and 1998 16 16
Series C Convertible Preferred Stock,
6,600 shares issued and outstanding in 1999 67 -
Common stock, $.01 par value; 40,000,000 shares
authorized; 28,684,687 shares
issued and outstanding in 1999 and 1998 286,846 286,846
Capital in excess of par value 99,714,196 93,221,998
Accumulated deficit (97,848,529) (97,988,640)
Accumulated other comprehensive income 102,130 147,177
Less: notes receivable for purchase of stock (600,000) -
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 1,654,735 (4,332,594)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 16,431,375 $ 11,879,546
================ ===============
See notes to condensed consolidated financial statements
Page 3 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1999 1998
----------- ----------
NET SALES $ 5,466,461 $ 2,271,985
COST OF GOODS SOLD 1,776,841 1,405,984
------------ -------------
Gross profit 3,689,620 866,001
------------ --------------
OPERATING EXPENSES:
Selling and distribution 857,827 637,766
General and administrative 1,484,598 1,576,553
Research and development 1,390,076 1,791,109
----------- -----------
Total operating expenses 3,732,501 4,005,428
----------- -----------
Loss from operations (42,881) (3,139,427)
------------- ------------
OTHER INCOME (EXPENSE):
License fees, net of expenses 387,500 -
Interest income 30,496 42,870
Interest expense (188,838) (33,259)
Other, net (21,167) (67,609)
------------ -------------
207,991 (57,998)
------------ -------------
Income (loss) before income taxes 165,110 (3,197,425)
Provision for income taxes 25,000 -
------------ -------------
Net income (loss) $ 140,110 $ (3,197,425)
=========== =============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ .00 $ (.11)
=========== =============
Diluted $ .00 $ (.11)
=========== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 28,685,000 28,660,000
========== ============
Diluted 28,985,000 28,660,000
========== ============
See notes to condensed consolidated financial statements
Page 4 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
1999 1998
------------------- -----------------
NET INCOME (LOSS) $ 140,110 $(3,197,425)
Other Comprehensive income (loss):
Foreign currency translation, net of tax 38,290 7,865
------------------- -----------------
Comprehensive income (loss) $ 178,400 $(3,189,560)
=================== =================
See notes to condensed consolidated financial statements.
Page 5 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $140,110 $(3,197,425)
Adjustments to reconcile net income (loss) to net
cash used for operating activities-
Depreciation and amortization 259,725 238,215
Issuance of warrants for consulting services 12,699 44,877
Changes in assets and liabilities- (Increase) decrease in:
Accounts receivable (2,482,146) 4,333,254
Inventories 628,971 47,319
Prepaid expenses (253,825) 217,427
Other assets 6,062 (271,308)
Increase (decrease) in:
Accounts payable (976,448) (647,591)
Accrued expenses (337,395) (421,444)
Deferred revenue - (355,295)
------------------ ---------
Net cash used in operating activities (3,002,247) (11,971)
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,406) (75,856)
Acquisition of licensing rights (100,000) -
------------ --------------
Net cash used in investing activities (104,406) (75,856)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 5,939,534 -
Dividends paid (181,625) -
Issuance of note payable - 10,000,000
Proceeds from exercise of options and warrants - 356,138
------------------ ------------
Net cash provided by financing activities 5,757,909 10,356,138
----------- -----------
(Continued)
Page 6 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended March 31,
1999 1998
---- ----
EFFECT OF EXCHANGE RATE CHANGES ON CASH (45,047) (7,865)
------------ -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 2,606,209 10,260,446
CASH AND CASH EQUIVALENTS,
Beginning of period 315,288 2,256,590
----------- ------------
CASH AND CASH EQUIVALENTS,
End of period $2,921,497 $12,517,036
========== ===========
See notes to condensed consolidated financial statements
Page 7 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SIGNIFICANT ACCOUNTING POLICIES:
The 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 for the fiscal
year ended December 31, 1998.
(2) INVENTORIES:
March 31, December 31,
1999 1998
------------ -------------
Finished goods $1,062,326 $1,550,917
Raw materials 720,137 860,517
------------ -------------
$1,782,463 $2,411,434
========== =============
(3) SERIES C CONVERTIBLE PREFERRED STOCK:
In January 1999, the Company raised approximately $6.4 million, net of
expenses from the issuance and sale of Series C Convertible Preferred Stock
("Preferred Stock"). The Preferred Stock, sold to twenty-four accredited
investors, has a stated value of $1,000 per share. The Preferred Stock is
convertible into common stock at the lower of: (i) $3.50 per common share (based
on 125% of the average of the five day's closing bid prices immediately
preceding the transaction) and (ii) 100% of the average of the closing prices
during the three trading days immediately preceding the conversion notice. If
conversion is based on the $3.50 conversion price, conversion may take place
after the underlying common stock is registered. If conversion is based on the
alternative calculation, conversion cannot take place for fifteen months. The
Preferred Stock pays a 5% dividend, payable quarterly in arrears on the last day
of the quarter. At March 31, 1999, the Preferred Stock had a liquidity
preference of $6,600,000.
In connection with the issuance of the Series C Convertible Preferred
Stock in January 1999, the Company received two notes receivable from Norman M.
Meier, the President and Chief Executive Officer, and from William J. Bologna,
the Chairman of the Board, for $350,000 and $250,000, respectively. The notes
bear interest at 5% per annum and are due on July 28, 1999. The notes totaling
$600,000 have been presented as a reduction of stockholders' equity in the
accompanying balance sheets.
Page 8 of 15
(4) SEGMENT INFORMATION:
The Company and its subsidiaries are engaged in one line of business, the
development and sale of pharmaceutical products and cosmetics. The following
table shows selected information by geographic area:
Net Loss from Identifiable
SALES OPERATIONS ASSETS
----- ---------- -------------
As of and for the three months
ended March 31, 1999-
United States $4,498,887 $ 1,228,563 $11,391,018
Europe 967,574 (1,271,444) 5,040,357
---------- ----------- -----------
$5,466,461 $ (42,881) $16,431,375
========== =========== ===========
As of and for the three months
ended March 31, 1998-
United States $1,432,730 $(1,308,857) $13,920,323
Europe 839,255 (1,830,570) 6,655,431
---------- ----------- -----------
$2,271,985 $(3,139,427) $20,575,754
========== =========== ===========
Page 9 of 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company and its representatives from time to time make written or
verbal forward looking statements, including statements contained in this and
other filings with the Securities and Exchange Commission and in the Company's
reports to stockholders, which are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Such statements
include, without limitation, the Company's expectations regarding sales,
earnings or other future financial performance and liquidity, product
introductions, entry into new geographic regions and general optimism about
future operations or operating results. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors that could
cause actual results to differ from expectations include, without limitation:
(i) increased competitive activity from companies in the pharmaceutical
industry, some of which have greater resources than the Company; (ii) social,
political and economic risks to the Company's foreign operations, including
changes in foreign investment and trade policies and regulations of the host
countries and of the United States; (iii) changes in the laws, regulations and
policies, including changes in accounting standards, that affect, or will
affect, the Company in the United States and abroad; (iv) foreign currency
fluctuations affecting the relative prices at which the Company and foreign
competitors sell their products in the same market; and (v) the ability of the
Company and third parties, including customers or suppliers, to adequately
address Year 2000 issues. Additional information on factors that may affect the
business and financial results of the Company can be found in filings of the
Company with the Securities and Exchange Commission. All forward-looking
statements should be considered in light of these risks and uncertainties. The
Company assumes no responsibility to update forward-looking statements made
herein or otherwise.
Cash and cash equivalents increased from approximately $315,000 at
December 31, 1998 to approximately $2,921,000 at March 31, 1999. The Company
received approximately $5.9 million, net of expenses, from the issuance and
sales of Series C Convertible Preferred Stock (see note 3 to unaudited condensed
consolidated financial statements).
In May 1995, the Company entered into a worldwide, except for South
Africa, license and supply agreement with American Home Products Corporation
("AHP") under which the Wyeth-Ayerst Laboratories division of AHP will market
Crinone. Under the terms of the agreement, as of March 31, 1999, the Company has
earned $17 million in milestone payments and will continue to receive additional
milestone payments. The Company also supplies Crinone to AHP at a price equal to
30% of AHP's net selling price.
In July 1996, Columbia submitted a New Drug Application ("NDA") to the
U.S. Food and Drug Administration ("FDA") for clearance to market Crinone as a
hormonal therapy for patients with secondary amenorrhea (loss of menstrual
period). In November 1996, the Company submitted a second NDA for clearance to
market Crinone for use in Assisted Reproductive Technologies ("ART") procedures,
including IN-VITRO fertilization, ovum donation and stimulated cycles. The FDA
granted the ART filing a priority review. In addition, in February 1997, the FDA
approved the Company's Treatment Protocol under its IND for the use of Crinone
in assisted fertility procedures. As a result, through leads generated by the
Wyeth-Ayerst institutional sales force, the Company has begun distributing
Crinone to leading infertility clinics throughout the United States.
In May 1997, the Company received U.S. marketing approval for Crinone
from the FDA for use as a progesterone supplementation or replacement as part of
an Assisted Reproductive Technology (ART)
Page 10 of 15
treatment for infertile women with progesterone deficiency. In July 1997, the
Company received U.S. marketing approval for Crinone from the FDA for the
treatment of secondary amenorrhea (loss of menstrual period).
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, other patent applications and related technology, the Company
pays Bio-Mimetics, Inc. a royalty equal to two percent of the net sales of
products based on the Bioadhesive Delivery System, to an aggregate of $7.5
million. The Company is required to prepay a portion of the remaining royalty
obligation, in cash or stock at the option of the Company, if certain conditions
are met. Through March 31, 1999, the Company has paid approximately $1.4 million
in royalty payments.
In March 1999, the Company entered into a license and supply agreement
with Mipharm SpA under which Mipharm SpA will be the exclusive marketer of the
Company's previously unlicensed women's healthcare products in Italy, Portugal,
Greece and Ireland with a right of first refusal for Spain. Under the terms of
the agreement, the Company received a $387,500, net of expenses, upfront payment
and expects to receive future milestone payments as products are made available
by the Company.
The Company believes that sales and liquidity will increase as Crinone
is fully marketed by Wyeth-Ayerst.
As of March 31, 1999, the Company has outstanding exercisable options
and warrants that, if exercised, would result in approximately $50.3 million of
additional capital. However, there can be no assurance that such options or
warrants will be exercised.
Significant expenditures anticipated by the Company in the near future
are concentrated on research and development related to new products. The
Company anticipates it will spend approximately $7.5 million on research and
development in 1999 and an additional $400,000 on property and equipment.
As of March 31, 1999, the Company had available net operating loss
carryforwards of approximately $48 million to offset its future U.S. taxable
income.
In accordance with Statement of Financial Accounting Standards No.
109, as of March 31, 1999 and December 31, 1998, other assets in the
accompanying consolidated balance sheets include deferred tax assets of
approximately $17 million and $18 million, respectively, (comprised primarily of
a net operating loss carryforward) for which a valuation allowance has been
recorded since the realizability of the deferred tax assets are not
determinable.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS
ENDED MARCH 31, 1998
Net sales increased by approximately $3.2 million to approximately
$5.5 million in 1999 as compared to $2.3 million in 1998. Crinone, accounted for
approximately $2.7 million of the increase with sales of approximately $3.2
million in 1999 as compared to $547,000 in 1998. Sales of Replens increased by
approximately $457,000 from approximately $943,000 in 1998 to $1.4 million in
1999. The increase reflects the reacquisition of the product by the Company from
Warner-Lambert Company in April 1998. As a result of the reacquisition, the
Company sells Replens directly to chain drug stores, food stores and mass
merchandisers at wholesale prices instead of to Warner-Lambert at contract
manufacturing prices which are much lower than wholesale prices. Gross profit as
a percentage of net sales increased in 1999 as compared to 1998 from 38% to 67%
as a result of increased Crinone sales which has a higher gross profit
percentage.
Page 11 of 15
Selling and distribution expenses increased by approximately $220,000
in 1999 to approximately $858,000 as compared to $638,000 in 1998, primarily as
a result of expenses related to the reacquisition of Replens and the marketing
of the product such as the amortization of the Replens trademark $77,000; media
advertising $65,000; advertising billbacks $53,000; and broker commissions
$62,000.
General and administrative expenses decreased by approximately $92,000
to approximately $1,485,000 in 1999 from $1,577,000 in 1998. The decrease was
primarily due to a $129,000 reduction in salaries and benefits, and a $373,000
reduction in investor relations fees, partially offset by a $399,000 increase in
legal fees. The increase in legal fees reflects additional attorney charges
related to litigation.
Research and development expenses decreased by approximately $401,000
from approximately $1,791,000 in 1998 to $1,390,000 in 1999. The decrease was in
part due to a $125,000 reimbursement of expenses incurred in 1998 negotiated and
received in 1999 from the Wyeth-Ayerst Laboratories' division of American Home
Products Corporation, an approximately $81,000 reduction in salaries and
benefits, and an approximately $88,000 decrease in Crinone development costs.
License fees in 1999 of $387,500, net of expenses totaling $112,500,
represent an upfront payment received in connection with the licensing agreement
with Mipharm SpA entered into in March 1999.
Interest expense increased in 1999 as a result of the $10 million note
bearing interest at 7 1/8 % issued by the Company on March 16, 1998 to an
institutional investor.
The Company has recorded a $25,000 alternative minimum tax provision
for U.S. federal taxes in 1999.
As a result, the net income for 1999 was $140,110 or $.00 per common
share as compared to a net loss in 1998 of $3,197,425 or $(.11) per common
share.
Page 12 OF 15
COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed an action in the United States District
Court for the Southern District of Florida in November 1997 seeking a
declaratory judgement on certain issues related to its relationship
with Lake Pharmaceuticals, Inc. ("Lake") as governed in the contract
between the Company and Lake. Lake filed an action against the Company
in the United States District Court, Northern District of Illinois, for
damages alleged by Lake to have been suffered by it as a result of the
FDA's allegations in July 1997 that the Company's nonoxynol-9 product,
then marketed by Lake under the tradename Advantage 24, was not
permitted to be sold under the monograph. This action was dismissed by
the Illinois Court and transferred to the Florida Court for
consolidation as a counterclaim in the Florida action. The Company is
vigorously defending the Lake claims and believes that Lake's action
will be dismissed without any damage award to Lake and that the Company
will prevail in its claims against Lake for damages.
Other claims and complaints have been filed or are pending
against the Company with respect to various matters. In the opinion of
management and counsel, all such matters are adequately reserved for or
covered by insurance or, if not so covered, are without any or have
little merit or involve such amounts that if disposed of unfavorably
would not have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
In January 1999, the Company raised approximately $6.4
million, net of expenses from the issuance and sale of Series C
Convertible Preferred Stock ("Preferred Stock"). The Preferred Stock,
sold to twenty-four accredited investors, has a stated value of $1,000
per share. The Preferred Stock is convertible into common stock at the
lower of: (i)$3.50 per common share (based on 125% of the average of
the five day's closing bid prices immediately preceding the
transaction) and (ii) 100% of the average of the closing prices during
the three trading days immediately preceding the conversion notice. If
conversion is based on the $3.50 conversion price, conversion may take
place after the underlying common stock is registered. If conversion is
based on the alternative calculation, conversion cannot take place for
fifteen months. The Preferred Stock pays a 5% dividend, payable
quarterly in arrears on the last day of the quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1998 annual meeting of shareholders was held on
January 28, 1999 for the purpose of electing the following eight
directors (with each nominee receiving at least 24,645,914 votes out
of a possible 28,729,620 votes): James J. Apostolakis, William J.
Bologna, Jean Carvais, M.D., Dominique de Ziegler, M.D., Norman M.
Meier, Denis O'Donnell, M.D., Selwyn Oskowitz, M.D. and Robert C.
Strauss.
Page 13 of 15
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10.16 - License and Supply Agreement dated March 5, 1999,
between the Company and Mipharm SpA.
11.1 - Statement Re: Computation of Per Share Earnings
27.1 - Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None.
Page 14 of 15
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/ DAVID L. WEINBERG
----------------------------------------
DAVID L. WEINBERG, Vice President-
Finance and Administration,
Chief Financial Officer
DATE: MAY 12, 1999
------------------------
Page 15 of 15
INDEX TO EXHIBITS
EXHIBIT
NUMBERS
10.16 - License and Supply Agreement dated March 5, 1999, between the Company
and Mipharm SpA.
11.1 - Statement Re: Computation of Per Share Earnings.
27 - Financial Data Schedule.