Columbia Laboratories, Inc. Q3 2008 Earnings Call Transcript

Columbia Laboratories, Inc. (CBRX)

Q3 2008 Earnings Call Transcript

November 6, 2008, 11:00 am ET

Executives

Melody Carey – IR, Rx Communications Group

Bob Mills – President and CEO

Jim Meer – SVP, CFO and Treasurer

Analysts

Tom Shrader – Rodman & Renshaw

David Moskowitz – Caris & Company

Derek Taller – Benchmark Company

Tony Campbell – Knott Partners

Christopher Castroviejo – Directional Research and Trading

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Columbia Laboratories 2008 third quarter financial conference call. At this time, all participants are in a listen-only mode. We will facilitate the question-and-answer session following today's presentation. Please note that this call is being recorded.

At this time, I would like to turn the presentation over to Melody Carey, Investor Relations. Please go ahead, Ms. Carey.

Melody Carey

Good morning, and thank you for participating in Columbia Laboratories third quarter 2008 financial results conference call. This is Melody Carey of Rx Communications Group, Columbia's Investor Relations firm.

With me today are Bob Mills, President and Chief Executive Officer, and Jim Meer, Senior Vice President, Chief Financial Officer and Treasurer of Columbia Laboratories.

If you have not received the financial release that Columbia issued this morning, please call Rx Communications at 917-322-2568 and we will send it to you.

During the course of this call, management may make projections and other forward-looking remarks regarding future events and the Company's future performance. These forward-looking statements reflect Columbia's perspective on current trends and information and can be identified by such words as “expect,” “plan,” “will,” “may,” “anticipate,” “believe,” “should,” “intend,” “estimate,” and other words with similar meaning. Such forward-looking statements are not a guarantee of future performance, and involve risks and uncertainties, including those noted on Columbia's filings with the SEC on Forms 10-K, 10-Q, and 8-K.

Actual results may differ materially from those projected in these forward-looking statements. Columbia disclaims any intent or obligation to update these forward-looking statements.

For the benefit of those who may be listening to the replay, this call was held and recorded on November 6, 2008. Since then, Columbia may have made announcements relating to the topics discussed, so please reference the Company's most recent press releases and SEC filings.

With that, I will now turn the call over to Bob Mills, Columbia's President and CEO.

Bob Mills

Thank you, Melody. Good morning, everyone. The third quarter of 2008 was very exciting for Columbia, which culminated in our partnering with the Perinatology Research branch of the National Institutes of Health for our Phase III short cervix study. I will have a few comments on the third quarter financial results, a brief discussion on the details and many benefits of this NIH partnership as well as other developments during the quarter.

First, Jim will review our financial results. I will now turn the call over to Jim.

Jim Meer

Thank you, Bob. Good morning, everyone. For the third quarter of 2008, net revenues were $11.1 million compared to $7.3 million in the third quarter of 2007, which represents a 52% increase. Our progesterone gel franchise includes CRINONE 8%, PROCHIEVE 8%, that we sell in the U.S., and PROCHIEVE 4%, sold to Ascend Therapeutics for the U.S. market; and CRINONE 8%, sold to Merck Serono for foreign markets.

Net revenues from the progesterone franchise increased 61% to $6.5 million in the third quarter of 2008 as compared to $4.3 million in the third quarter of 2007. The increase is primarily as a result of higher sales of CRINONE 8% in both the U.S. and foreign markets and higher sales of PROCHIEVE 8% and 4% in the U.S. market.

The growth in CRINONE is primarily from unit volume increases and, to a lesser extent, price increases. Included in the CRINONE foreign revenues is a reduction in sales of $600,000 for prior period price adjustments, primarily resulting from a government rebate in Australia that reduced the price originally agreed to by Serono and Columbia by 50%.

During the quarter, the Company also changed its fee structure with wholesalers to be consistent with how other pharmaceutical companies account for wholesaler distribution fees. We are now recognizing a certain portion of the wholesalers fees expenses as a direct reduction in revenue that is offset by an equal reduction in selling and distribution expenses. For the third quarter, we reduced revenues by $375,000 for nine months as a part of this reclassification.

Our other products include Striant testosterone buccal system, which we sell in the U.S. and our marketing partner sell in Europe, and also Replens Vaginal Moisturizer and RepHresh Vaginal Gel, which our partner Lil' Drug Store sells worldwide. This category also includes royalty revenues from our various partners.

Net revenues from other products, including royalties, increased 54% to $4.3 million in the third quarter of 2008 as compared with $3.0 million in the third quarter of 2007. This was primarily due to the recognition of $2.9 million in the quarter for the cancellation of the organic contract for Striant due to Ardana's bankruptcy.

Back sales of products to Lil' Drug Store was lower by $1 million for the quarter, but sales to Lil' Drug Stores for the nine months was better than the first nine months of 2007.

Gross profit grew 48% from $5.6 million to $8.3 million. This growth in gross profit was due to a combination of the recognition of Ardana related deferred income and the growth in unit volume of progesterone products. During the quarter, gross margin decreased from 76% to 74%. This 2 percentage point decrease reflects the impact of the reduction in revenues of foreign CRINONE for earlier periods by $600,000 and the write-off of $700,000 inventory for short-dated batches of progesterone products that were manufactured to qualify new progesterone raw material suppliers and for other non-commercial inventories.

Total operating expenses were $8.4 million in the third quarter 2008 as compared to $7.5 million in the prior year period or a $900,000 increase. Selling and distribution expenses accounted for $600,000 of the increase. Increase in selling and distribution expense was primarily driven by the adding of 12 sales representatives and district managers, from 20 sales representatives to 32 sales representatives as well as marketing and market research expenses to aid the Company in selling CRINONE 8%.

General and administrative expenses increased $200,000 in the third quarter of 2008. Key expense increases were in professional fees and other expenses. Research and development expenses contributed $100,000 to the operating expense increase year-over-year. While not a significant dollar change, but it does reflect the addition of medical science liaison professionals for continuing medical education, along with higher PREGNANT Study expense, which was offset by lower Lidocaine expenses in which the trial was fully enrolled in Q2 2008 and completed in the third quarter of 2008.

Loss from operations in 2008 third quarter was $100,000 compared to $1.9 million in the 2007 quarter. Other income expense for the third quarter 2008 was $2.0 million versus $1.8 million in the third quarter of 2007. The net loss for the third quarter was $2.1 million or $0.04 per basic and diluted share compared to a net loss of $3.7 million or $0.07 per basic and diluted share for the third quarter of 2007.

For the nine months ended September 30, 2008, net revenues increased 38% to $29.3 million from $21.3 million in the 2007 period. Revenues from the progesterone franchise increased 35% and revenues from other products were up 42% over the same period in 2007.

Gross profit increased 40% over the 2007 levels. This growth in gross profit is due to a combination of the recognition of the Ardana related deferred income and the growth in unit volume of progesterone products. Gross margin percentage improved from 69% to 70%. This 1% increase reflects the impact of the Ardana deferred income, the reduction in revenues of foreign CRINONE earlier periods of $600,000 and the write-off of $700,000 of inventory for short-dated batches of progesterone products that were manufactured to qualify these new progesterone raw material suppliers and for other non-commercial inventories.

Operating expenses for the nine months of 2008 were $25.4 million versus $20.3 million in the 2007 period. Selling and distribution expenses increased $3 million, primarily driven by increased sales force, headcount, market research, and marketing expenses for CRINONE.

G&A increased $800,000, primarily as a result of increased professional fees and other expenses. R&D expenses were up $1.2 million higher in the nine months of 2008, reflecting higher level of activity on two clinical studies in 2008 period and costs of our contracted medical science liaison.

Our loss from operations for the nine months of 2008 was $4.9 million versus a loss of $5.6 million in the 2007 period. Other expenses were $5.8 million versus $5.3 million in 2007. Net loss for the nine months of 2008 was $10.6 million versus $10.9 million in the 2007 period. The loss per share was $0.20 in the nine months of 2008 versus a loss per share of $0.21 for the nine months of 2007.

At September 30, we had cash and cash equivalents of $12.8 million. This compares to $10.6 million at June 30, 2008. I'm frequently asked questions about cash burn. $1.5 million of the cash and cash equivalents reduction in cash and cash equivalents was due to cash losses from operations before changes to working capital. $100,000 of the increase was due to the increases in working capital for the quarter and capital expenditures were $300,000 for the quarter.

And with that, I'll turn the call over to Bob.

Bob Mills

Thanks, Jim. Progesterone revenues in the quarter were up $2.2 million over the third quarter of 2007, and for the first nine months they've increased $5.2 million over that same period in 2007.

From January 2008 to August 2008, average monthly CRINONE prescriptions increased 35% as a result of the efforts of our fully staffed sales force and execution of our marketing plan. This growth excludes prescriptions filled by specialty pharmacies, which do not report prescription data to IMS. Also, please note that we only have prescription data through August because September data is not available until mid-November.

Our sales territories are divided into four geographic districts. For January to August period, we have seen over 25% growth in each of these districts. The percentage of growth is higher in areas where CRINONE sales were lower prior to Columbia acquiring the product from Serono.

The West district is up 48.4%, and the Southeast district is up 69.5% for this time period. Of the two districts where the majority of Serono's sales were generated prior to our acquiring the product, the Northeast district is up 27.2% and the North Central district is up 27.1% for the January to August period. Digging deeper, from January 2008 to August 2008, 23 of our 30 territories have greater than 20% progesterone prescription growth, and 11 of these territories have greater than 50% growth.

On the marketing front, the American Society for Reproductive Medicine Annual Meeting is being held next week in San Francisco, California. This is the major meeting for our key reproductive endocrinology audience and is attended by physicians, nurses, and other key professionals from the RE offices. Columbia will have a very strong presence there.

Monday morning, before the ASRM meeting begins, Dr. Sandra Carson, Chair of the FDA Advisory Committee for Reproductive Health Drugs will speak at a Columbia sponsored continuing medical education symposium entitled (inaudible) support in reproduction, when, what and how. While Dr. Carson is also a member of Columbia's Medical Advisory Board, ASRM selected her to present the CME program, and therefore, we do not know specifically what she will say, but we believe Dr. Carson's talk will be favorable to CRINONE. 700 people have enrolled in this at-capacity symposium where initially only 500 were expected. We are very pleased by this display of enthusiasm by RE's to learn more about luteal phase support.

Columbia will have an exhibition booth that will be open and staffed throughout the ASRM meeting. It features new promotional panels with updated messages and cutting edge videos that will attract ASRM attendees to the booth to meet with Columbia representatives about the use of progesterone in their practices.

Also, as part of our exhibition booth, we are highlighting an interactive video of our retrospective analysis conducted by Dr. Brian Berger from Boston IVF of pregnancy outcomes with previously frozen embryos from donated oocytes of women who were treated with either CRINONE 8% or IM progesterone. An abstract of this study will be published in the ASRM manuscript, fertility and sterility, which all conference attendees will receive.

In a second video, Dr. Berger discusses results of a donor oocyte study. Each of these two large studies use CRINONE as progesterone replacement, not supplementation. And I want to underscore that CRINONE is the only product FDA approved for progesterone replacement.

Our booth will also display a video from Dr. Paul Zarutskie, presenting his re-analysis of a meta analysis of vaginal progesterone as luteal phase support in assisted reproductive technology cycle.

Finally, we are launching an animated video on the benefits of our bioadhesive drug delivery system to help our audience differentiate and select CRINONE over the effervescent vaginal tablet. We will add these videos to crinoneusa.com shortly after ASRM concludes.

On Monday, Dr. Elena Yanushpolsky, the principal investigator of the Brigham and Women study we have discussed on past conference calls, will give a poster presentation on the planned interim analysis of an ongoing study comparing luteal phase bleeding in IVF cycles, supplemented with CRINONE 8% or IM progesterone. The goal of this study was to identify the incidence of luteal phase bleeding in IVF cycles, supplemented with the two forms of progesterone and to correlate it with pregnancy outcomes.

The posters and abstracts are embargoed until the conference next week, so unfortunately, I am not allowed to say more on them at this time; but we clearly look forward to their release.

We are also sponsoring four dinners during the ASRM meeting, including one where Dr. Elena Yanushpolsky and a second where Dr. Berger will discuss their data with the dinner attendees.

Finally, as a platinum sponsor of the ASRM Conference, Columbia will enjoy increased visibility with our CRINONE branding on attendees hotel key cards, an exhibit passport contest to drive traffic to our exhibition booth and a CRINONE print ad in the official ASRM program. We expect that the takeaway from this meeting will be positive, putting CRINONE on the forefront in the minds of attending RE's, nurses and staff.

Moving to R&D, in September, we reported data from a 70-patient Phase II study of lidocaine vaginal gel to treat dysmenorrhea, a common condition typified by severe uterine cramps and debilitating pain.

The preference of a Phase II trial is to continue testing the safety of the drug candidate, while beginning to evaluate how well it works. Our Phase II trial was an aggressive attempt for a proof of concept and prevention of dysmenorrhea pain by once daily pre-dosing. Our previously completed pilot study showed a clear effect for a single dose of vaginal lidocaine to block induced dysmenorrhea pain, when dosing was perfectly timed for such an effect.

In the Phase II study, we evaluated the ability of once daily doses of vaginal lidocaine over four days to prevent the pain of dysmenorrhea in a real life clinical setting. Unfortunately, even with a doubling of the concentration of the vaginal dose from that used in the pilot study, the optimal timing for prevention could not be found in the clinical setting with once daily pre-dosing. Through this aggressive attempt at prevention, we learned that pre-dosing with this regimen and dose level is not probable.

Moving forward, we may consider a number of changes to align what we know works from the pilot study with what we have learned from the Phase II study. Some of the changes that could be considered include BID dosing, increasing the vaginal dose, prolonging the absorption with its light formulation change, and initiating dosing with the first twinge of dysmenorrhea pain, rather than have the patient guess when she believes her period and resulting dysmenorrhea will begin.

Dr. Tracy [ph] has begun discussing our data with expert physicians in pain management, two of whom are experts in dysmenorrhea pain trials. These experts opinions are critical to determining the future for our lidocaine program, and the early opinions of these experts are focusing on acute treatment, where it may be easier to measure improvement in episodal pain rather than prevention.

I want to point out that this Phase II trial costs us approximately $1.5 million and not the $10 million figure that several investors have questioned me about. This relatively low spend level demonstrates that if the Company determines that there is a path to move forward through additional development, PK trials and a new Phase II trial, either on our own or with a partner, it would not be exorbitantly expensive to do so.

While we did gain valuable insight from the secondary end point data that will help determine further development of our lidocaine product candidate, at this point in time, we are focusing our resources on developing PROCHIEVE 8% progesterone vaginal gel to reduce the risk of pre-term birth in women with a short cervix in mid-pregnancy. This is believed by increasing numbers of physicians to be the most predictive known and documented risk factor linked to premature birth.

We are currently conducting the PREGNANT Study, a randomized double-blind placebo-controlled Phase III clinical study designed to evaluate the effect of PROCHIEVE 8% on reducing the risk of pre-term birth in women with a cervical length between 1.0 centimeters and 2.0 centimeters, as measured by trans vaginal ultrasound at mid-pregnancy. The primary end point is a reduction in the incidence of pre-term birth at less than or equal to 32 weeks gestation versus placebo.

The most important secondary endpoint will be (inaudible) outcome. This includes a reduction in neonatal intensive care unit or NICU days, one of the key outcomes from our prior study. Reduced NICU days translates into significant dollar savings, as a day in NICU can run as high as $10,000, which has managed care watching our trial very closely.

I would like to remind the listeners on this call the benefits to infants we showed in our pre-term trial for women whose cervical length was first, less than 3.0 centimeters and then less than 2.8 centimeters. The women in our trial whose cervical length was 3.0 centimeters or less and were taking placebo, had 31% of their babies enter the NICU versus 16% of the babies from the PROCHIEVE group. The placebo babies for this group of women with a cervical length of less than 3.0 centimeters spent an average of 12 days in a NICU versus two days for the PROCHIEVE babies, which was highly statistically significant.

Now, moving to those women in our trial whose cervical length was less than 2.8 centimeters. The placebo group experienced a 52% admission rate to the NICU versus 16% for the PROCHIEVE group. In this group of babies whose mothers cervical length was less than 2.8 centimeters when they entered the trial, the placebo babies spent an average of 17 days in the NICU versus just one day for the PROCHIEVE babies.

The pharmacoeconomics are significant. And the bottom line was that the infant outcomes improved significantly for the PROCHIEVE babies. This data is a perfect segue for my next comment. Columbia recently entered into an agreement with the Perinatology Research Branch or PRB of the National Institutes of Health to collaborate on the PREGNANT Study. It is gratifying to have such an august organization as the NIH recognize the importance of an act in support of our research.

The Perinatology Research Branch conducts clinical and laboratory research in maternal and fetal diseases responsible for excessive infant mortality and morbidity. The PRB focuses on the study of mechanisms of disease responsible for premature labor and delivery.

Initially, the PRB planned to conduct its own trial to evaluate vaginal progesterone in short cervix patients. However, after serious consideration, the PRB, headed by Dr. Roberto Romero, decided that joining forces with Columbia in a single trial, and sharing data under one IND application, would be significantly more effective than conducting separate clinical trials.

With this collaboration, the protocol for the PREGNANT Study has been amended to add nine NIH sponsored sites, and increase the number of patients from 300 to 450. The PREGNANT Study was already well powered with a 300 patient cohort. By increasing the study to 450 patients, the power of this study to show improvements in both obstetrical end points and infant outcomes becomes very strong.

The increased statistical power and the partnership with the NIH will be important to physicians' adoption of the study results if they are positive. This includes the importance of measuring cervical length in mid-pregnancy with transvaginal ultrasound. Most importantly, if the study is successful, we expect the use of mid-pregnancy transvaginal ultrasound and the use of PROCHIEVE to prevent pre-term birth to increase more quickly and with less of a marketing cost through the prestige of the NIH's participation in this clinical trial.

At present, neither transvaginal ultrasound nor measuring cervical length in pregnant women are routine procedures. If the PREGNANT Study proves that PROCHIEVE 8% will prevent pre-term birth by slowing the shortening of the cervix, we expect the standard of care in the obstetrical ultrasound procedure and protocol will change.

No other organization could be more effective at helping us drive that kind of change than the NIH. The NIH has strong, longstanding relationships with the American College of Obstetricians and Gynecologists; the March of Dimes; and other government health care agencies. We believe the NIH will be instrumental in influencing the obstetrics community to adopt a new standard of care for women with high risk pregnancies.

By our estimates, it could take Columbia up to two years to get a majority of physicians to routinely measure cervical length with transvaginal ultrasound. With NIH backing, we believe the shift in standard of care to transvaginal ultrasound could occur in half that time. Ultimately, this allows us to generate higher revenues at a much quicker rate and with a lower marketing cost to Columbia.

Today, 19 Columbia sites have received IRV approvals and patient enrollment has been ongoing. This includes five sites in India, which we know will be strong recruiters. Another U.S. site is poised to go active in the near future, and we will add up to nine additional Columbia sites to ensure we meet our enrollment goals.

The nine NIH sites are in the IRV process, and we expect many of them to be recruited by December or January. As we see how quickly the additional sites are approved and recruiting, we will know what impact this will have on our projected time line for announcing study results. Again, the NIH influence with OB-GYNs should afford Columbia greater exposure to OB-GYNs for both recruiting and, if the study is positive, faster use of PROCHIEVE to prevent pre-term birth.

The NIH will pay for all the costs of the additional 150 patients except the cost of collecting the data and FDA approved monitoring of the NIH sites. All clinical data, whether generated by the NIH sites or Columbia sites will be collected centrally. Assuming success in this study, results will be immediately available to Columbia for regulatory filings.

Every year, more than 0.5 million babies are born before 37 weeks gestation. If our study is successful in reducing the rate of pre-term birth in women with a short cervix, and if we are able to obtain regulatory approval for our label expansion, PROCHIEVE 8% will become the first FDA approved therapeutic to address any aspect of this problem.

As we have previously stated, we filed a patent covering the use of any progestan by any route of administration to prevent pre-term birth in women with a short cervix. If granted, this patent would offer us protections for PROCHIEVE 8% and this new potential indication through 2028.

We remain active on the investor relations front, and we're pleased to see many of you at our presentations at the UBS Global Life Sciences Conference in September and the Oppenheimer Health Care Conference earlier this week.

Despite the challenging economic conditions of the past few months, we continue to execute our strategy to attract new investors and analysts, and maintain positive relationships with our current shareholder base and covering analysts.

As we noted in today's press release, the Company intends to file a universal shelf registration statement with the SEC in November to cover the possible future issuance and sale of common stock, debt securities, and other types of securities having an aggregate purchase price of up to $50 million. The new shelf registration statement will replace Columbia's current $75 million shelf registration statement, which was filed in May 2000 and is scheduled to expire on December 1, 2008 under SEC rules.

So when you see an S3 filing later this month, it's not that we've sold $50 million in stock; it's just the filing of this new shelf registration. It has been the Company's longstanding policy to maintain a shelf registration statement at all times, and we consider this a best practice in responsible corporate management. Having a shelf registration in place gives the Company ready access to equity financing, enabling management to take advantage of good opportunities that may arise.

The terms of any future offerings would be established at the time of the offering. And let me make it crystal clear that the Company does not now have any commitments to sell securities under the registration statement. These statements about the shelf registration do not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of securities in any state in which an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such states.

Finally, we have engaged assistance in the business development area and are actively involved in exploring opportunities with lidocaine, Striant and CRINONE as well as new projects in our marketplace.

With that, operator, please open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions) We will now take our first question from Tom Shrader with Rodman & Renshaw.

Tom Shrader – Rodman & Renshaw

Good morning.

Robert Mills

Good morning, Tom.

Tom Shrader – Rodman & Renshaw

Congratulations on all the ASRM presence. I have three kind of disjointed questions. First, to the dysmenorrhea trial, you talked a little bit about a formulation change in terms of releasing. Do you mean you change the density of the polymer? Is that what you're talking about?

Bob Mills

The change – you might look at changing the way the matrix is formed, the concentration of the polymers, to allow us to release maybe over a longer period of time.

Tom Shrader – Rodman & Renshaw

Did you have a sense of how long released over in the previous formulation?

Bob Mills

Yes, on the pilot trial, we knew the half life was around 12 hours, so the – based on that, our belief was that it would release over pretty close to the 24 hour period, which is why we went with one day – once-a-day dosing. But that's one of the things that we will be looking at to see if, in reality, it didn't really release over that whole 24-hour period.

Tom Shrader – Rodman & Renshaw

So do you have some data from the people in the trial as to drug levels at different times?

Bob Mills

We do. The blood work is all being tested, so we will have that data available to us.

Tom Shrader – Rodman & Renshaw

Okay. And we would see full data on the secondary end points from this trial when?

Bob Mills

Well, I believe that George has interest in having some of this data published. So I would anticipate it's probably several months away until that data might be available – or it might be presented at a medical conference. I mean, in that case, we would – it would be available then.

Tom Shrader – Rodman & Renshaw

But no firm plans yet?

Bob Mills

No.

Tom Shrader – Rodman & Renshaw

Okay. And I appreciate using the news centers and the new thought leaders to try to get cervical length measured. Can you give us a little sense of the equipment involved? Does everybody have everything they need? Is there another piece of equipment that some people don't have?

Bob Mills

Tom, I like that question. So the – just so I can make it clear for everybody. When we started this trial initially, most of our investigators felt that they would be able to screen these women with an abdominal scan because the standard of care is to do an abdominal ultrasound at about week 18 to week 22, somewhere in that time. They call it a fetal anatomy scan. Now, they're basically looking are all the parts there? What they thought they would be able to do relatively easily was to do a screen and actually measure it with the abdominal, and pick all those women that had a cervical length of, say, less than 3.0 centimeters, and then do a TVU to qualify them to get into the trial if they had a cervical length of between 1.0 centimeter and 2.0 centimeters. And it was working. So that's why we announced we were going to do all TVU scans.

The only actually almost every OB-GYN and all the MSM centers have an abdominal scan unit. They all can do ultrasound. The device is simply a tool that rather than the wand that you may be used to that goes on your stomach if you have had an ultrasound, this is a wand that goes on in place of that stomach wand and is used to actually insert into the vagina. It's a slightly different probe. It costs about $10,000, and all these centers have them. So it's not an issue of them having them or not having them, it's just more what's been the way they've dealt with this and it's been typically the abdominal scan at 20 weeks.

Tom Shrader – Rodman & Renshaw

And any curve to use – any learning curve to use this new measuring?

Bob Mills

A little bit, but what we – part of our program is that any sonographer and all our investigators have been certified as capable of doing this test and it is measured by how precise they do repeat tests and then they measure the precision of them. So they're trained and then we certify them.

Tom Shrader – Rodman & Renshaw

Okay. And then one fine structure question on finances for Jim. I appreciate year-over-year sales are up quite strongly. Quarter-over-quarter, they look like they're at best flat. Do you have big buyers or something? Do you sell – is it lumpy or can you tell us what's going on quarter-over-quarter for progesterone franchise?

Jim Meer

The progesterone franchise quarter-over-quarter, in the third quarter, we took almost $1 million worth of charges to sales. We had $600,000, which included partially a prior period adjustment for foreign CRINONE sales, where the CRINONE and Columbia had agreed to a price at the beginning of the year and then turns out that they sold at a 50% discount to – under a government tender in Australia. We didn't know about it. They told us about it in the third quarter, so we took a charge for that. And that was $600,000. And then we also had the reclassification of the wholesaler fees, which were being charged to salesmen and distribution expenses, that's about 3 – almost 3 – I think it's $375,000 is now going to be charged to as a reduction in revenues. So – and that all occurred in the third quarter. So, clearly, when you add those back, we have an increase quarter-over-quarter in terms of progesterone sales.

Tom Shrader – Rodman & Renshaw

(inaudible)

Jim Meer

And in the case of other products, we had the $2.9 million recognition of Ardana deferred revenues. In the past, we had recognized roughly $800,000 a year for that Ardana revenue, which we will no longer be recognizing in the future. And in the quarter versus the second quarter we had a – I'm sorry, versus the same period over last year, $1 million less sales to Lil' Drug Stores, but on a year-to-date basis, our sales with Lil' Drug Stores are better than they were relative to the 2007 period.

Tom Shrader – Rodman & Renshaw

Okay. So do you happen to know unit volume increase quarter-over-quarter and year-over-year?

Jim Meer

Unit volumes did increase year-over-year in the progesterone area.

Bob Mills

Yes, let me – last year was $4.3 million sales in all progesterone, this year, it was $6.5 million.

Tom Shrader – Rodman & Renshaw

Okay.

Jim Meer

The price increase that was put into place was only done in the third quarter and it was not – so the answer is on a year-over-year basis, volume was up.

Tom Shrader – Rodman & Renshaw

Okay. Thank you.

Operator

And we will now go to David Moskowitz with Caris.

David Moskowitz – Caris & Company

Hi, good morning, guys.

Bob Mills

Hi, David.

David Moskowitz – Caris & Company

So, several questions. Just kind of coming off the last question you had, let me ask it a different way. So, very strong sales year-over-year, I understand there was an easy comp in the third quarter. What would you say the base run rate is that we should expect exiting the year? What kind of growth does this franchise have going into 2009? And again, could you repeat the price increase? So when I ask for growth, I'm talking about from a volume perspective. But then also if you could tell us what the price increase was.

Bob Mills

Well, as I – I'll have to answer in several different ways. From a CRINONE standpoint, based on where we started at the beginning of the year through August, our prescriptions are up 35%. So that's going to translate into increased volume of product. Now what is – the big question mark obviously out there is, because this is highly cash paid business, where the patients have to pay cash in probably at least 50% of the cases, will the economy have a slight impact there? So we don't expect and then talking to many of the reproductive endocrinologists, they say they haven't seen a drop-off, so I'm going to – at this point, I'm taking them at face value. Obviously, we'll be asking a lot of the same questions at ASRM next week, what that looks like.

From a CRINONE foreign standpoint, there will be probably a slight reduction, in a sense that not in volume, but because of the exchange rate, the amount of dollars that are coming back to us. I think currently there is almost a 23% reduction in the euro as compared to the dollar. So that obviously will have some impact. I see no reason why the reps – the growth won't continue. They're making nice inroads. We're having a lot of good conversations with the REs, and we're seeing the OBs listen to our story about the step regimen, which is helped using progesterone along with (inaudible) citrate. Hope that answers your question, David.

David Moskowitz – Caris & Company

And the price increase? Could you give us (inaudible) to do that?

Bob Mills

Yes, we did an 8% price increase in the – at the end of the second quarter.

David Moskowitz – Caris & Company

Thanks. And just some questions on the PREGNANT Study. Number one, could you give us an idea of how enrollment is going? I think we talked about enrollment completing early next year or by year-end. And obviously that's on the 350 patients. On the new 150 patients through the NIH, I think one of the criticisms of NIH-run studies is their motivation and speed of execution. And I think you guys and investors are really expecting this data sometime in the middle of 2009, maybe third quarter. Can you speak to how you see the NIH being motivated to meet your time line?

Bob Mills

I'm going to try and figure out how I best formulate this. From a standpoint of where we are now, we're comfortable with where we are. As I've mentioned, we did have some start-up issues, so that's why we decided to add the nine sites. And we weren't seeing the number of patients that we wanted to see within a certain range, which is why we are now paying all the sites to do TVUs as a screening method. So from an NIH standpoint, David, this group within the NIH, they call the MSM unit, there is actually two significant groups. One is the MSM unit that you hear about that runs all the trials in the United States. And their network usually consists of somewhere between 18 sites and 25 sites in the United States where they run all their trials.

On the other side is this Perinatology Group, which is primarily studying outcomes for infants and how do they improve infant outcomes and so on. They are more on a worldwide basis, David. And so, what they can do as they pick their sites is they go to what they consider to be the best site and the ones that will be able to enroll the quickest for this kind of study. I've met Dr. Romero, a number of times over the last couple of months. He is very motivated. We will be monitoring all the sites. So we will make sure that they recruit. Now, on the other end is once we reach the 300 point, and let's say that doctor at the NIH sites have only enrolled 120 at that point. We will – once these studies get rolling, enrollment typically gets – picks up a lot of momentum. We just won't stop. We'll make sure we get to 450 in the most expedient way we can.

David Moskowitz – Caris & Company

Got it. And in terms of – again, I ask a question about enrollment and how you're doing relative to your targets. So, are the time lines still intact that you guys talked about?

Bob Mills

As I mentioned, with the NIH adding sites and not really probably recruiting even until December or January, I'll probably be in a better position to tell you when we expect to finish all the enrollment little later on. I can't really tell you today because I just don't know how quickly these sites are going to come up. They're all in the process and we do expect them all up by December, January. And then I'll be able to see how fast they do it, they enroll, and then exactly where we are at that point.

David Moskowitz – Caris & Company

Okay. Very good. And just lastly, the cash, about $12.8 million in cash.

Bob Mills

I think the burn is somewhere between $1.5 million and $2 million.

David Moskowitz – Caris & Company

Can you speak to that in terms of – obviously, in this environment, you put the shelf up; obviously, liquidity is still questionable in terms of whether it's flowing. Talk about how much cash you have relative to the operations in terms of the time lines.

Bob Mills

Well, you're correct. We've been burning on an average about $1.5 million a quarter. That will likely increase slightly because of paying for these TVUs. And we built that in and that was one of the reasons we went out and raised the $4 million that we raised in August, was to help pay for that. But we are also looking at other areas where we can reduce expenses. So I think if you took the $12 million that we have and divide it by $1.5 million to $2 million, that would tell you how many quarters going forward and hopefully by then, we have an approved product and CRINONE has grown to the point where it's not an issue for us.

David Moskowitz – Caris & Company

Okay. And just one last question on that particularly when does the burn go from that $1.5 million to $2 million? Is that already starting in the fourth quarter?

Bob Mills

Yes, you will see it in the fourth quarter, but it's part of our budgeting process, we're also looking at – is there places in which we can also reduce and try and keep the burn at no greater than $2 million, but closer to $1.5 million, if possible.

David Moskowitz – Caris & Company

Okay. Thanks a lot.

Bob Mills

Alright. David.

Operator

We will now go to Derek Taller with Benchmark.

Derek Taller – Benchmark Company

Congratulations on a great quarter. I had a couple of questions. The first being, on the PREGNANT Study, the theory – I don't know how many pre-specified DSMB meetings you have as part of your statistical plan. But if we look at the mega trial which has a similar application of this and its success – it was very successful, there were about 67 events with 250 patients. So assuming the patient characteristics are the same, your 450 patient trial could yield about 120 events or pre-term births. And I was wondering if you thought the DSMB could actually halt this trial on positive efficacy at some point, and accrual rates at that point would become a non-issue?

Bob Mills

The FDA is very much against on – especially on trials where it's involving pregnancies and babies, and stopping the trials and doing an interim analysis. And one of the downsides to that is a huge statistical hit. But putting that aside, this trial with all these sites coming up will recruit a significant number of the women within a relatively short window. And what will happen is once these women are all recruited, the next key point is at what point do those babies get born? And so you're adding from the last to present date that the last person is recruited through the date that they deliver, about somewhere between 4 months and 5 months – 4.5 months, let's say. So what will happen, Derek, would be, let's say at 300 or 250, you decided, okay, let's take a look at this. By the time that last woman of that 250 has her baby and it's actually then when you can look at it, everybody is included. So you might as well not look at the information, because you're going to take such a huge statistical hit to look at it, you might as well just wait and say, okay, let's just have all and we'll just wait the extra four months or five months and get the data. Does make sense?

Derek Taller – Benchmark Company

Sure. And second question, regarding off-label sales, is there a way that you could potentially think that your medical liaisons have the opportunity to gain some traction ahead of the data? I believe in January, an MFM conference and – I mean, with the NIH sponsoring the PREGNANT Study as well, is there any data that can be provided to physicians that would tell them to use the drug ahead of the data?

Bob Mills

I guess the question of that is yes and no. That may sound kind of goofy, but let me explain why. The MSLs, what they try to do is meet with the doctors that we consider to be influential doctors, meaning they're considered the thought leaders and so on. And what they do is have meetings with these physicians. And they do not promote the product; but what they do is they can talk about the science of what's happening around cervical length, around measurement, around the use of products or what physicians are thinking in regards to that. And so our goal is to have these physicians ask the questions that allow the medical science liaisons to share with them what's becoming more and more information that's available around the short cervix study, including our data. And including the article that we have, including the study that was done in the UK, including the Nicolitis and toe [ph] data about the risk of a pre-term birth if a woman has a short cervix. So the idea is to try and share with these doctors everything.

And again, without promoting the product, but get a light bulb to go on in their heads that says, gees, all this information it sounds very convincing, the product is already on the market. Hell, I ought to be telling people they should be using it. And that's what the goal of the MSL program is. So in response to what – I guess in response to your question, that's really what you're trying to do. There is not really anything from our current trial that we would be able to share, but from our past trial, it clearly can be shared. We also are conducting what we call continuing medical education programs. And they're run through 10 states. Now, we can't have influence on this, but Fed, State through our medical education group puts together a program that talks about everything that these MSLs are also talking about with doctors. And that is, the science is out there and all the available data, and then they present this to typically at grand rounds, at hospitals, where you might have 50 doctors to 100 doctors that get together once a week to have that information passed onto them. Again, the idea is can you get some light bulbs to go on in some of these folks heads say, gees, I understand all this. And you know what? There is a product on the market. And that's what we're trying to do, in essence, to garner maybe some little off label sales, but do it all legally.

Derek Taller – Benchmark Company

And then finally, given that you have U.S. rights to the short cervix indication for the CRINONE PROCHIEVE, are you considering partnership ahead of the data, potentially, for the U.S. and then deal with rest of the world separately?

Bob Mills

Yes, I'm speaking with some various institutions that are helping me determine strategically what the right thing to do there. So am I willing to speak with people ahead of time about a partnership opportunity? I guess the answer to that is absolutely.

Derek Taller – Benchmark Company

And with regard to lidocaine and Striant, can you talk about your business development plans there? If the lidocaine application includes not just lidocaine, but the delivery system itself, and if people are interested in that technology?

Bob Mills

Yes. The lidocaine – I mean, obviously, we still have a lot of work to do with lidocaine as far as putting together what might make sense. But when we're done with all this, Derek, and there looks like there is a package that we can put together, and we know that the data – these (inaudible) experts are telling us this pilot data is really, really good data. This Phase II helps to direct you to how you should design another trial. The PK work, when we have all the blood results, will help us understand whether we had levels in the bloodstream that were not as high as we would have liked or that weren't there as long a period as we would have liked, so we know we have to do some formulation. The ideal would be, if we could put a full package together, my preference would be – because my focus right now, I just want to focus on short cervix, that's the next – that's the big opportunity that's coming up, would be to partner that out. But again, I'm probably a good month or month and a half away from having that package, if I know the package is good, of putting it together.

On the Striant side, the testosterone side, one of the things that the person I hired is to do is to put together a package and see if there might be some interest in buying that product. I haven't been overly aggressive in trying to do that up until this point, where I think maybe now might be time because we've spent so little effort on the sales force side. My goal with the sales force has been keep it at $2 million. It generates $1.9 million in gross profit, which is helpful to the business. And so now I've kind of rethought that and we are going to look and see if there is an opportunity to sell the product or at least partner it somehow, where somebody else promotes it and we get a royalty stream out of it.

Derek Taller – Benchmark Company

It's sort of unrelated, but have you explored testosterone applications with – or vaginal applications with testosterone?

Bob Mills

Vaginal applications with testosterone?

Derek Taller – Benchmark Company

Using the lidocaine technology – or the technology used for lidocaine.

Bob Mills

No, actually what we've done is explored it in the buccal tablet used vaginally or a vaginal tablet. And actually, we've done some clinical work, this was several years ago. The idea there being, the testosterone, to use it to reduce or get an indication for reduction of uterine fibroids, and then get the side benefit – I'm sure this is where you're going, the side benefit of female sexual dysfunction use.

Derek Taller – Benchmark Company

Okay. Alright. Thank you.

Bob Mills

You're welcome.

Operator

And we will take our next call from Tony Campbell with Knott Partners.

Tony Campbell – Knott Partners

Just a point of clarification. I think I might have missed this, but you were talking about the progress in various sales territories. And the one territory that I seem to have missed was the West Coast territory. So I'm wondering if you could refresh my memory as to – ?

Bob Mills

Yes, the West Coast, as compared to where they were in January through August is up 48.5%. It's off of slower numbers now. The big numbers for Serono were always on the Northeast and the Chicago area. And so obviously, our biggest growth from a percentage standpoint has been in the southeast, where there was very little sales, and in the West, where there wasn't a lot of sales as well.

Tony Campbell – Knott Partners

So can you give us some more color there? Because – am I correct in understanding that really the West Coast, as a percentage of prescribers is – it's quite a large market. So it seem to me that even though the percentage gain is good, our penetration level might be still very low. Is that a fair statement or no?

Bob Mills

That's a fair statement. It's not nearly where I want it to be. But it's – if I can continue at a 48% growth rate, it won't take long to get there.

Tony Campbell – Knott Partners

Yes. No, I understand. I just – okay. So, okay, that's good clarification. And then are we totally – I guess we're looking at 450 patients. Do you believe that even with that number of patients that the trial is sufficiently powered? Should it be 500?

Bob Mills

Tony, as I explained to another investor that asked me the same question a week ago, when you get – as these trials get rolling, and it happened in our last trial as well, you get to a point where you can't even stop them without adding another 40 patients or 50 patients. I think you know me well enough – at 450, we're powered at about 94% at 500, we're powered at 95%. You can't get any higher than 95% basically. We will likely – if the enrollment is going very well, just go to 500 and make sure that we're powered at 95%. But officially with the FDA, we're at 450.

Tony Campbell – Knott Partners

Okay. And then one final clarification. With regard to business development, is this an internal business development person or is this an external team that you have hired?

Bob Mills

No, I'm still looking at an external team to really focus on some aspects of what we're doing. This is not an internal person, it's an external, but he is very much focused – this one is focused on lidocaine – or not lidocaine, on Striant, and helping us with trying to find other products to add to our bags, so the reps have more than just CRINONE in their bag. The team that we would intend to hire and we're interviewing some folks would be focused on – if there is an opportunity, it would be lidocaine, it would be lidocaine if it makes any sense to (inaudible) to partner the PROCHIEVE, it would be in that area as well.

Tony Campbell – Knott Partners

Well, I hope you make a decision forthwith. Thank you.

Operator

And our next question comes from Christopher Castroviejo with Directional Research and Trading.

Christopher Castroviejo – Directional Research and Trading

Thank you. My question was answered by one of Derek Taller's questions. So I'll withdraw.

Bob Mills

Okay. Thank you, Christopher.

Operator

And this concludes our question-and-answer session. At this time, I would like to turn the conference over to Bob Mills for additional or closing comments.

Bob Mills

Thank you. With the roller-coaster market conditions, I realize there are many demands on your time. And I want to thank you for participating in today's call and for your ongoing support of Columbia Labs, and our mission to develop and successfully commercialize our bioadhesive pharmaceutical products. We remain confident that the 2008 revenues will fall in the range of $35 million to $40 million as previously guided. This represents an increase of more than 18% over 2007 and more than 100% over 2006. And with that, I bid you all good day.

Operator

This concludes today's conference. We thank you for your participation. Have a nice day.

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