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Columbia Laboratories, Inc. (NASDAQ:CBRX)

Q4 2008 Earnings Call Transcript

March 5, 2009 11:00 am ET

Executives

Melody Carey – Investor Relations

Bob Mills – President and Chief Executive Officer

Jim Meer – Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Natalie Mateffy [ph] – Rodman & Renshaw

David Moskowitz – Caris & Company

Jim Malloy – Caris & Company

Derek Taller – The Benchmark Company

Operator

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

At this time, I'll turn the presentation over to Ms. Melody Carey, Investor Relations. Please go ahead, Ma'am.

Melody Carey

Thank you for joining Columbia Laboratories' fourth quarter and year end 2008 financial results conference call. This is Melody Carey of Rx Communications, 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 press 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 will make projections and other forward-looking remarks regarding future events. These forward-looking statements reflect Columbia's current perspective on existing trends and information, and can be identified by such words as expects, plans, will, may, anticipate, believe, should, intend, estimate and other words of similar meaning. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in Columbia's filings with the SEC on Forms 10-K, 10-Q, and 8-K. Actual results may differ materially from those projected in the forward-looking statements.

For the benefit of those who may be listening to the replay, this call was held and recorded on March 5, 2009. Since that date, Columbia may have made announcements relating to topics discussed, so please reference the company's most recent press releases and SEC filings. Columbia disclaims any intent or obligation to update these forward-looking statements.

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

Bob Mills

Thanks, Melody. Good morning, everyone. I am very pleased to report another landmark year for Columbia. In 2008, we recorded the highest revenues in the company's history for the second consecutive year meeting our revenue guidance. Net revenues grew 23% from 2007 with underlying growth of 18% in our Progesterone Products business and 33% growth in other products.

After Jim Meer reviews financial results of the fourth quarter and full year 2008, I will discuss my views on our core business, the 2008 financial results, and our growth strategy for 2009, concluding with the review of our product pipeline before we open the phone line for questions.

With that, I'll turn the call over to Jim.

Jim Meer

Thank you, Bob. Good morning, everyone. For the fourth quarter of 2008, net revenues were $7.1 million compared to $8.3 million in the prior year period. Underlying this decrease was a 20% decrease in our fourth quarter Progesterone revenues, driven by a 45% decrease in the sales of CRINONE to Merck Serono due to the timing of order shipments. It is very important to understand that for the year, sales to Merck Serono are up 13% in dollars and 30% in units, clearly reflecting the effects of their buying patterns. It is also important to note that net revenues from CRINONE and PROCHIEVE 8% in the US increased 11% in the fourth quarter of 2008 over the prior year. In total Progesterone sales were $5.2 million in 2008 versus $6.5 million in 2007.

Net revenues from other products and royalties were $1.9 million for the fourth quarters of 2008 and 2007. Sales of RepHresh and Replens Lil' Drug Stores increased 39% over the fourth quarter 2007 levels and as expected, there was no royalty income from Ardana in the fourth quarter of 2008. We terminated the license agreement in the third quarter after Ardana declared bankruptcy. Sales for STRIANT in the US were essentially unchanged year over year. Gross margin percentage for the three months ended December 31, 2008 was 69% compared to 71% for the same period in 2007. This reflects the higher cost of Progesterone raw materials, fees paid to wholesalers, and adjustments to Merck Serono sales for price adjustments and foreign exchange.

Operating expenses was $7.3 million for the fourth quarter of 2008 compared to $8.5 million in the prior year period. The decrease in operating expenses was due to lower R&D and selling and distribution expenses in the 2008 quarter. The 2007 fourth quarter R&D expense included costs for two clinical trials, startup expenses for the PREGNANT trial, and enrollment expenses for the lidocaine dysmenorrhea trial, whereas the 2008 fourth quarter R&D expense included only costs of the PREGNANT Study which were predominately enrollment expenses. Selling and distribution expenses were $300,000 lower in 2008. The loss from operations was $2.4 million in the fourth quarter of 2008 compared to $2.5 million in the fourth quarter of 2007.

Other income and expense for the fourth quarter of 2008 was an expense of $1.9 million versus an expense of $1.7 million in the fourth quarter of 2007. A $200,000 increase in expense resulted from lower interest income. On a separate line, we recognized the sale of New Jersey tax losses for $900,000, which was $100,000 more than in 2007. Because we already sold most of our New Jersey tax losses, we do not expect a material contribution in 2009 on this line. As a result, the net loss for the fourth quarter of 2008 was $3.5 million or $0.06 per basic and diluted share compared to the net loss of $3.4 million, or $0.07 per basic and diluted share in the fourth quarter of 2007.

Now, let's turn to the full-year results. For the year ended December 31, 2008, net revenues increased 23% to $36 million from $29.6 million in 2007. Revenues from Progesterone franchise increased 18% and revenues for all other products were up 33% over the same period in 2007. The other products included a $2.9 million one-time recognition of deferred revenues from STRIANT licensing fees from Ardana which entered bankruptcy in June of 2008.

Gross profit increased 23% from 2007 level, and we maintained a 70% gross margin. As with the fourth quarter, this reflects higher cost of Progesterone raw materials, fees paid to wholesalers, and revisions to Merck Serono sales for price adjustments and foreign exchange fluctuation the impact of which were mostly offset by the organic deferred revenue recognition.

Total operating expenses increased 14% to $32.7 million from $28.7 million in 2007. This reflects a 28% [ph] increase in selling and distribution costs due to the full-year effect of the sales force expansion in the second half of 2007 and the new marketing programs for CRINONE. R&D costs increased 7% due to the fees for contracted medical science liaisons, offset by lower clinical trial costs in 2008. G&A costs increased 10% over 2007 levels due to higher professional fees for legal and accounting. As a result, the loss from operations to 2008 was $7.3 million versus a loss of $8.1 million in 2007. The net loss for the year ended December 31 was $14.1 million versus $14.3 million in the 2007 period. On a per share basis, the loss is $0.27 per basic and diluted share in 2008 versus a loss of $0.28 per basic and diluted share in 2007.

At December 31, 2008, we had cash and cash equivalents of $12.5 million. Cash flow from operations before working capital changes and other asset changes resulted in a net cash loss of $4 million, plus asset changes of $1.3 million for a total of $5.3 million usage of cash in operations, which works out to be about $1.5 million per quarter versus $2.5 million cash loss for 2007, plus asset changes of $5.4 million for a total of $7.9 million or $2 million per quarter.

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

Bob Mills

Thanks, Jim. As Jim mentioned, revenues for 2008 were $36.3 million, meeting our revenue guidance of $35 million to $40 million. Revenues from our Progesterone Products business grew from $20.5 million in 2007 to $24.1 million in 2008. This 18% increase was driven by strong growth in both foreign and domestic markets. In the US, because our sales force marketing efforts, Progesterone revenues were up 21% over last year. Underlying average weekly CRINONE and PROCHIEVE prescriptions grew from roughly 900 per week in January of 2008 to over 1,100 prescriptions per week in the last four reporting weeks.

According to IMS data, our 18% to 20% unit growth was higher than any other progesterone during 2008. This growth resulted from a combination of efforts on two fronts, first, converting reproductive endocrinologists from injecting progesterone in oil with a very large and painful needle, or what we call IM progesterone to CRINONE; and second, convincing obstetricians that when using clomiphene citrate, they should supplement with progesterone and then, following a positive pregnancy test, keep the patient on progesterone supplementation for the next 8 to 10 weeks. Achieving this growth in infertility, which is an elective procedure and is often paid in cash by the patient, despite the current economic environment, affirms our decision to expand the sales force in the second half of 2007, and to increase our presence at key medical meetings attended by our core physician audience.

Furthermore, we achieved this growth despite the softening of the US infertility market as a whole during the last four months of 2008. In the fourth quarter, while the volume of infertility treatments decreased 10% to 20% from the preceding quarter, which obviously affects the use of progesterone, US CRINONE sales increased 11% over the fourth quarter of 2007. Typically, fewer infertility treatments are performed in November and December due to the number of significant holidays. We believe the Q4 drop in infertility treatments may have been magnified by the weakening economy. While January prescriptions remained at November and December levels, we were pleased that IMS prescription data showed a nice rebound in infertility treatments during the last few weeks of IMS reporting.

As we move forward in 2009, there is always the possibility that the US and global economy will affect our infertility business more than anticipated, especially our cash paid infertility business. Infertility is considered an elective procedure, and as many as 40% to 50% of infertility patients must pay for these $10,000 to $15,000 treatment cycles out of pocket. Except in states where infertility is a mandated insurance coverage, many companies do not offer infertility as part of their benefit plans because of the expense. On the other side of the coin, almost 60% of all ART infertility cycles are completed in women 35 years of age or older. These women may be unwilling to delay these procedures until the economy improves, given the fertility rate declines precipitously with every passing year over 35. One last note on our US infertility business. We are slowly converting our infertility business to CRINONE only and PROCHIEVE 8% now contributes only about 18% of the total weekly prescriptions. Our goal is to eventually sell just the CRINONE brand for infertility. This will reduce marketing and manufacturing and quality costs, as well as simplify wholesaler contracting.

Outside the US, where CRINONE is marketed by Merck Serono, sales of CRINONE increased 13% in 2008, even though we experienced a significant reduction in orders from Merck in the fourth quarter as compared to the first three quarters. For 2009, Merck Serono has given us a conservative forecast that is basically flat in unit volume for 2009. However, the effect on our 2009 revenues will likely be magnified by two major economic issues. First, our revenues from Merck Serono are affected by the fluctuation of international exchange rates. Merck Serono buys CRINONE from us in dollars based on their euro-based sales, and as the US dollar strengthens, we receive fewer dollars on those sales in euros. Second, governmental pricing pressures on Merck Serono reduced the prices paid to Columbia by Merck Serono. This is particularly the case in high growth regions of Southeast Asia and Australia where governments have mandated discounts for CRINONE.

One potential upside from Merck Serono, which we just learned of yesterday is their recent approval of CRINONE in China, a potentially large market. We look forward to receiving additional information from Merck Serono on the timing of their launch of CRINONE in China and the quantity of product necessary to support the launch of the product.

Because of the heightened uncertainty of foreign CRINONE revenues, we will review the Merck Serono ordering patterns and currency exchange rates for the first three to four months of sales in 2009, and adjust our revenue forecast for our non-US Progesterone Products business in 2009 if necessary. For 2009, even with the challenges we face in the foreign markets, we are projecting 15% to 20% growth from our progesterone franchise used in infertility. US growth will be driven by continued emphasis on converting users of intramuscular progesterone injections and compounded vaginal suppositories to CRINONE, and by increasing the use of CRINONE to optimize clomiphene citrate cycles. With 16 clinical studies showing CRINONE has statistically comparable efficacy, and often numerically better efficacy when compared to other progesterone products, we have a solid, well-documented message that resonates with our physician audience. Additionally, in all six patient preference trials, the patients preferred CRINONE over other forms of progesterone on a highly statistically significant basis. This is a truly compelling argument for converting to CRINONE.

In 2009, we expect the publication of two additional studies. One is a new meta-analysis, which is a statistical analysis of data from several medical studies, to determine the outcome from a larger, combined patient base. The new meta-analysis will show that appropriately dosed vaginal delivery of progesterone achieves comparable pregnancy outcomes to IM progesterone injections. A significant majority of the trials in the meta-analysis were actually CRINONE studies. This meta-analysis will be published in Infertility and Sterility we believe in the first half of this year.

The second is a full clinical study comparing CRINONE to IM progesterone that was conducted by the Brigham and Women's Hospital in Boston. We understand that this study is complete and that a manuscript is being readied for publication. This study of over 440 women is expected to be presented at the American Society of Reproductive Medicine meeting to be held in October 2009 and then published thereafter. While I am not at liberty to disclose details of the clinical trial, we understand that the Brigham and Women's has already converted their practice away from IM progesterone to CRINONE based on the results of the trial. These two publications should increase visibility of the two key messages for CRINONE that it is an effective and patient-friendly product, further supporting our marketing efforts.

Revenues from other products increased 33% in 2008 to $12.2 million, mainly because of the one-time recognition in the third quarter of $2.9 million in deferred income from the STRIANT licensing fees from our former European partner, Ardana, which was entered bankruptcy in June of 2008. Stripping out this non-recurring event, 2008 other products revenues were $9.3 million compared to $9.1 million in 2007. In 2009, there will be some changes in our other products business. Ardana is no longer in operation, so we will not recognize $180,000 in quarterly royalty revenues as we did in 2007 and the first two quarters of 2008. In addition, our manufacturing agreement with Lil' Drug Store products or LDS will expire in October of 2009. So 2009 will include only three quarters of sales to Lil' Drug Store. LDS has confirmed to us that they will not extend the agreement. We estimate that this will reduce other products revenue by about $2.2 million in 2009. In the US, our sales force objective is to maintain our STRIANT market share as we focus our sales force efforts on CRINONE sales. STRIANT currently provides about $2 million in revenues at a 90% profit margin. Volumes have remained relatively unchanged over the past two years. We are working with outside advisors to evaluate ways we could further monetize this product. Foreign revenues of STRIANT will remain immaterial in 2009.

In closing, my review of the core business, even with current economic climates, we are projecting 15% to 20% growth in CRINONE revenues for 2009. This should more than compensate for the reduced LDS revenues in 2009.

Let's move to the pipeline. In our 2009, our resources are 100% focused on the PREGNANT Study, which we are conducting in collaboration with the NIH. This 450 patient Phase III clinical trial is evaluating PROCHIEVE 8% progesterone vaginal gel to reduce the risk of preterm birth in women with a short cervix of one to two centimeters as measured by transvaginal ultrasound at mid-pregnancy. This opportunity is tremendous and more than merits the almost $8 million we are expecting to spend in 2009. If our study is successful in reducing the rate of preterm birth in the short cervix population, and we are able to obtain regulatory approval for a label expansion, PROCHIEVE 8% will become the first FDA approved therapeutic to address any aspect of preterm birth. Of the estimated 4.3 million births every year, approximately 175,000, are to women with a cervical length of one to two centimeters. An additional one million are to women with a short cervix of between two and three centimeters. This translates to an estimated potential market of over $1.7 billion. The addition of 150 patients, and the 15 to 20 new sites between the NIH and Columbia, while extending the time for the trial should ultimately be to the extreme benefit of the study. The extra patients we will enroll over and above our initial plan, which was to enroll 300, only strengthens the likelihood of a successful trial. Also, the collaboration with the NIH will likely result in quicker acceptance by the physician community if the trial is successful, and has already validated our science, our protocol, and our product.

I want to point out that as we saw in our prior preterm study, once enrollment is in full swing, it's nearly impossible to stop the momentum. Patients in the screening process when the 450th patient is enrolled are customarily allowed to enter the study resulting in a larger than planned cohort. As a result, for the PREGNANT Study, we could end up with over 500 patients, which would only further increase the power of the study. Patient enrollment is ongoing at 21 sites, including one of the NIH sites. The remaining NIH sites and several new Columbia sites are in the Institutional Review Board or IRB process. Both the NIH and Columbia are adding sites from countries outside the United States. For each foreign site in addition to the normal IRB and contracting processes, we must complete and submit additional government regulatory filing and gain approval to ship PROCHIEVE into the country. Further, our representatives evaluate, inspect, and visit every participating foreign site to ensure that each one is a high-quality institution equal to or greater than its US counterpart. I'm going to repeat that sentence. Our representatives evaluate, inspect, and visit every participating foreign site to ensure that each one is a high-quality institution equal to or greater than its US counterpart. With the additional time it takes to initiate a site outside the US, you might ask, why use sites outside the US at all? The answer is that even with the extra two to three months it takes to start up a site outside the US, once they are up and running, pregnant women with a short cervix who qualify for the study are significantly more likely to enroll in the study. This is evidenced by the strong enrollment rates at our current sites outside the US.

Another agent of delay we identified and addressed is the use of transvaginal ultrasounds in the patient screening process. When we started the trial, most participating physicians thought a fetal anatomy scan at 18 to 20 weeks would be sufficient to pre-screen potential patients who might have a short cervix, and then conduct subsequent measurement via transvaginal ultrasound on patients who seemed to have an appropriately short cervix. We quickly realized that the fetal anatomy scan was missing 80% of the candidates through insufficient accuracy. We took steps to convert the site to screen all patients with transvaginal ultrasound. We also replaced a few sites that were not able to change their protocol to use transvaginal ultrasound as a screening tool. And just to make it perfectly clear, no woman is enrolled into the PREGNANT Study without a transvaginal ultrasound. We believe that the very positive changes we have made will allow us to report study results in the first half of 2010. This is realistic assuming the economy and foreign governments do not cause delays beyond what we have already built into our timeline.

Finally, we believe that if positive results are achieved in the PREGNANT Study, our shareholders' interests could be best served through a strategic partnership for this product with a larger pharmaceutical company. Such a partnership would rapidly bring our products to the physicians and their patients who would benefit from this treatment. Since there are a number of pre-marketing activities that should actually occur as early as 2009 in anticipation of a launch in late 2010 or early 2011, we recently engaged a business development group with excellent credentials to assist in partnering the short cervix opportunity. Further development of vaginal lidocaine for dysmenorrhea remains a significant opportunity for Columbia, and the advancement of various early-stage candidates will just have to wait until after the PREGNANT Study concludes. We are also eager to expand the portfolio of products marketed by our US sales force through product acquisitions when the time is right and the funding is in hand.

While we see revenue challenges due to the worldwide economic environment, we also see tremendous opportunity to continue to convert the use of pharmacy compounded, painful intramuscular progesterone and suppositories to CRINONE. These conversions, even with a possible reduction in overall IVF procedures, will allow us to continue to grow our business. As I've previously mentioned, we are projecting a 15% to 20% increase in CRINONE worldwide revenues for 2009. In addition, the Phase III PREGNANT Study is well underway, evaluating a currently approved product in a new potential indication with significant unmet medical need. We believe this study will benefit from the addition of 150 or more patients and our collaboration with NIH. If the PREGNANT Study repeats the results we observed in the secondary analysis of our prior preterm trial, as well as what doctors Fonseca and Nicolaides obtained in their study of vaginal progesterone in short cervix patients, there are very bright days ahead for Columbia.

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

Question-and-Answer Session

Operator

(Operator instructions). And our first question comes from Natalie Mateffy [ph] with Rodman & Renshaw. Please go ahead, your line is open.

Natalie Mateffy – Rodman & Renshaw

All right. Thank you for taking my question. Can you please explain why there was a decrease of 45% in foreign market sales due to timing of orders? Can you just explain –?

Bob Mills

Yes, Natalie we will be happy to. When Serono orders product from Columbia – we manufacture all the products on a worldwide basis – they order in full batched quantities. And they split – what we do is when we actually package the finished applicators, we'll package, let's say, a quarter of the batch for Germany, a tenth of the batch goes to Australia, some portion of it may go to Hong Kong. And so the only way we sell batches to them, we don't inventory; it's on a demand basis. So the difference in ordering time was that they ordered quite a bit of inventory or quite a bit of product in the first three quarters, and it just was down in the fourth quarter from a standpoint of they – by just ordering one less batch, it really has a significant impact on the quarter.

Natalie Mateffy – Rodman & Renshaw

So they ordered a lot of products in the beginning –

Bob Mills

It's just how they spread out what they're going to order for the year. So I think what's important is even though the fourth quarter was affected by the fact that they didn't take three batches, they only took two, that the sales of CRINONE, our revenues were up 13%. And actually, the unit volume that they did that they purchased in 2008 was up 30%.

Natalie Mateffy – Rodman & Renshaw

Okay. And your other product sales, I have for the third quarter of '08 was about $4.7 million. Did you say that the $2.5 million, or something like that, revenue was due to the Ardana?

Bob Mills

Correct.

Jim Meer

Yes, 2.9 was Ardana.

Natalie Mateffy – Rodman & Renshaw

Okay. So that's a one-time thing.

Jim Meer

Correct.

Bob Mills

Right. That was from dollars that had been received in 2003 and 2004 as milestone payments that we advertise over the life of the contract. And once Ardana goes out of business, we have to recognize their revenue immediately.

Natalie Mateffy – Rodman & Renshaw

Okay, I understand. Also, I had a question about your cash burn. You had about $12.8 million in cash and equivalents at the end of the third quarter '08. Your burn was about $3 million. How do you still have $12.5 million in cash?

Bob Mills

Well, actually, the amount of cash we used in the fourth quarter was quite a bit less. As soon as the economy reacted the way it did in late October, early November, we immediately took some steps to defer some activities that we had planned to conduct in the fourth quarter out to the first and second quarters of 2009 as well as we cut back on some things that we had planned to do, which resulted in just having lower – it's why our expenses were down in the fourth quarter as well.

Jim Meer

Natalie, we also received $900,000 in state – from the sale of state tax losses.

Natalie Mateffy – Rodman & Renshaw

Okay. And do you have any plans for resuming STRIANT sales in Europe?

Bob Mills

We do. We are in the process right now of renewing all the licenses in Columbia's name and we have had some interest from a few parties mostly regional meaning within a country where they might have interest in resuming sales of STRIANT. But even based on what Ardana was selling before, Natalie, it's relative, it would be relatively immaterial in the grand scheme of revenues.

Natalie Mateffy – Rodman & Renshaw

Okay. Thank you. What are your expectations going forward for Replens and RepHresh?

Bob Mills

Well, once the contract ends, our expectations are that they will no longer have any participating revenue for us going forward. And that will be primarily reflected in 2010.

Natalie Mateffy – Rodman & Renshaw

Okay. Thank you very much.

Bob Mills

You're welcome, Natalie.

Operator

Our next question comes from David Moskowitz with Caris. Please go ahead, your mike is open.

David Moskowitz – Caris & Company

Yes, thanks, and good morning. Question is on the international trials that you're conducting with PROCHIEVE in the short cervix indication. Would you expect that those trials would be sufficient for an ex-US submission for regulatory approval?

Bob Mills

Yes, David, we do. The trial, it'll probably be conducted little bit more in the US than it will be outside the US from a standpoint of enrollment that it will be broad enough and representative enough that we should be able to use that for looking for a label for the product to be approved for short cervix outside the United States.

David Moskowitz – Caris & Company

Okay. And in terms of the potential for a partnership on this indication, that's I guess new information, and if you can confirm that. And also, could you talk about the nature of how you might partner the product? In other words, you have a US sales force, you don't have anything outside the US, could you talk about how that type of partnership might work? Would you partner the global rights? Would you partner just the US rights? Would it be more of a specialty pharma company or a large pharmaceutical company? We would appreciate some color. Thanks.

Bob Mills

Okay. Well when you sit back and look at what probably provides us the greatest opportunity to recognize revenues the quickest, it would be a large pharma – more inclined to be a larger mid-size or a larger pharma company that has worldwide potential. So I would think that that would be our preference. The one thing from a structuring standpoint, David, that we are very interested in is because these indications for these products are so different in that product is primarily used by the reproductive endocrinologist and the infertility base although there are some OBGYNs who are using it there that the other indication is very much an obstetrician-based environment. It is very obvious that it would be all 30-day prescriptions, it would be used in the second half of the pregnancy. So we would want to maintain the use of CRINONE and sell that into the infertility space, and have the partner take the PROCHIEVE and sell that into the obstetrician space related to the last half of pregnancy.

David Moskowitz – Caris & Company

Got it. So more of a broader women's health platform would work just as well as a company that might be in the fertility area?

Bob Mills

That's correct.

David Moskowitz – Caris & Company

And just on that crossover of the same products being sold in different markets, how would you handle the – let's assume you guys are successful with penetrating the progesterone in oil market on the obstetrician side, how would you parse that part of the market up?

Bob Mills

Well basically, again, most of the infertility treatments that are being used today with IM and CRINONE, and hopefully more so with CRINONE as we continue to expand our efforts – the REs help the woman get pregnant. At the end of the first trimester, they're done with the female. The female, if they're successfully pregnant through the first trimester, they are then turned back over to the obstetricians. And if that woman would happen to be using PROCHIEVE in the last half of pregnancy because she had a short cervix, it would be very obvious that that would be an OBGYN-based prescription versus an RE-based prescription. And IMS, while they aren't 100% accurate, they're close enough that I think it would be very easy to split up and understand what sales are attributed to Columbia efforts and what sales would be attributed to the partner's efforts.

David Moskowitz – Caris & Company

But again the progesterone in oil is a pretty large indication. So first of all, could you remind us of the, I guess the unit volume of that market, and then maybe gross that up to what they could mean from a PROCHIEVE standpoint in terms of dollars? And then once you do that, I'm sure that's a large market. Wouldn't it make sense for the larger partner, assuming you get one, to sell that indication as well, especially since you guys are primarily focused on the REs and not the obstetricians and primary care physicians?

Bob Mills

But are you talking about selling it into the OBGYNs or into the REs?

David Moskowitz – Caris & Company

Well, I'm talking about the progesterone in oil indication. Because that is an RE market, but it's also a OBGYN market, if I'm not mistaken.

Bob Mills

No, it's not.

David Moskowitz – Caris & Company

Oh, okay.

Bob Mills

And I don't know if you're referring to Gestiva as –?

David Moskowitz – Caris & Company

No, I'm talking about the replacement of progesterone in oil.

Bob Mills

Yes, the replacement of – the use of progesterone in oil injections is well over 90% used by REs only. And I'm only saying that over 90%. It's probably 100, but I don't know that for a fact, so I don't want to give you that number. But it is – we have not experienced any OBs, at least in the OBs that we call on which is about 2,200 that use progesterone in oil.

David Moskowitz – Caris & Company

They do use progesterone in oil?

Bob Mills

No, they do not.

David Moskowitz – Caris & Company

Oh, okay. Got you.

Bob Mills

If they're using progesterone, they're using CRINONE because we've convinced them to use CRINONE. Or some of them are using Prometrium vaginally inserted.

David Moskowitz – Caris & Company

Okay. Got you. And can you just remind us, since you guys are at the forefront of trying to convert physicians from or the REs from progesterone in oil to PROCHIEVE or CRINONE, could you remind us how big that market could be?

Bob Mills

Well, when I do my presentations, probably the best way to explain it is what is the overall potential if every doctor behaved the way I wanted them to behave? So there's about 1.2 million cycles a year in infertility. 800,000 of those are clomiphene citrate. 300,000 are about – or what they call IUI; they're intrauterine insemination, and a little over 100,000, in fact, this year I heard a figure the other day from an RE of 104,000 are IVF or the in vitro fertilization. If every time, if we could convince OBs to use progesterone along with clomiphene citrate, which is the 800,000, if we convince all the REs who use progesterone of some sort in IUI and IVF to use CRINONE at our current selling price, it's somewhere in the neighborhood of $180 million opportunity.

David Moskowitz – Caris & Company

And how much out of the 30 million or so – how much out of the market right now do you think you have, can't be more than a couple of million.

Bob Mills

We believe, well, not we believe, based on the data that we have, we have roughly 8% of the progesterone that's being used by the reproductive endocrinology market.

David Moskowitz – Caris & Company

So you're saying that it's – that potentially, there's 92 –?

Bob Mills

Well, we know from the data that roughly 75% of progesterone usage in the REs is through either IM or compounded suppositories. So there is clearly a lot of opportunity to grow that, to continue to convert.

David Moskowitz – Caris & Company

Okay. All right. Well thank you very much.

Bob Mills

All right, David. Thanks.

Operator

(Operator instructions). Our next question comes from Jim Malloy with Caris & Company. Please go ahead sir. Your mike is open.

Jim Malloy – Caris & Company

Hi. Thanks for taking my questions. Just a quick kind of follow up on your sales force, what's your size of your sales force now, and what, I guess just those couple of products in the bag, what's the ideal number of products to have in the bag for these guys going forward?

Bob Mills

Well, we have 30 sales reps and we divide that into four regions or districts. So each region has a district manager, and then somebody that oversees the whole marketing and sales effort. So you're talking about 35 person effort. Most of the infertility activities occur in the major metropolitan areas. So as up and down the East Coast we have reps in Boston, Connecticut, New York, New Jersey, Philadelphia, Washington, Baltimore, Atlanta, Miami, Tampa, you know, what would make sense. And then through the rest of the – Chicago is a huge market, and then in LA, San Diego, San Francisco, and Seattle and Portland area, and then obviously in Texas. So 30 reps is really sufficient to cover the whole universe. There are roughly about 800 reproductive endocrinologists out there. We call on almost, if not all, very close to all of those reproductive endocrinologists. We also, unlike the Seronos and the Ferrings of the world, we also call on about 2,200 OBGYNs who, from our IMS data, we know right about 80% of those 800,000 clomiphene citrate cycles. So basically, each rep is calling on about 100 doctors on a regular basis. Now, as true with any sales force, having one product that you're really promoting means that the cost of that sales rep to that product is higher than what you would obviously like it, which is why I made the comment that we are actively looking for opportunities to put other products in our bag. But to make it clear, they need to really be in the infertility space they can't be in the broad based women's health, primarily because we're only calling on about 2,000 OBs out of a population of about 38,000. So we wouldn't be able to do the product justice. So what we look for, and what we regularly look for, is there an opportunity to add a product that can be focused in the infertility space. And yes, I think a sales rep could easily, at least from my experience in this business for the last 35 years, three products that they can promote on a very successful basis. So our goal would be to add two more products to the bag.

Jim Malloy – Caris & Company

I think that makes sense. What do you guys see as your breakeven level for – on a cash flow basis for revenues, and I guess revenues is the best proxy.

Bob Mills

Well, that's kind of an interesting question in the sense that some people would say, well, you're doing $36 million now; why aren't you breakeven from a cash flow basis? But what we do is we spend almost 25% of our revenues in the R&D area. So if you eliminated R&D, we could be cash flow positive. As you move forward, and you look at not changing the R&D or expanding it, then obviously your revenues have to increase to deal with that. I would assume that once the trial is over and we would go back to a more normal R&D spend, which might be in the $4 million to $5 million range, maybe $6 million, and our revenues over that period of time have obviously increased, hopefully dramatically because we've been successful with the PREGNANT Study, I would think that we would be cash flow positive and probably profitable very quickly. So I'm not really – Jim, I wish I could answer that. It's really based on the amount of activity, especially around R&D, for us.

Jim Malloy – Caris & Company

Yes, that's cash flow. There's obviously costs associated with running the business. So thank you for that answer. Maybe one last question on STRIANT on the hypogonadism market, you see minimum sales there, any thoughts on that market in general as a viable market for targeting with products? Is just the STRIANT product itself is not effective?

Bob Mills

Well the product itself is very effective from a therapeutic standpoint. What's been the challenge with that product is as compared to its competition has been two things, one is it has to be used twice a day versus the competition which is once a day; and the other has been primarily around men not liking to have something in their mouth all day. So one of the things that when I say we want to monetize this product is, is there an opportunity to partner this product with somebody that is already – has one or two products in this space of endocrinology and urology that would be looking to add something in a third position or whatever to their bag. I still think there's an opportunity to expand this market. I'm not sure, Jim, how much you followed this product over the last couple of years when it was first launched, but that market has changed dramatically from whose writing testosterone replacement from the endocrinology space to the primary care physician. And that's been brought about a lot by the use of the Viagras and the Cialises of the world.

Jim Malloy – Caris & Company

All right. Well thank you very much for taking my questions.

Bob Mills

You're welcome.

Operator

Our next question comes from Derek Taller with Benchmark. Please go ahead. Your mike is open sir.

Derek Taller – The Benchmark Company

Hi, Bob. Thanks for taking my call.

Bob Mills

Hi, Derek.

Derek Taller – The Benchmark Company

I had a couple questions. The Sunshine Act, is that something that has been reenacted and potentially could thwart additional sales with the oil versions of progesterone, for instance?

Bob Mills

Well, the Sunshine Act is – many states have put those into place, and what they primarily do is they require pharmaceutical companies, as well as these compounding pharmacies who are selling products, to report any expenses or any dollars that can be attributed to any physician. So if you have a speaker program and you have invited 10 doctors to that speaker program, and you've paid for their dinner and have them listen to that, that all has to be recorded and reported. So, we're studying that right now. I mean, there's also the strong possibility that the Federal Government will put in place a law that will require what many states like Minnesota already do. They'll be required on a countrywide basis. I'm not sure it's going to change the nature of what products the physicians use, unless they're using something because there's something they've been getting paid for that and that becomes very clear. I don't see anybody not reporting properly, because the consequences from a – potential fines, jail time, the goal of the FDA sometimes seems that if they can get a CEO and make an example of him, they do it. And I don't believe that anybody, and I know we won't, will take any chances on not reporting properly what monies are being spent directly to physicians.

Derek Taller – The Benchmark Company

The second question I had was regarding the PREGNANT Study. Have you included the Asian territories to an extent which, when you do file potentially in Europe as well as Asia that there are enough patients to include those other territories?

Bob Mills

That is our target, yes. We'll have the Asian markets covered. We'll have the European markets covered. We'll have actually even South Africa or the African potential market, whatever those markets may be because we are planning on expanding to a site in South Africa and South America. So there will be enough representation from all the geographic areas the same as we did in our last trial to allow us to go into these other markets and represent a trial that truly shows a representative of their area as well, whatever country that may be, at least in a general population.

Derek Taller – The Benchmark Company

And your anticipation for US filing is a fast-track status with a six month review?

Bob Mills

Absolutely, Derek.

Derek Taller – The Benchmark Company

And then also on pricing, is there any latitude there? And what is the prior history versus what you expect, going forward?

Bob Mills

We'll obviously, whether it's by ourselves or with a partner, there will be pricing market research done to see exactly what the market could bear. But I mean, in my mind, there is an opportunity to price this somewhat higher. The only thing that we do know is and this isn't a carved in stone fact but we have met with, we have Advisory Boards all the time, and we actually created a Managed Care Advisory Board and we met with them and revealed and reviewed all the data that we had from our trial, as well as the Fonseca and Nicolaides trial. And with the outcomes that they see on the infant side, especially related to neonatal intensive care units and the cost of patients going in there, they are very excited about what opportunities we could present to them as far as their abilities to save lots and lots of money. So one of the things that they've even mentioned to us is they'd probably be willing to even cover one product for both short cervix and infertility, which would be nice because we would then be reimbursed on the infertility side where in many cases, I had mentioned in my presentation that about 40% to 50% of our patients today are cash paying. So if everybody could get a benefit of being reimbursed, it would be very beneficial to both our infertility business. I mean, it's a long winded answer, which I typically do, but I think there's opportunities, but I think it needs to be studied before I could say you could take it from the price we have today to double it or whatever.

Derek Taller – The Benchmark Company

But you get a sense that a dramatic price increase, if you get the short cervix data, is likely to be accepted?

Bob Mills

I don't know if I would call it dramatic. I think that the market could bear a premium. We've spent quite a bit of money to do this. The potential savings are significant. So yes, I think there are opportunities there Derek to make it more than a $1.7 billion market opportunity. I mean, quite a bit more.

Derek Taller – The Benchmark Company

Okay, thank you.

Operator

This concludes the question-and-answer session today. At this time, I'll turn the conference back over to Mr. Bob Mills for any additional or closing comments.

Bob Mills

For those of you, I'd like to thank you for participating in our call today. And for any of you who live in the Boston area, I will be presenting at the Cowen Conference in Boston on March 16. So if you happen to have a chance to stop by, I would love to have the opportunity to speak with you. So with that, we conclude our call, and again, thank you for your participation.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect your line.

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