Item 1. Business

General

We are in the business of developing, manufacturing and selling pharmaceuticals products that utilize our proprietary bioadhesive drug delivery technologies. We are focused predominantly on the women’s reproductive healthcare market but our product development projects address the broader women’s healthcare market. Our bioadhesive vaginal gel products provide patient-friendly solutions for infertility, pregnancy support, amenorrhea, and other obstetric, gynecologic and medical conditions.

Our U.S. sales organization currently promotes two natural progesterone gel products, CRINONE ^® 8% and PROCHIEVE ^® 8% in the United States. CRINONE and PROCHIEVE are approved in the U.S. for supplementation or replacement of progesterone as part of an Assisted Reproductive Technology (“ART”) treatment for infertile women with progesterone deficiency and for treatment of secondary amenorrhea. Outside the U.S. CRINONE has been approved for marketing for one or more medical indications including supplementation or replacement as part of an ART treatment for infertile women, treatment of secondary amenorrhea, the prevention of hyperplasia in postmenopausal women receiving hormone replacement therapy (“HRT”), the reduction of symptoms of premenstrual syndrome (“PMS”), menstrual irregularities, dysmenorrhea, and dysfunctional uterine bleeding. We reacquired the U.S. marketing rights to CRINONE in December 2006, and can now promote these products to a full range of reproductive endocrinologists, obstetricians and gynecologists who treat infertility. We also promote STRIANT ^® testosterone buccal system for the treatment of hypogonadism in men, however, our continuing focus in fiscal 2008 is to increase prescriptions of our infertility products.

 

We derive additional revenues from our established marketing partnerships, through which certain of our products are commercialized in global territories outside the U.S. and U.S. markets on which we are not currently focused.

We also seek opportunities to develop new products using our drug delivery technology, both proprietary projects and for strategic partners; to expand our product base and thereby leverage our sales force; and, to partner or divest products that fall outside our core women’s healthcare focus.

All of our products and product candidates utilize our Bioadhesive Delivery System (“BDS”), which consists principally of a polymer (polycarbophil) and an active ingredient. The BDS is based upon the principle of bioadhesion, a process by which the polymer adheres to epithelial surfaces or mucosa. Our vaginal products adhere to the vaginal epithelium and the buccal products adhere to the mucosal membrane of the gum and cheek. The polymer remains attached to epithelial surfaces or mucosa and is discharged upon normal cell turnover, a physiological process that, depending upon the area of the body, occurs every 12 to 72 hours, or longer. Both vaginal and buccal BDS products provide sustained and controlled delivery of active drug ingredients. Its extended period of attachment permits use of BDS in products when extended duration of effectiveness is desirable or required. The Company intends to continue to leverage the advantages of BDS drug delivery by developing new BDS products that improve the delivery of approved drugs that have low oral bioavailability, or where systemic levels of the active ingredient must be curtailed. In addition, this delivery system is particularly useful for active drug ingredients that cannot be ingested.

 

We have focused on infertility but our development pipeline also focuses on the broader women's reproductive healthcare market because we believe that vaginal delivery is a particularly effective way to deliver active ingredients to the female reproductive organs.

OUR STRATEGY

 

Our goal is to become a significant player in the women’s reproductive healthcare market, providing patient-friendly solutions for infertility, obstetric, gynecologic and other women’s medical conditions. The key elements of our strategy are:

 

Focus on building revenues from our products for the treatment of infertility in women. Since 2002, Columbia has been increasingly focused on products for the treatment of infertility in women. In 2006, we reacquired U.S. marketing rights for CRINONE ^® progesterone gel from Merck Serono S.A. (“Merk Serono”). Our CRINONE 8% and PROCHIEVE ^® 8% progesterone gels form the core to build a broader infertility business. We aim to build progesterone gel prescriptions by building relationships with reproductive endocrinologists; leveraging those relationships to influence prescribing habits of obstetricians and gynecologists who prescribe clomiphene citrate to treat infertility; proactively addressing obstetricians and gynecologists who regularly prescribed CRINONE before 2001; using an interim analysis of a pregnancy study being conducted by the Brigham and Women’s Hospital to support the use of CRINONE to assist the infertility cycle and for pregnancy support; and utilizing direct to consumer marketing. These products currently generate over 55,000 U.S. prescriptions per year. Over 1.2 million infertility treatments are performed every year in the U.S. In each instance, the reproductive endocrinologist (RE), obstetrician or gynecologist (OB/GYN) could improve the likelihood of successful implantation by using supplemental progesterone. CRINONE 8% and PROCHIEVE 8% are also used for pregnancy support during the first 10 to 12 weeks of gestation. This largely untapped market provides growth potential over and above infertility cycle supplementation. In 2007 we expanded our sales force and sales force management from 25 to 35 to more effectively call on those physicians that treat over 80% of all infertility patients.

 

Develop a preterm birth prevention indication for PROCHIEVE ^® 8% . Our lead R&D opportunity is the study of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix as measured by transvaginal ultrasound in mid-pregnancy. This opportunity arose from significant positive data obtained from secondary analyses of our earlier recurrent Phase III preterm study. Based on those positive data and our discussions with the FDA, we designed the Phase III PREGNANT ( PR OCHIEVE ^®   E xtending G estatio N   A   N ew T herapy) study. The Company is conducting the Phase III clinical study with PROCHIEVE ^® 8% progesterone gel to prevent preterm birth and improve infant outcomes for those women with a short cervix at mid-pregnancy. This randomized, double-blind, placebo-controlled clinical trial will evaluate the effect of PROCHIEVE ^® 8% on reducing the risk of preterm birth in women with a cervical length between 1.0 and 2.0 centimeters as measured by transvaginal ultrasound at mid-pregnancy. The primary endpoint is a reduction in the incidence of preterm birth at less than or equal to 32 weeks gestation vs. placebo. If successful, we would apply to FDA for approval of a label indication for this use. In the fourth quarter of 2007 we recruited 19 sites, filed the protocol with the Institutional Review Boards (“IRB”) and trained their staff in the study protocol. We expect to begin the recruiting efforts in the PREGNANT study in the first quarter of 2008. If we are able to meet our enrollment timeline for this trial, we expect to enroll and complete this clinical trial in 2008, with all the babies delivered in time to report results in the first half of 2009.

 

Focus research and development resources on vaginally-administered lidocaine.   Throughout 2007 we continued to invest in our vaginal lidocaine drug candidate, which we are evaluating to prevent and treat the severe uterine cramps that result in the debilitating pain of dysmenorrhea. In the U.S. alone, this common, painful condition seriously affects about 5.6 million women in the age range of 20 to 45 to the point where they frequently miss work. In mid 2007 we completed a multi-dose pharmacokinetic study of the lidocaine candidate and reported positive results demonstrating safe blood levels from our delivery system. We subsequently initiated a 75-patient Phase II study in patients with dysmenorrhea. We expect to conclude enrollment in April 2008 and we expect to announce data and results from this clinical trial in the third quarter of 2008.

License and acquire products to leverage our sales force.   In addition to collaborations, we also seek opportunistically to license and acquire under-promoted FDA-approved pharmaceuticals that complement our current women’s infertility product offering to   generate additional near-term revenues from our commercial infrastructure.

Continue existing and establish new collaborations to develop and commercialize selected drugs.  Collaborations with pharmaceutical companies have played an important role in helping us develop and commercialize our products. These collaborations enable us to address markets, and commercialize products, that fall outside our core focus. We plan to continue to rely on collaborators to commercialize certain of our drugs and drug candidates, either outside the U.S. or in U.S. markets in which we are not currently concentrating our resources. We also seek opportunities to apply our technology to approved compounds manufactured and sold by potential strategic partners for therapeutic areas outside our focus.

Continue existing and establish new collaborations to develop selected drug candidates.    Collaborations with pharmaceutical companies and third-party researchers have played an important role in helping us advance the development of certain investigational drug candidates. We plan to continue to seek strategic partners for certain investigational projects to cost-effectively advance our clinical projects while retaining U.S. marketing rights for Columbia.

Segments

The Company is currently engaged solely in one business segment -- the development, licensing and sale of pharmaceutical products. In certain foreign countries these products may be classified as medical devices or cosmetics by those countries’ regulatory agencies. See Note 10 to the consolidated financial statements for information on foreign operations.

Operations

Our sales and marketing organization operates solely in the United States, and is specifically focused on a select group of obstetricians, gynecologists, reproductive endocrinologists. We also market STRIANT to general endocrinologists, urologists and a select number of primary care physicians. Our marketing and sales efforts for STRIANT are primarily focused on maintaining the current prescription levels. We have entered into partnerships to commercialize our products outside the United States and within certain markets in the United States, and seek to enter into additional partnerships to commercialize our products in new countries and with additional audiences in the United States that we do not currently address.

We are substantially dependent on three manufacturers for the products that we sell to marketing partners around the world and commercialize ourselves in the United States. We sell five vaginal gel products that are each manufactured in bulk by Fleet Laboratories Limited, Watford, Herts, United Kingdom (“Fleet”) and filled into overwrapped single-use disposable applicators by Maropack AG, Zell, Switzerland (“Maropack”). Our single buccal product is manufactured for us by Mipharm S.p.A., Milan, Italy (“Mipharm”).

 

Our wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd., entered into an agreement dated July 12, 1996, with Fleet to manufacture our progesterone vaginal gel products for delivery in bulk containers. Pursuant to the agreement Fleet built and operates a dedicated suite for the manufacture of hormone products. Fleet may pass on increases in the cost of materials on three months notice and increases in labor on the anniversaries of the agreement. The original term of the agreement was 10 years after which either party may terminate the agreement on twelve (12) months prior written notice. Payments under the agreement are made in pounds sterling. Fleet also manufactures the Company’s non-progesterone vaginal gel products for delivery in bulk containers pursuant to individual purchase orders.

Our then wholly owned subsidiary, Columbia Laboratories (Ireland) Ltd., entered into an agreement dated October 28, 1993 (which agreement was later transferred to our wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd.), with Maropack to fill our bulk vaginal gel products into overwrapped single-use disposable applicators. The original term of the agreement was one (1) year with automatic one (1) year renewals. Either party may terminate the agreement on six (6) months prior written notice before the end of any renewal term. Prices are renegotiated annually based on forecasted production volumes. Payments under the agreement are made in Swiss francs.

Our wholly owned subsidiary, Columbia Laboratories (Bermuda) Ltd., entered into an agreement dated May 7, 2002 with Mipharm to manufacture at least eighty-five percent (85%) of our requirements for our STRIANT® testosterone buccal product for sale in the United States, Europe and Latin America. Pursuant to the agreement Mipharm built and operates a dedicated suite for the manufacture of hormone products, one-half the cost of which was paid by us. The original term of the agreement is twelve (12) years with automatic three (3) year renewals. Either party may terminate the agreement on twelve (12) months prior written notice before the end of any term. The price of the product may increase based on increases in labor costs in Italy or raw materials. Payments under the agreement are made in Euros.

Products

Progesterone Gel Products: CRINONE and PROCHIEVE

Progesterone is a hormone manufactured by a woman’s ovaries in the second half of the menstrual cycle. Progesterone is responsible for preparing the uterus for pregnancy and, if pregnancy occurs, maintaining it until birth, or, if pregnancy does not occur, inducing menstruation.  

Our principal product is a sustained release gel that delivers natural progesterone vaginally. Our vaginal progesterone gel product is marketed under the two brand names CRINONE and PROCHIEVE, and is available in 8% and 4% formulations.

CRINONE 8% is principally marketed to reproductive endocrinologists who generally perform the more technical procedures to assist women who are infertile become pregnant. Our 2008 focus for CRINONE commercialization will be to seek to convert sales of pharmacy compounded intramuscular progesterone injections and progesterone suppositories to sales of CRINONE. Preparation of marketing materials showing our compilation of 16 clinical trials that have been conducted to compare CRINONE to other forms of progesterone, will provide us with a compelling case for the efficacy of CRINONE. These data show that CRINONE is as effective as, and in some cases, numerically more effective than all the other delivery systems for progesterone. In the six clinical trials that included an arm evaluating patient preference, patients preferred CRINONE over the competing product in all six clinical trials. We believe that if we are able to communicate the information that we have compiled on CRINONE, through direct marketing to physicians and presentations by key opinion leaders in the reproductive endocrinology field, we should be able to convince physicians to prescribe CRINONE over the competing injections and suppositories. Our sales force is now focused on promoting our CRINONE 8% to the infertility specialty market. We plan to execute on the foundation we laid in 2007 for CRINONE 8% and expect that CRINONE will be a key revenue driver in 2008.

PROCHIEVE 8% is principally marketed to obstetricians and gynecologists who may use progesterone in conjunction with clomiphene citrate to assist women who are infertile become pregnant. We expect that in 2008 we will invest significant resources in the development program for PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix as measured by transvaginal ultrasound at mid-pregnancy. This program includes a clinical trial in pregnant women which we have named the PREGNANT study. In 2007, we reported data from our completed clinical trial of PROCHIEVE 8% in pregnant women with a history of prior pre-term birth. In that clinical trial, the study endpoints were not met, and the trial demonstrated that there was no benefit of administering vaginal progesterone to that patient population. However, secondary analyses of the data from this earlier study demonstrated a statistically significant improvement in the rate of preterm birth and infant outcomes in trial participants who had a short cervix at mid-pregnancy. This secondary analyses was conducted on a subset of patients with a short cervix at mid-pregnancy from the previous trial and the PREGNANT clinical trial is designed to confirm these data in a larger trial. The PREGNANT study was designed based in part on the data set forth in the White Journal and discussions with the FDA. This randomized, double-blind, placebo-controlled Phase III clinical trial is designed to evaluate the ability of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix of between 1.0 and 2.0 centimeters as measured by transvaginal ultrasound at mid-pregnancy. The primary endpoint of this clinical trial is a reduction in preterm births at less than or equal to 32 weeks versus placebo. If the results of the PREGNANT trial confirm the results seen in the earlier clinical trial, we expect to file a NDA supplement seeking approval of PROCHIEVE 8% for this indication and utilize the name PROCHIEVE solely related to the preterm birth indication.

PROCHIEVE 4% is indicated for treatment of secondary amenorrhea. It is marketed only in the United States. Merck Serono suspended any promotional support for the 4% progesterone vaginal gel outside the United States but maintains the marketing rights. In September 2007, the Company and Ascend Therapeutics, Inc. (“Ascend”), entered into a five year license and supply agreement under which Ascend is responsible for marketing and sales of PROCHIEVE ^® 4% in the United States.

The Company sells CRINONE and PROCHIEVE brand progesterone gels in the United States. The Company promotes these products to reproductive endocrinologists, obstetricians, and gynecologists . CRINONE brand progesterone gel is sold outside the U. S. by Merck Serono under a worldwide (excluding the U.S.) license from the Company.

 

CRINONE/ PROCHIEVE utilizes the Company’s patented BDS, which enables the progesterone to achieve a preferential uptake of drug from the vagina to the uterus, or a “First Uterine Pass Effect™”. The product is available in two strengths, an 8% progesterone gel and a 4% progesterone gel. It is the first product designed to deliver progesterone directly to the uterus, thereby providing a therapeutic benefit and avoiding high blood levels of metabolites seen with orally-delivered synthetic progestins.

CRINONE /PROCHIEVE in the 8% progesterone gel is approved in the U.S. for progesterone supplementation or replacement as part of an Assisted Reproductive Technology (“ART”) treatment for infertile women with progesterone deficiency. CRINONE ^® /PROCHIEVE ^® in both the 8% and 4% progesterone gels is approved in the U.S. for the treatment of secondary amenorrhea (loss of menstrual period). CRINONE was first marketed in the U.S. in 1997. In 2002, Merck Serono discontinued marketing CRINONE 4% worldwide. PROCHIEVE 8% and PROCHIEVE 4% were first marketed in the U.S. in September 2002 and March 2003, respectively. In September 2007, we licensed PROCHIEVE 4% to Ascend to market this product in the U.S. effective January 1, 2008.

Outside the U.S., CRINONE has been approved for marketing for one or more medical indications in 60 countries. The medical indications include: progesterone supplementation or replacement as part of an ART treatment for infertile women; the treatment of secondary amenorrhea; the prevention of hyperplasia in post-menopausal women receiving hormone replacement therapy (“HRT”); the reduction of symptoms of premenstrual syndrome (“PMS”); menstrual irregularities; dysmenorrhea; and, dysfunctional uterine bleeding. PROCHIEVE is not marketed outside the U.S.

 

The most common side effects of CRINONE /PROCHIEVE 8% are breast enlargement, constipation, somnolence, nausea, headache, and perineal pain. The most common side effects of PROCHIEVE 4% when used in combination with estrogen include cramps, fatigue, depression, emotional lability, sleep disorder, and headache. CRINONE /PROCHIEVE is contraindicated in the U.S. in patients with active thrombophlebitis or thromboembolic disorders, or a history of hormone-associated thrombophlebitis or thromboembolic disorders, missed abortion, undiagnosed vaginal bleeding, liver dysfunction or disease, and known or suspected malignancy of the breast or genital organs.

Other Vaginal Gel Women’s Products

Replens ^® Vaginal Moisturizer . Our BDS vaginal gel, without an active pharmaceutical ingredient, is sold as Replens Vaginal Moisturizer. Replens is indicated for replenishment of vaginal moisture on a sustained basis and to relieve the discomfort associated with vaginal dryness. Replens was the first product developed utilizing the BDS. In May 2000, the Company sold the U.S. rights for Replens to Lil’ Drug Store Products, Inc. (“Lil’ Drug Store”) , pursuant to an agreement under which the Company received royalties of 10% of sales of Replens in the U.S until October 2005. On June 29, 2004, the Company sold the remaining worldwide marketing rights for Replens to Lil’ Drug Store and executed two related agreements with Lil’ Drug Store: a five year supply agreement for Lil’ Drug Store’s requirements for Replens in non-U.S. markets that expires October 31, 2009 and a promotion agreement that expired at the end of 2006. See “Licensing and Development Agreements.”

 

RepHresh ^® Vaginal Gel. RepHresh Vaginal Gel is a feminine hygiene product that can eliminate vaginal odor. RepHresh works by maintaining vaginal pH in the normal physiologic range of 4.5 or below. Using the BDS, RepHresh adheres to the epithelial cells of the vaginal lining for three or more days. It is available in convenient, pre-filled, disposable applicators. On June 29, 2004, the Company sold the worldwide marketing rights to the product to Lil’ Drug Store and executed two related agreements with Lil’ Drug Store: a five year supply agreement that expires October 31, 2009 and a promotion agreement that expired at the end of 2006. Columbia sells product on a worldwide basis to Lil’ Drug Store. See “Licensing and Development Agreements.”

Advantage-S ^â Bioadhesive Contraceptive Gel. The Company marketed one additional product, Advantage-S ^â a female contraceptive gel, until June 2004. On June 29, 2004, the Company sold worldwide marketing rights to Advantage-S   to Lil’ Drug Store. The production and sale of Advantage-S was discontinued during 2006. See “Licensing and Development Agreements.”

Products Outside of the Women’s Reproductive Healthcare Market

 

STRIANT ^® (testosterone buccal system) . STRIANT is approved in the U.S., the U.K., Germany, France, Spain, Italy and 10 other European countries for treatment of hypogonadism in men. Hypogonadism is characterized by a deficiency or absence of endogenous testosterone production. Signs and symptoms of hypogonadism can include decreased libido (sexual desire), erectile dysfunction (ED), fatigue, depression, reduced muscle mass, and osteoporosis. The purpose of testosterone replacement therapy is to provide and maintain normal levels of testosterone. It is estimated that hypogonadism affects 38.7% of men aged 45 years or older in the United States, approximately one million of whom currently receive treatment. The treatment for hypogonadism is to replace testosterone through one of many available delivery systems including transdermal patches, topical gels, injectable formulations of testosterone and the STRIANT buccal system.

STRIANT utilizes the BDS to achieve controlled and sustained delivery of testosterone via the buccal cavity - the small depression in the mouth where the gum meets the upper lip above the incisor teeth. The product, which has the appearance of a small monoconvex tablet, rapidly adheres to the buccal mucosa. STRIANT is absorbed into the bloodstream and delivered directly into the superior vena cava (major blood vessel), bypassing the gastrointestinal system and liver. In clinical trials, STRIANT produced circulating testosterone concentrations in hypogonadal males approximating physiologic levels seen in healthy young men.

 

The clinical data supporting the approval of STRIANT by the U.S. Food and Drug Administration (“FDA”) were generated from a 12-week U.S. multi-center, open-label, single arm trial that evaluated the efficacy, safety and tolerability of STRIANT in 98 men with hypogonadism. The most frequent adverse events that occurred with STRIANT in that trial at an incidence of 1% or greater which were possibly, probably or definitely related to the use of STRIANT were: gum or mouth irritation (9.2%), bitter taste (4.1%), gum pain (3.1%), gum tenderness (3.1%), headache (3.1%), gum edema (2.0%), and taste perversion (2.0%). A total of 16 patients reported 19 gum-related adverse events. Of these, ten patients (10.2%) reported 12 events of mild intensity, four patients (4.1%) reported five events of moderate intensity, and two patients (2.0%) reported two events of severe intensity. Four patients (4.1%) discontinued treatment with STRIANT ^® due to gum- or mouth-related adverse events, including two with severe gum irritation, one with mouth irritation and one with "bad taste in mouth." The majority of the gum-related adverse events were transient and resolved within one to 14 days. Patients on STRIANT should be advised to regularly inspect the gum region where they apply STRIANT and report any abnormality to their health care professional.

STRIANT is not indicated for women and must not be used in women. Testosterone supplements may cause fetal harm. STRIANT should not be used in patients with known hypersensitivity to any of its ingredients, including testosterone USP that is chemically synthesized from soy. Androgens are contraindicated in men with carcinoma of the breast or known carcinoma of the prostate. Edema with or without congestive heart failure may be a serious complication in patients with preexisting cardiac, renal or hepatic disease. In addition to discontinuation of the drug, diuretic therapy may be required. Gynecomastia frequently develops and occasionally persists in patients being treated with androgens for hypogonadism. The treatment of hypogonadal men with testosterone esters may potentiate sleep apnea in some patients, especially those with risk factors such as obesity or chronic lung diseases. Geriatric patients treated with androgens may be at an increased risk for the development of prostatic hyperplasia and prostatic carcinoma. In diabetic patients, the metabolic effects of androgens may decrease blood glucose and, therefore, insulin requirements.

We market and sell STRIANT in the United States. STRIANT sales comprise less than 1% of the market for testosterone replacement products in 2007. Due to our focus on increasing prescriptions for our progesterone gel products and increasing our overall business in products for women’s reproductive health, our marketing and sales organization is not undertaking activities beyond those that we believe are required to maintain current U.S. sales of STRIANT.

In October 2002, the Company and Ardana plc (then Ardana Biosciences, Ltd., “Ardana”) entered into a license and supply agreement under which Ardana has licensed and, after obtaining necessary governmental product and pricing approvals, will sell STRIANT in 18 European countries (excluding Italy). See “ Licensing and Development Agreements”. Ardana is currently marketing and selling STRIANT in the U.K., Ireland, Germany, Sweden, Finland, Norway, Denmark and the Netherlands.

In May 2003, the Company and Mipharm entered into a license and supply agreement under which Mipharm will market, distribute and sell STRIANT in Italy. S ee “ Licensing and Development Agreements”. Mipharm launched STRIANT into the Italian market in November, 2007.

Advance Formula Legatrin PM. In May 2000, the Company licensed Advanced Formula Legatrin PM ^® , a product   for the relief of occasional pain and sleeplessness associated with minor muscle aches to Lil’ Drug Store. Lil’ Drug Store pays the Company a royalty of 20% of the net sales of the product. The license agreement had an initial five-year term with provisions for automatic renewal. The license for Advanced Formula Legatrin PM was renewed to May 2010. See “Licensing and Development Agreements.”

 

Research and Development

The Company spent $5.8 million in 2007, $6.6 million in 2006 and $5.8 million in 2005 on research and development activities. The expenditures in 2007, 2006 and 2005 were primarily costs associated with the Company’s clinical study of PROCHIEVE ^® 8% (progesterone gel) for the prevention of recurrent preterm birth , discussed below. The expenditures in 2007 also included costs associated with the development of its vaginally-administered lidocaine candidate to prevent and relieve dysmenorrhea. The Company cannot predict whether it will be successful in the development of the products listed below or any other product candidates.

Generally the Company’s drug development activities take the following steps in the U.S. (and comparable steps in foreign countries): After the Company formulates an active drug ingredient into the BDS, it files an Investigational New Drug Application (“IND”) with the FDA to begin to test the product in humans. The IND becomes effective and the studies may begin if the FDA does not disapprove the IND within 30 days of its submission. The IND describes how, where, and by whom the studies will be conducted; information about the safety of the active drug ingredient; how it is thought to work in the body; any toxic effects it may have; and how it is manufactured. All clinical studies must also be reviewed and approved by an Institutional Review Board (“IRB”) that is responsible for the study site. Progress reports on clinical studies must be submitted at least annually to the FDA and the IRB.

Clinical studies are divided into three phases.   Phase I studies typically involve small numbers of normal, healthy volunteers. Phase I studies are intended to assess a drug’s safety profile, including the safe dosage range. Phase I studies also determine how the drug is absorbed, distributed, metabolized, and excreted, as well as the duration of its action.   Columbia has historically developed products using already approved active ingredients and developed them in our BDS technology. This has typically meant that Phase I studies are not required. Phase II studies involve volunteer patients (people with the disease intended to be treated) to assess the drug’s effectiveness.   Phase III studies usually involve larger numbers of patients in clinics and hospitals to confirm the product’s efficacy and identify possible adverse events. Phase III studies are the “pivotal” studies that regulatory agencies require to show both safety and efficacy on a statistically representative population of people intended to be treated.  

Following the completion of all three phases of clinical trials, the Company analyzes all of the data and files a New Drug Application (“NDA”) with the FDA if the data successfully demonstrate both safety and effectiveness. The NDA contains all of the scientific information that the Company has gathered. NDAs typically run thousands of pages. If the FDA approves the NDA, the new product becomes available for physicians to prescribe. The Company must continue to submit periodic reports to the FDA, including any cases of adverse reactions and appropriate quality-control records. For some medicines, the FDA requires additional studies after approval (Phase IV studies) to evaluate long-term effects of the drug. The development, clinical testing and filing of an application to the respective regulatory agencies of those countries where the drug is intended to be approved for marketing and sales can cost millions of dollars.

PROCHIEVE 8% in Preventing Preterm Birth . On February 5, 2007, the Company reported the results of its Phase III multi-center, randomized, double-blind, placebo-controlled, clinical trial designed to assess the efficacy, safety and tolerability of PROCHIEVE 8% in preventing preterm birth in pregnant women with a previous preterm birth before 35 weeks gestation. The study did not achieve a statistically significant reduction in the incidence of preterm birth at week 32, the primary endpoint in the study population. The incidence and profile of adverse events in patients receiving PROCHIEVE 8% was similar to placebo.

On April 26, 2007, the Company reported that evaluation of a secondary endpoint of the study revealed a possible effect of PROCHIEVE 8% in delaying cervical shortening. Although an effect on cervical length was not the primary focus of this trial, pursuant to the study protocol, cervical length measurements were performed on all women at baseline (approximately at 20 weeks gestation) and at 28 weeks gestation. Data from the study show a statistically significant delay in cervical shortening in patients treated with PROCHIEVE 8%, and suggest a correlation between the cervical length data, PROCHIEVE 8% administration, and both a reduction in the likelihood of preterm birth and an improvement in infant outcomes.

Evaluation of treatment by cervical length at baseline revealed that the “responders” to progesterone were patients with a short cervix at baseline. Further evaluation of all randomized patients, including patients randomized with a short cervix only, show that patients with a cervical length less than 3.0 cm had a significant treatment effect to reduce the incidence of preterm birth less than 37 weeks. A further evaluation of the patients with baseline short cervical length revealed that in women with a baseline cervical length less than 2.8 cm, there was a statistically significant reduction in preterm birth less than or equal to 32 weeks gestation. These delays in delivery were associated with significant improvements in infant outcome.

 

We believe that these data may provide an explanation for previous studies conducted by others showing an effect of progesterone administration in preventing preterm delivery. While previous clinical trials have been conducted in a study population of women who have experienced prior pre-term deliveries, those trials did not measure cervical length. We believe that it is possible that the group of women who responded to progesterone in earlier trials may correspond to the women in our clinical trial whose cervices were shorter at baseline. Due to the fact that our study measured cervical length at baseline, certain women with a short cervix who were treated at clinics where a cervical cerclage is standard of care, were not randomized into our trial. Our trial therefore eliminated some of the population of patients that the secondary analysis indicates should benefit from progesterone treatment. On the basis of this analysis and discussions with the FDA, we designed the PREGNANT study which is underway. This randomized, double-blind, placebo-controlled Phase III clinical trial is designed to evaluate the ability of PROCHIEVE 8% to reduce the risk of preterm birth in women with a short cervix of between 1.0 and 2.0 centimeters as measured by transvaginal ultrasound at mid-pregnancy. The primary endpoint of the PREGNANT clinical trial is a reduction in preterm births at less than or equal to 32 weeks versus placebo.

In the fourth quarter of 2007 we recruited 19 study sites, filed the protocol with each site’s IRB and trained their staff on the study protocol. We expect to begin enrollment in the PREGNANT study in the first quarter of 2008. We plan to enroll and complete this study in 2008 with all the babies delivered in time to report results in the first half of 2009.

Vaginally Administered Lidocaine. The Company is conducting clinical development activities for vaginally-administered lidocaine to prevent and treat dysmenorrhea, a common gynecologic disorder   characterized by recurrent uterine cramping and pain before and during menses. Dysmenorrhea affects approximately 50% of menstruating women, 10% of whom have cramps severe enough to incapacitate them from one to three days each month. Current treatments address the pain but not the underlying problem. Our hypothesis is that administration of lidocaine vaginally using our BDS technology can minimize or prevent the severe cramping that results in the debilitating pain of dysmenorrhea. A European clinical trial conducted by the Company in 2003 demonstrated that vaginally-administered lidocaine reduced the frequency of uterine contractions, as well as the intensity and frequency of uterine pain. Subjects were evaluated following vasopressin-induced cramping in the late luteal phase of the menstrual cycle, near menses.

On September 8, 2005, we announced the successful completion of a pharmacokinetics study for our vaginally administered lidocaine. The study evaluated both the blood levels obtained by, as well as the relative safety from, three doses of lidocaine formulated with the Company’s BDS. On June 27, 2007, we announced the successful completion of a multi-dose pharmacokinetic study of vaginally-administered lidocaine. The 43-subject study was designed to measure blood levels associated with the Company’s bioadhesive vaginal lidocaine formulation at three dose strengths over multiple doses. For each of the dose levels studied, use of our bioadhesive formulation over four consecutive days was associated with blood levels that are well within an accepted range. Based on those results, the Company initiated a Phase II study in the second quarter of 2007. This study is a 75-patient Phase II cross-over study in patients with dysmenorrhea. We expect to conclude enrollment in April 2008, and announce results from this clinical trial in the third quarter of 2008.

 

Once we have Phase II data on our lidocaine candidate, assuming positive results, we believe we will be in a position to explore potential partnership opportunities for this product candidate, ideally to co-develop and co-market it. A partnership makes sense because many young women affected by dysmenorrhea are seen by pediatricians and family practice physicians, not OB/GYNs, and the pediatric and family practice markets fall outside our strategic focus. We plan to have an end of Phase II meeting with FDA and begin designing the Phase III program for lidocaine in 2008, again assuming positive data. This will keep us on track to meet our ultimate goal of an NDA filing with FDA and potential approval in 2010.

PROCHIEVE 4% for the Prevention of Endometrial Hyperplasia . In 2004 a third party, five-year study was initiated to evaluate the long-term effects of Hormone Replacement Therapy in menopausal women. The study investigators selected PROCHIEVE 4% as the active progesterone to be administered to all menopausal women with an intact uterus who receive estrogen to prevent them from developing endometrial hyperplasia. We are supplying Prochieve 4% for this trial, therefore, our costs are minimal, but we will have access to the data and could possibly utilize the data for publication purposes in a peer reviewed medical journal.

Terbutaline Vaginal Gel. In December 2002, the Company entered into a development and license agreement with Ardana to develop the Company’s terbutaline vaginal gel product candidate for the treatment of infertility, dysmenorrhea and endometriosis. The Company received a payment of $0.3 million upon signing of the agreement and will receive an additional $0.3 million upon completion of a successful Phase II clinical trial by Ardana. Under the terms of the agreement, if the Phase II trial is successful the Company can elect to continue to work with Ardana to progress the product through further clinical trials and subsequent applications for regulatory approvals. In that case, the Company would have the right to market the product in North America and Ardana would have rights focused in Europe. The parties would share equally in proceeds from licensing and distribution of the product in the rest of the world. If the Company elects not to continue working on the product at the end of the Phase II trial, Ardana can continue to develop the product. In 2007, Ardana elected to suspend development of the product as a result of slow recruitment in a proof of concept clinical trial.

Testosterone Progressive Hydration Vaginal Tablet. In October 2000, the Company completed a Phase I trial of its testosterone progressive hydration vaginal tablet for women. The study demonstrated that testosterone could be delivered vaginally over a period of days. A preliminary clinical plan, with a focus on reducing the size of systemic uterine fibroids is under review. We are not currently investing further in this drug candidate due to our investment in the PREGNANT and vaginal lidocaine clinical trials. We may consider further investment, if resources allow, at a later date.

Vaginally Administered Carbamide Peroxide. The Company is conducting pre-clinical development activities for a vaginally-administered carbamide peroxide product for treating or preventing vaginal infections. The product candidate is being investigated to determine the benefit of releasing and maintaining a very low concentration of peroxide over an extended period of time, in order to provide the benefits of oxygen release without adversely affecting normally-desired local vaginal flora. We do not plan to invest fully in development of this drug candidate at this time, but may consider further investment as resources become available at a later date.

 

Peptide Delivery System. The Company has completed a program that demonstrates that the BDS can deliver therapeutic doses of small chain peptides for extended periods of time using the Company’s progressive hydration buccal technology. Based on these positive results, the Company has initiated partnering discussions related to peptide buccal tablets.

Licensing and Development Agreements

Merck Serono S.A.

 

In May 1995, the Company entered into a license and supply agreement with American Home Products Corporation, now Wyeth, (“Wyeth”) for its Wyeth-Ayerst Laboratories division to market CRINONE ^® worldwide. The Company agreed to supply CRINONE at a price equal to 30% of Wyeth’s net selling price. In July 1999, Wyeth assigned the license and supply agreement to Serono (now “Merck Serono”). In June 2002, the license and supply agreement was amended and restated and a marketing sublicense was granted to the Company. Under the terms of the license and sublicense, Merck Serono marketed CRINONE ^® in the U.S. to a defined list of fertility specialists and the Company was free to market PROCHIEVE ^® to all other physicians in the U.S., including obstetricians, gynecologists and primary care physicians.  

 

Under the marketing sublicense, the Company paid Merck Serono a royalty equal to 30% of net sales on all PROCHIEVE sales and an additional 40% royalty on all PROCHIEVE sales dispensed to patients of physicians on Serono’s target list of fertility specialists. Conversely, Merck Serono paid the Company an additional royalty of 40% of CRINONE net sales on all CRINONE sales dispensed to patients of physicians outside its target list of fertility specialists in the U.S. In December 2006, the Company and Merck Serono agreed to terminate Merck Serono’s U.S. marketing rights for CRINONE and terminate the Company’s marketing sublicense to PROCHIEVE. As a result, the Company holds the U.S. marketing rights to both CRINONE and PROCHIEVE brand progesterone vaginal gel, and Merck Serono retains the marketing rights to CRINONE for the rest of the world.

 

Mipharm S.p.A.

In March 1999, the Company entered into a license and supply agreement with Mipharm under which Mipharm is the exclusive marketer of the Company’s women’s healthcare products (other than CRINONE) in Italy, Portugal, Greece and Ireland with a right of first refusal for Spain. Mipharm currently sells Replens ^® in Italy and sells RepHresh ^® in Italy under the name MipHil.

 

In May 2003, the Company and Mipharm entered into an agreement under which Mipharm will market, distribute and sell STRIANT ^® in Italy. In exchange for these rights, Mipharm is obligated to pay the Company an aggregate of $1.4 million upon achievement of certain milestone events, including $0.4 million that was paid in 2003. We received a payment of $0.1 million, less VAT withholding, in 2004 on account of the UK approval of STRIANT and a payment of $0.2 million, less VAT withholding, in 2007 on marketing authorization received by Mipharm in Italy in late 2006. Mipharm will provide additional performance payments upon the achievement of certain levels of sales in Italy, and the Company will receive a percentage markup on the cost of goods for each unit sold. Mipharm is a manufacturer of STRIANT under a May 2002 agreement. In 2007, Mipharm launched sales of STRIANT ^® in   Italy.

Ardana plc

 

In October 2002, the Company and Ardana entered into a license and supply agreement under which Ardana will market, distribute and sell STRIANT in 18 European countries (excluding Italy) as necessary governmental product and pricing approvals are obtained. In exchange for the license, the Company may receive total potential payments of $8 million. To date the Company has received $6.0 million under this agreement, including $4 million in signature and milestone fees received in 2002, $0.8 million received in 2004 upon marketing approval in the U.K and $0.4 million received in 2005 upon marketing approval in Germany. Additional milestone payments totaling $0.8 million were received in 2006 for approval in France and Spain. In addition, a performance payment of $2 million is due upon achievement of a certain level of sales. Ardana will purchase its requirements of product from the Company during the term of the agreement. The agreement will continue in each country in the territory until the date of expiration or lapse of the last patent covering the product in such country.

In December 2002, the Company and Ardana executed a development and license agreement (described above) to develop the Company’s terbutaline vaginal gel product. In 2007, Ardana elected to suspend development of the product as a result of slow recruitment in a proof of concept clinical trial.

Lil’ Drug Store Products, Inc.

In June 2004, the Company and Lil’ Drug Store entered into an asset purchase agreement, a five year supply agreement, and a 2½ year professional services agreement. Under the agreements, Lil’ Drug Store acquired the Company’s over-the-counter women’s healthcare products, RepHresh ^® Vaginal Gel and Advantage-S ^® Bioadhesive Contraceptive Gel, and foreign marketing rights for Replens ^® Vaginal Moisturizer. The Company sold the U.S. marketing rights for Replens to Lil’ Drug Store in May 2000. Under the   terms of the asset purchase agreement, Lil’ Drug Store also purchased the U.S. inventory of RepHresh and Advantage-S from the Company. The production and sale of Advantage-S was discontinued during 2006. The Company supplies RepHresh and ex-U.S. requirements for Replens under the supply agreement. The professional services agreement expired at the end of 2006.

 

In May 2000, the Company licensed Advanced Formula Legatrin PM ^® , a product   for the relief of occasional pain and sleeplessness associated with minor muscle aches, to Lil’ Drug Store. Lil’ Drug Store pays the Company a royalty of 20% of the net sales of the product. The license agreement had an initial five-year term with provisions for automatic renewal. The license for Advanced Formula Legatrin PM was renewed to May 2010.

Ascend Therapeutics, Inc.

In September 2007, the Company and Ascend, entered into a five year license and supply agreement for the Company’s PROCHIEVE ^® 4% progesterone gel, pursuant to which, effective January 1, 2008, Ascend is responsible for marketing and sales of PROCHIEVE ^® 4% in the United States. Ascend will purchase product from the Company at a transfer price equal to 35% of Ascend’s net selling price with minimum annual purchase obligations that increase over the life of the agreement.

Financing Agreements

On July 31, 2002, PharmaBio Development (“PharmaBio”), an affiliate of Quintiles Transnational Corp. agreed to pay $4.5 million in four equal quarterly installments commencing third quarter 2002 for the right to receive a 5% royalty on net sales of the Company’s women’s healthcare products in the United States for five years, beginning in the first quarter of 2003. The royalty payments are subject to aggregate minimum ($8 million) and maximum ($12 million) amounts. Because the minimum amount exceeds $4.5 million, the Company has recorded the amounts received as liabilities. The excess of the minimum ($8 million) to be paid by the Company over the $4.5 million received by the Company is being recognized as interest expense over the five-year term of the agreement, assuming an interest rate of 17%. As of December 31 2007, the Company has paid $4.4 million in royalties to PharmaBio under this agreement. The final payment under this agreement of $3.6 million was paid February 29, 2008. During 2007, the Company recognized that its method of calculating interest on this financing agreement was incorrect and has restated results for 2004, 2005 and 2006. See Note 2 in the Company’s Consolidated Financial Statements that shows the effect of the restatement.

On March 5, 2003, the Company and PharmaBio entered into a second agreement under which PharmaBio paid $15 million to the Company over a 15-month period that commenced with the signing of the agreement. In return, PharmaBio will receive a 9% royalty on net sales of STRIANT ^® in the United States up to agreed annual sales levels, and a 4.5% royalty of net sales above those levels. The royalty term is seven years. Royalty payments commenced in the third quarter of 2003 and are subject to the aggregate minimum ($30 million) and maximum ($55 million) amounts. A true-up payment under the STRIANT agreement due in November of 2006 was prepaid by the Company in April 2006 in the amount of $11.6 million, representing the present value of the true up payment at a discount value of 6%. Because the minimum amount exceeds $15 million, the Company has recorded the amounts received as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the $15 million received by the Company is being recognized as interest expense over the seven-year term of the agreement, assuming an interest rate of 15%. As of December 31, 2007, the Company has paid $13.1 million in royalties (including the true-up payment) to PharmaBio under this agreement. In 2007, the Company recognized that its method of calculating interest on this financing agreement was incorrect and has restated results for 2004, 2005 and 2006. See Note 2 in the Company’s Consolidated Financial Statements that shows the effect of the restatement.

 

 

The Company continues to develop the core BDS and has filed additional patent applications in the United States and other countries around the world. We believe our patents are important to our business and we intend to continue to protect them, including through legal action, when appropriate. While patent applications do not ensure the ultimate issuance of a patent, and having patent protection cannot ensure that competitors will not emerge, this is a fundamental step in protecting the Company’s technologies.

The following table sets forth the expiration dates of the principal United States patents for the Company’s marketed products and current development projects.

 

The Company owns or is seeking registration of “CRINONE”, “ PROCHIEVE ” “ STRIANT ”, and “ STRIANT SR ^® ” as trademarks in countries throughout the world. Applications for the registration of trademarks do not ensure the ultimate registration of these marks; however, the Company believes marks with pending applications will be registered. In addition, there can be no assurance that such trademarks will afford the Company adequate protection or that the Company will have the financial resources to enforce its rights under such trademarks. In 2004, the Company sold the trademarks " Replens ^® ", “Advantage 24 ^® ”, “ Advantage-S ^® ”, “Advantage-LA ^® ”, “ RepHresh ^® ”, and “ RepHresh Vaginal Gel ^® ” to Lil’ Drug Store. See “Licensing and Development Agreements.”

 

The Company also relies on confidentiality and nondisclosure agreements to protect its intellectual property. There can be no assurance that other companies will not acquire information that the Company considers to be proprietary. Moreover, there can be no assurance that other companies will not independently develop know-how comparable, or superior, to that of the Company.

Sales of Products

We receive revenues from our “Progesterone Products” that we promote through our own sales force to reproductive endocrinologists and obstetricians and gynecologists and sell to wholesalers and specialty pharmacies and from sales to licensers. We supplement our Progesterone Products revenues by selling other products that use our BDS which we refer to as “Other Products”. Most of the Other Product revenue is based on sales of products to licensees. As of December 31, 2007:

Progesterone Products are:

	·	CRINONE ®   8% progesterone gel marketed by us in the U.S.
	·	CRINONE ® 8% sold to Merck Serono for sale outside the U.S.
	·	PROCHIEVE ® 8% progesterone gel marketed by us in the U.S.
	·	PROCHIEVE ® 4% progesterone gel sold to Ascend for sale in the U.S. from January 1, 2008

Other Products are:

	·	STRIANT ® testosterone buccal system marketed by us in the U.S.
	·	STRIANT ® sold to our marketing partners outside the U.S.;
	·	Replens ® Vaginal Moisturizer sold to Lil’ Drug Store outside the U.S.
	·	RepHresh ® Vaginal Gel sold to Lil’ Drug Store on a worldwide basis; and
	·	Royalty and licensing revenues.

Prior to establishing our own sales force in 2002, we generally out-licensed marketing rights to our products. In October 2002, our sales force began to call on obstetricians and gynecologists to encourage prescriptions for PROCHIEVE 8%. The sales force began sales efforts for PROCHIEVE 4% in April 2003, and in September 2003 began to call on endocrinologists, urologists and certain primary healthcare doctors to encourage prescriptions for STRIANT.

On December 22, 2006, the Company acquired the U.S. marketing rights to CRINONE ^® and added reproductive endocrinologists to its infertility physician targets. In addition to these specialists, who typically handle the more sophisticated infertility treatments, the Company’s sales force calls on obstetricians and gynecologists , general endocrinologists, urologists and certain primary healthcare physicians. The sales force is predominantly focused on women’s reproductive healthcare providers with the aim of building the Company’s existing infertility business. In July of 2007, in order to better align territories and revenue potential with our targeted reproductive endocrinologists and obstetricians, we expanded the sales force to 35 sales representatives and sales management.

 

Success of Marketing Efforts

Our business is dependent on market acceptance of our products by physicians, healthcare payors, patients, and the medical community. Medical doctors’ willingness to prescribe our products depends on many factors, including:

	·	Perceived efficacy of our products;
	·	Convenience and ease of administration;
	·	Prevalence and severity of adverse side effects in both clinical trials and commercial use;
	·	Availability of alternative treatments;
	·	Cost effectiveness;
	·	The pricing of our products; and
	·	Our ability to obtain third party coverage or reimbursement for our products.

Even though we have received regulatory approval for CRINONE ^® , PROCHIEVE ^® and STRIANT ^® , and even if we receive regulatory approval and satisfy the above criteria for any of our other investigational indications and product candidates, physicians may not prescribe our products. We promote CRINONE, PROCHIEVE and STRIANT on our own behalf in the U.S. We have entered into agreements with other companies for the distribution and marketing of PROCHIEVE 4% in the U.S., RepHresh ^® in the U.S. and foreign countries, and of Replens ^® , CRINONE , and STRIANT in foreign countries. Factors that could affect our success in marketing our products include:

 

	·	The effectiveness of our production, distribution and marketing capabilities;
	·	The successful marketing of our products by our distribution and marketing partners;
	·	The success of competing products; and,
	·	The availability and extent of reimbursement from third party payors.

If any of our products or product candidates fail to achieve market acceptance, we or our marketing partners may be unable to sell the products successfully, which would limit our ability to generate revenue and could harm our business.

As previously disclosed, in July 2002 and March 2003 we entered into agreements with PharmaBio, under which we received upfront money in exchange for royalty payments on our women’s healthcare products and STRIANT, respectively. We owe royalty payments to PharmaBio for a fixed period of time. These royalty payments are subject to minimum and maximum amounts, and the minimum amounts are in excess of the amounts we received from PharmaBio. Our failure to successfully market our products could have a material adverse effect on our ability to pay the minimum amounts to PharmaBio. The final payment under the 2002 agreement was made on February 29, 2008.

Competition

We and our marketing partners compete against established pharmaceutical and consumer product companies which market products addressing similar needs. Further, numerous companies are developing, or may develop, enhanced delivery systems and products that compete with our present and proposed products. It is possible that we may not have the resources to withstand these and other competitive forces. Some of these competitors possess greater financial, research and technical resources than our Company or our partners. Moreover, these companies may possess greater marketing capabilities than our Company or our partners, including the resources to implement extensive advertising campaigns.

The pharmaceutical industry is subject to change as new delivery technologies are developed, new products enter the market, generic versions of available drugs become available and treatment paradigms evolve to reflect these and other medical research discoveries. We face significant competition in all areas of our business. The rapid pace of change in the pharmaceutical industry continually creates new opportunities for existing competitors and start-ups and can quickly render existing products less valuable. Customer requirements and physician and patient preferences continually change as new treatment options emerge, are more or less heavily promoted and become less expensive. As a result, we may not gain, and may lose, market share.

 

CRINONE/PROCHIEVE, a natural progesterone product, competes in markets with other progestins, both synthetic and natural, that may be delivered by pharmacy-compounded injections, by pharmacy-compounded vaginal suppositories, with Prometrium ^® (oral micronized progesterone) marketed by Solvay Pharmaceuticals, Inc. (“Solvay”), and Endometrin ^® (progesterone vaginal insert) marketed by Ferring Pharmaceuticals, Inc. (“Ferring”). CRINONE/PROCHIEVE and Endometrin are the only progestin products approved by FDA for use in infertility or for use in pregnant women. Endometrin was approved by the FDA in June of 2007.

STRIANT competes against other testosterone products that can be delivered by injection, transdermal patch and transdermal gel. Some of the more successful testosterone products include AndroGel ^® (testosterone gel) marketed by Unimed Pharmaceuticals, Inc. (“Unimed”), Testim ^® (testosterone gel) marketed by Auxilium Pharmaceuticals Inc. (“Auxilium”), and Androderm ^® (testosterone transdermal system) marketed by Watson Pharma, Inc. (“Watson”) Competition is based primarily on delivery method. Transdermal testosterone gels currently have the largest market share and transdermal testosterone patches have the next largest market share, followed by injectable products. STRIANT is priced comparably to the gels and patches.

Customers

Our customers include trade customers, such as drug wholesalers, specialty pharmacies, and chain drug stores, and our marketing partners. We make calls on the Company’s trade customers and doctors to promote CRINONE ^® , PROCHIEVE ^® and STRIANT ^® . Our practice, in the case of our trade customers, is to ship our products promptly upon receipt of purchase orders from customers; consequently, backlog orders are not significant. In the case of our marketing partners, firm purchase orders are received by the Company ninety to one hundred twenty days in advance of the expected shipping date.