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$CBRX Columbia Labs Cleans up Balance Sheet Ahead of Pivotal Study Results

publication date: Nov 10, 2010
author/source: Mike Havrilla

Written by Mike Havrilla. Last week, Columbia Labs (NASDAQ:CBRX) reported 3Q10 financial results with several positive developments, including the elimination of all debt ($56M) in conjunction with the sale of progesterone related assets to Watson Pharma (NYSE:WPI) (which also acquired 11.2M shares of CBRX at deal closing date of 7/2/10) and guidance to report top-line results from the pivotal PREGNANT clinical trial next month.

CBRX reported 3Q10 revenue of $14.2 million (M) that included $8.5M from the sale of progesterone assets (CRINONE / PROCHIEVE) to WPI and $5.1M in net product sales. As of 9/30/10, the Company held cash / equivalents of $22.4M (vs. $14.8M at year-end 2009) and provided guidance to end this year with cash / equivalents exceeding $20M. A total of $34M in deferred gains associated with the WPI transaction are being amortized at the rate of $8.5M over four quarters (which is the estimated development period for the pre-term birth indication for PROCHIEVE).

Top-line results are expected in the pivotal Phase 3 PREGNANT clinical trial next month, which is evaluating PROCHIEVE (8% Progesterone Gel) in women with a short cervix at mid-pregnancy to reduce the risk of pre-term birth. Positive results would trigger a $6-8M milestone payment from WPI and support a potential NDA filing during 1H11.

CBRX provided guidance to be at least cash flow neutral in 2011, regardless of results from the pivotal PREGNANT study and the Company is committed to spend up to $7M to complete the study through a potential NDA filing (has spent approx. $4.4M thru 9/30/10). With 80.8M shares of common stock outstanding as of early November, CBRX is valued at a market cap of about $107M as of the closing price today at $1.32 per share with an enterprise value (market cap plus debt minus cash) of about $85M.

As part of the WPI deal, CBRX is eligible to receive the following milestone payments: (1) $6-8M for successful PREGNANT study outcome; (2) $5M for FDA acceptance of NDA filing; (3) $30M for US commercial launch for pre-term birth indication; and (4) $2.5M for European regulatory submission / launch. The scaled royalty rates include: 10% on sales up to $150M, 15% on sales of $150-250M, and 20% on sales above $250M.

Successful results in the pivotal PREGNANT study and subsequent commercialization by WPI is key to the future earnings power and balance sheet for CBRX - with over $40M in potential milestone payments and additional recurring revenue from scaled royalties. My price target for CBRX upon successful results in the pivotal study is $2.50-3 per share, reflecting a fully diluted valuation of $200-250M to discount for the milestone payments (over $40M), future royalties from the pre-term birth indication that are expected to result in future positive cash flow / earnings power for CBRX, and significantly strengthened balance sheet (zero debt with projected cash balance of $60M+ upon potential FDA approval during 1H12).

Disclosure: Long CBRX