**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C.**
 
 **FORM
10-K**
 
 x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934
 ****
 **For
the fiscal year ended December 31, 2004**
 
 OR
 
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
 
 For the
transition period from _______ to ________
 
 **Commission
File number 1-10352**
 
 **COLUMBIA
LABORATORIES, INC.**
 (Exact
name of Registrant as specified in its charter)
 
 **Delaware**
    **59-2758596****(State
      or other jurisdiction of**
    **(I.R.S.
      Employer****incorporation
      or organization)**
    **Identification
      No.)****354
      Eisenhower Parkway****Livingston,
      New Jersey**
    **07039****(Address
      of principal executive offices)**
    **(Zip
      Code)**
 
 Registrant's
telephone number, including area code: **(973)
994-3999**
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act:
 
 **Common
      Stock, $.01 par value**
    **Nasdaq
      National Market****(Title
      of each class)**
    **(Name
      of exchange on which registered)**
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act) Yes x No o
 
 The
aggregate market value of Common Stock held by non-affiliates of the registrant
on June 30, 2004, the last business day of the registrant’s most recently
completed second fiscal quarter, based on the closing price on that date of
$3.46, was $105.7 million.
 
 Number of
shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding as
of March 4, 2005: 41,751,934 **.**
 ****
 
 **Documents
Incorporated By Reference**
 
 Portions
of the Columbia Laboratories, Inc. (“Columbia” or the “Company”) Proxy Statement
for the 2005 Annual Meeting of Shareholders (the “Proxy Statement”) are
incorporated by reference into Part III of this Form 10-K. We expect to file our
Proxy Statement with the Unites States Securities and Exchange Commission
(“SEC”) and mail it to shareholders on or before April 11, 2005.
 
  
 **Index
to Annual Report on Form 10-K**
 **Fiscal
Year Ended December 31, 2004**
 
 **Part
      I**
    
    **Page**Item
      1
    Business
    **4**Item
      2
    Properties
    **17**Item
      3
    Legal
      Proceedings
    **17**Item
      4
    Submission
      of Matters to a Vote of Security Holders
    **17****Part
      II**Item
      5
    Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
    **19**Item
      6
    Selected
      Financial Data
    **21**Item
      7
    Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
    **22**Item
      7A
    Quantitative
      and Qualitative Disclosures about Market Risks
    **35**Item
      8
    Financial
      Statements and Supplementary Data
    **35**Item9
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
    **35**Item
      9A
    Controls
      and Procedures
    **35**Item
      9B
    Other
      Information
    **36****Part
      III**Item
      10
    Directors
      and Executive Officers of the Registrant*
    **37**Item
      11
    Executive
      Compensation*
    **37**Item
      12
    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters*
    **37**Item
      13
    Certain
      Relationships and Related Transactions*
    **37**Item
      14
    Principal
      Accountant Fees and Services
    **37****Part
      IV**Item
      15
    Exhibits
      and Financial Statement Schedules
    **38**
 
 * Items
11, 12, 13, 14 and portions of Item 10 are incorporated by reference to the
Company’s 2005 Proxy Statement.
  
 3
 **PART
I**
 
 **Item
1. Business**
 
 **General**
 
 Since the
incorporation of Columbia Laboratories, Inc. (hereinafter “we”, “our”, “us”,
“Columbia” and the “Company”) in 1986 as a Delaware corporation, we have focused
on developing drugs that improve treatment options for women’s reproductive
healthcare and endocrine-related disorders. The Company has developed and is
developing products for vaginal delivery of hormones and other drugs and for
buccal delivery of hormones and peptides. The vaginal products adhere to the
vaginal epithelium and the buccal products adhere to the mucosal membrane of the
gum and cheek. Both forms provide sustained and controlled delivery of active
drug ingredients into the bloodstream. This delivery system is particularly
useful for active drug ingredients that cannot be ingested.
 
 All of
our products and product candidates utilize our patented, proprietary
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. 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. This extended
period of attachment permits the BDS to be utilized in products when extended
duration of effectiveness is desirable or required.
 
 We have
focused on women's healthcare because of the significant number of women whose
health and hygiene needs have not been met by available products, and because
the Company has found vaginal delivery to be a particularly effective way to
deliver active ingredients to the female reproductive organs. We have found
buccal delivery to be advantageous for products for both men and women. The
Company intends to continue to develop products that improve the delivery of
previously approved and marketed drugs that cannot be ingested.
 
 **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 the
countries’ regulatory agencies. See Footnote 10 to the Consolidated Financial
Statements for information on foreign operations.
 
 **Operations**
 
 The
Company was incorporated as a Delaware corporation in 1986. The Company's
principal executive offices are located at 354 Eisenhower Parkway, Livingston,
New Jersey 07039, and its telephone number is (973) 994-3999. The Company's
subsidiaries, all of which are wholly-owned, are Columbia Laboratories (Bermuda)
Ltd. ("Columbia Bermuda"), Columbia Laboratories (France) SA ("Columbia France")
and Columbia Laboratories (UK) Limited ("Columbia UK"). In
October 2004, we merged our former subsidiary, Columbia Research Laboratories,
Inc., into Columbia Laboratories, Inc., as the surviving
corporation.
 
 We
develop products for sale throughout the world. We  contract
our manufacturing activities to third parties in the United Kingdom, Switzerland
and Italy. Our own sales and marketing organization operates solely in the
United States, and is specifically focused on a select group of obstetricians,
gynecologists, endocrinologists, urologists and primary care physicians. We have
entered into partnerships to commercialize our products outside of 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.
 
 4
 The
polymer used in our BDS-based products, medical grade, cross-linked
polycarbophil, is currently available from only one supplier, Noveon, Inc.
("Noveon"). We believe that Noveon will supply as much of the material as we may
require because our products rank among the highest value-added uses of the
polymer. There can be no assurance that Noveon will continue to supply the
product. In the event that Noveon cannot or will not supply enough of the
product to satisfy the Company's needs, we will be required to seek alternative
sources of polycarbophil. There can be no assurance that an alternative source
of polycarbophil can be obtained. All of the other raw materials used by the
Company for our products are available from multiple sources.
 
 **Products**
 
 **Crinone** **â** **/Prochieve®
(progesterone gel).** Crinone
is the brand
name of progesterone gel sold by Ares Trading S.A. (“Serono”) under a worldwide
license from the Company. Prochieve is the brand name of the same progesterone
gel sold by the Company in the United States under a June 2002 sublicense from
Serono pursuant to its worldwide license of Crinone. The product is a
sustained release, vaginally delivered, natural progesterone product.
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.
 
 Crinone/Prochieve
utilizes the Company’s patented BDS, which enables the progesterone to achieve a
“First Uterine Pass EffectTM”. 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 progestogens
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. Prochieve 8% and Prochieve 4%
were first marketed in the U.S. in September 2002 and March 2003,
respectively.
 
 Outside
the U.S., Crinone has been approved for marketing for one or more medical
indications in 48 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 Crinone/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.
 
 Pursuant
to a settlement agreement between the Company and Serono of litigation following
the 2001 recall of Crinone (see Note 3 to the Consolidated Financial
Statements), we sublicensed rights to market a second brand of our 8% and 4%
progesterone gel products under the trademark, Prochieve®, to a defined audience
of obstetricians, gynecologists and primary care physicians in the U.S. Serono
agreed not to market Crinone to that audience and the Company agreed not to
market Prochieve to fertility specialists in the U.S. Serono
also discontinued marketing Crinone 4% worldwide following the recall.
 
 **Striant®
(testosterone buccal system)** . Striant
is approved in the U.S. and 15 countries in Europe for hypogonadism.
Hypogonadism is characterized by a deficiency or absence of endogenous
testosterone production. Hypogonadism can be caused by conditions associated
with the testes, pituitary gland or hypothalamus gland, or by a genetic
disorder. Signs and symptoms of hypogonadism can include decreased libido
(sexual desire), erectile dysfunction (ED), fatigue, depression, reduced muscle
mass, and osteoporosis. Testosterone replacement therapy helps to provide and
maintain normal levels of testosterone. It is estimated that hypogonadism
affects between four and five million men in the United States, approximately
one million of whom currently receive treatment. Historically, patients have
been treated with transdermal patches, topical gels or injectable formulations
of testosterone.
 
 5
 In
December 2002, the Company and Ardana Biosciences, Ltd. (“Ardana”) entered into
a license and supply agreement for Striant in eighteen European countries
(excluding Italy). See “ Licensing
and Development Agreements”.
 
 In May
2003, the Company and Mipharm S.p.A. (“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”.
 
 Striant
utilizes the BDS to achieve controlled and sustained delivery of testosterone
via the buccal cavity. The product, which has the appearance of a small
monoconvex tablet, rapidly adheres to the buccal mucosa, the small, natural
depression in the mouth where the gum meets the upper lip above the incisor
teeth. As it is exposed to saliva, the product softens into a gel-like form
which remains comfortably in place over each 12-hour dosing period. Striant
delivers testosterone through the buccal mucosa, where it is absorbed into the
bloodstream and delivered directly into the superior vena cava (major blood
vessel), bypassing the gastrointestinal system and liver. Striant is able to
produce circulating testosterone concentrations in hypogonadal males that
approximate physiologic levels seen in healthy young men. One dose twice a day,
in the morning and in the evening, maintains consistent physiologic levels of
testosterone. Because Striant is available in a single strength, no dose
titration is required.
 
 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 hypogonadal men. 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 resolve 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 also 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.
 
 **Advantage-S** **®
Bioadhesive Contraceptive Gel** .
Advantage-S is a female contraceptive gel that utilizes the BDS to deliver the
active spermicidal ingredient, nonoxynol-9. The Company marketed Advantage-S in
the U.S. since July 1998 pursuant to FDA’s ongoing review of over-the-counter
drug products (including nonoxynol-9 spermicidal products). Among the benefits
of Advantage-S is that it utilizes the Company's BDS, which enables the
nonoxynol-9 to adhere to the cervix and permits formulation of the product with
the lowest dose of nonoxynol-9 of all products on the market. On June 29, 2004,
the Company licensed the worldwide marketing rights to Advantage-S to Lil’ Drug
Store Products, Inc. (“Lil’ Drug Store”) and executed two related agreements
with Lil’ Drug Store: a five year supply agreement, with minimum purchase
requirements for three years, and a 21⁄2 year professional promotion agreement for
the Company’s sales force to continue to promote the product to OB/GYNs in the
U.S.
 
 6
 **Replens®
Vaginal Moisturizer** . Replens
replenishes vaginal moisture on a sustained basis and relieves the discomfort
associated with vaginal dryness. Replens was the first product utilizing the
BDS. In May 2000, the Company sold the U.S. rights for Replens to Lil’ Drug
Store. pursuant to an agreement under which the Company continues to receive
royalties of 10% of sales of Replens in the U.S. On June 29, 2004, the Company
licensed 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, with minimum purchase requirements for three years, and a 21⁄2 year
professional promotion agreement for the Company’s sales force to continue to
promote the product to OB/GYNs in the U.S.
 ****
 **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. RepHresh uses the Company’s BDS and
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 licensed 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, with minimum purchase requirements for three years, and a
21⁄2 year professional promotion agreement for the Company’s sales force to
continue to promote the product to OB/GYNs in the U.S.
 
 **Other
Products** . The
Company marketed four additional products until April 2000: Advanced Formula
Legatrin PM® **** for the
relief of occasional pain and sleeplessness associated with minor muscle aches
such as night leg cramps; Legatrin â GCM
Formula ’ , a
nutritional supplement to support healthy joint function; Vaporizer in a
Bottle®, a portable cough suppressant for the temporary relief of a cough due to
the common cold; and Diasorb®, a pediatric antidiarrheal product. These products
do not utilize the BDS. In May 2000, the Company licensed these products to Lil’
Drug Store. Under the terms of these agreements, the Company receives license
fees equal to 20% of the licensee’s net sales. These agreements each have
five-year terms with provisions for automatic renewal and contain options that
allow for the acquisition of the products by the licensee. On December 29, 2000,
Lil’ Drug Store purchased Vaporizer in a Bottle for $201,800. The production and
sale of Legatrin â GCM
Formula and Diasorb were discontinued during the first half of 2003. The
license for Advanced
Formula Legatrin PM renewed automatically to May 2010.
 ****
 **Research
and Development**
 
 The
Company expended $5.4 million in 2004, $3.3 million in 2003 and $5.4 million in
2002 on research and development activities. The expenditures in 2004 were
primarily costs associated with the
Company’s PROTERMTM ( PRO gesterone
Gel for Reducing Pre TERM Labor
and Delivery) study, discussed below.  Expenditures
in 2003 and 2002 were
primarily the result of costs associated with contracting for, supervising and
administering the development and clinical studies of Striant and the delivery
of peptides utilizing the BDS. 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 people. 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.
  7
 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. **** 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. ****
  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.
  **Prochieve
8% in Preventing Preterm Birth** . In
November 2003, the Company announced the PROTERMTM Trial, a Phase III
multi-center, randomized, double-blind, placebo-controlled, clinical trial
designed to assess the efficacy, safety and tolerability of Prochieve® 8%
(progesterone gel) in preventing preterm delivery in pregnant women who are at
increased risk for preterm birth. The PROTERMTM study protocol defines “at risk”
patients as pregnant women who have either a history of a spontaneous preterm
delivery, or who have a cervical length of 2.5 cm or less, as measured by
transvaginal ultrasound, with the current pregnancy. Patients are randomized to
receive either Prochieve 8% or placebo. Treatment is initiated between 18 and 22
weeks of gestation and administered daily until delivery, withdrawal from the
study, development of preterm rupture of the membranes, or until 37 completed
weeks of gestation. The study is designed to enroll 636 patients and is expected
to be completed by year-end 2005.
 
 Prior
studies have found prophylactic progestogen administration to be effective in
reducing the incidence of preterm birth. Two studies published in 2003 renewed
researchers’ interest in the use of progestogens to prevent preterm labor and
delivery. Positive results of a trial using weekly intramuscular injections of a
synthetic progesterone derivative were published in *The
New England Journal of Medicine* . Similar
encouraging findings of a trial using daily administration of
pharmacy-compounded progesterone vaginal suppositories were published in the *American
Journal of Obstetrics and Gynecology* . The
American College of Obstetricians and Gynecologists’ (“ACOG”) Committee on
Obstetric Practice acknowledged the value of this research. The Committee issued
an opinion stating that progesterone may be used as treatment to help prevent
preterm birth in women with a history of delivering prematurely. The opinion
encourages additional research on this topic, particularly related to the ideal
method of progesterone delivery. The March of Dimes commended ACOG for these
guidelines and reaffirmed their call for research to better understand how women
can benefit from progesterone in the prevention of preterm birth.
 
 Preterm
delivery is a significant problem in obstetrics. Despite intense efforts for
prevention, the delivery rate prior to 37 weeks of gestation increased to 12.1
percent of live births in the United States in 2002 ( National
Center for Health Statistics, final natality data. Retrieved March 07, 2005,
from www.marchofdimes.com/peristats ).
Approximately 20 percent of preterm births are the result of a physician’s
decision to bring about delivery for maternal and fetal indications. The
remainder of preterm deliveries is spontaneous, usually following the onset of
premature labor or rupture of the membranes. The current standard of care to
help prevent premature delivery includes bed rest, intensive prenatal care for
high-risk women and drug therapy, such as tocolytics, to stop uterine
contractions.
 
 **Terbutaline
Vaginal Gel.** In
December 2002, the Company announced a development and license agreement with
Ardana for the Company’s terbutaline vaginal gel product for the treatment of
infertility, dysmenorrhea and endometriosis. The Company received a payment of
$250,000 upon signing of the agreement and will receive an additional $250,000
upon successful completion by Ardana of the Phase II clinical trial, which is
expected to be completed in the first half of 2005. 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.
 
 8
 **Lidocaine
Vaginal Gel.** Lidocaine vaginal gel is designed as a potential treatment for dysmenorrhea and
gynecologic pain. We have completed the development work on this product as well
as a clinical trial conducted in Europe. Results from this trial, which were
announced on February 5, 2004, showed that lidocaine vaginal gel 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.
 
 The
Company is currently completing the next phase of this project, which is aimed
at establishing the appropriate dose to be used in the clinical development
program, and expects to initiate a Phase II clinical study with this product in
the first half of 2005. The Company believes this product may offer a new and
novel approach to treating women who suffer from these common and painful
conditions.
 
 **Testosterone
Vaginal Gel and 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. Vaginal gel and
vaginal tablet forms have been developed. A preliminary clinical plan, with a
focus on reduction in uterine fibroids as well as general testosterone
replacement, is under review by our clinical advisors.
 
 **Peptide
Delivery System.** The
Company has completed a program that demonstrates that the BDS can deliver
therapeutic doses of the peptide, desmopressin, using the Company’s progressive
hydration buccal technology for extended periods of time. Based on these
positive results, the Company has initiated partnering discussions related to a
desmopressin buccal tablet.
 
 **Licensing
and Development Agreements**
 
 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. In June 2002, the license and supply
agreement was amended and restated and a marketing sublicense was granted to the
Company permitting us to sell progesterone gel under a second brand name,
Prochieve, to the non-infertility specialist market in the U.S. Under the
marketing sublicense, the Company is obligated to pay Serono a royalty equal to
30% of its net sales to the non-infertility specialist market. The Company is
obligated to pay Serono an additional royalty of 40% of Prochieve’s net sales to
the infertility specialist market. Conversely, Serono is obligated to pay the
Company an additional royalty of 40% of Crinone net sales to the non-infertility
specialist market in the U.S.
 
 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 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
October 2002, the Company and Ardana entered into a license and supply agreement
under which Ardana will market Striant in 18 European countries (excluding
Italy). In exchange for the license, the Company will receive total payments of
$8 million. To date the Company has received $4.8 million under this agreement,
including $4 million in signature and milestone fees received in 2002 and
$800,000 received in 2004 upon marketing approval in the U.K. Additional
milestone payments totaling $1.2 million are due upon marketing approvals in
major European countries. The Company expects final licenses will be granted in
these countries in the first half of 2005. 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 in such country.
 
 9
 In
December 2002, the Company and Ardana executed a development and license
agreement (described above) for the Company’s terbutaline vaginal gel product.
 
 In May
2003, the Company and Mipharm entered into an agreement under which Mipharm will
market 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 $350,000 that was paid in 2003. We received a
payment of $100,000, less VAT withholding, in 2004 on account of the UK approval
of Striant. Mipharm will provide additional performance payments upon marketing
approval in Italy and achievement of certain levels of sales in Italy, and
Columbia 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 June
2004, the Company and Lil’ Drug
Store entered into an asset purchase agreement, a five year supply agreement,
and a 21⁄2 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 Company will supply RepHresh,
Advantage-S, and ex-U.S. requirements for Replens under the supply agreement.
Under the professional services agreement, the Company’s sales force will
represent Replens, RepHresh and Advantage-S to its OB/GYN audience through 2006.
The Company will be compensated on a per-call basis over the duration of that
agreement.
 
 **Financial
Agreements**
 
 **** On July
31, 2002, PharmaBio Development (“PharmaBio”), an affiliate of Quintiles
Transnational Corp. (“Quintiles”), 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, and a true-up payment in February 2005 of the difference
between royalties paid to that date and $2.75 million. The Company made a
true-up payment of $1.9 million on February 28, 2005. 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
12.51%.
 
 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 revenues, and a 4.5% royalty of net
sales above those levels. The royalty term is seven years. Royalty payments
commenced in the 2003 third quarter and are subject to aggregate minimum ($30
million) and maximum ($55 million) amounts , and a
true-up payment in third quarter 2006 of the difference between royalties paid
to that date and $13 million . Because
the minimum amount exceeds the $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 to be received by the Company is being
recognized as interest expense over the seven-year term of the agreement,
assuming an interest rate of 10.67%.
 
 10
 **Patents,
Trademarks and Proprietary Information**
 
 The
Company purchased the patents underlying the BDS from Bio-Mimetics, Inc.
("Bio-Mimetics"). The basic patent that covers the BDS was issued in the United
States and by the European Patent Office in 1986 and 1992, respectively. The
Company has the exclusive right to the use of the BDS subject to certain third
party licenses by Bio-Mimetics that were assigned to the Company and certain
restrictions on the assignment of the patents. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations."
 
 
 The
following table sets forth United States patents granted to the Company since
2001.
 
 **Year
      Granted**
    **Nature
      of Patent**2004
    Compositions
      and methods for safely preventing or treating premature labor using a
      beta-adrenergic agonist, such as terbutaline.2004
    Methods
      of safely treating endometriosis or infertility, and for improving
      fertility, using a beta-adrenergic agonist.2003
    Use
      of progestin therapy for maintaining amenorrhea.2003
    Bioadhesive
      progressive hydration tablet.2002
    Use
      of certain polycarboxylic acid polymers for vaginal pH buffering to
      prevent miscarriage and premature labor associated with bacterial
      vaginosis.2001
    Bioadhesive
      progressive hydration tablets and methods of making and using the
      same.2001
    Use
      of progesterone for maintaining amenorrhea.
 
 The
Company continues to develop the core BDS and has filed additional patent
applications. Because
the Company operates on a worldwide basis, the Company seeks worldwide patent
protection for its technology and products. 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 technologies of the Company.
 
 The
following table sets forth the expiration dates of the principal United States
patents for the Company’s marketed products and current development
projects.
 
 **Subject
      of patent**
    **Year
      of Expiration**
    **Product
      or Project**Progressive
      hydration tablets
    2019
    Striant
      --
      testosterone
      progressive hydration vaginal tablet
      --
      peptide
      delivery systemFirst
      Uterine Pass EffectTM
    2018
    lidocaine
      vaginal gel
      --
      terbulatline
      vaginal gel
      --
      testosterone
      vaginal gelProgesterone
      delivery
    2013
    Crinone/ProchieveVaginal
      tissue moisturization
    2012
    ReplensVaginal
      tissue moisturization
    2009
    ReplensVaginal
      pH
    2009
    RepHresh
 
 11
 The
Company owns or is seeking registration of “Chronodyne”, “Crinone”, “Prochieve”,
“PROTERM” “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**
 
 From 1997
until 2002, we out-licensed almost all marketing rights to our products. In June
2002, we obtained a sublicense from Serono to market our 8% and 4% progesterone
gel products under the brand name Prochieve®. In July 2002, we entered into an
agreement with Innovex LP (“Innovex”), an affiliate of Quintiles, thereby
establishing our first sales force in the United States. Under the terms of this
agreement, Innovex provided a dedicated team of 55 sales representatives on a
three-year, fee-for-service basis to commercialize the Company’s women’s
healthcare products, Prochieve 8%, Prochieve 4%, Advantage-S, and RepHresh, in
the U.S. The sales force was recruited and trained in August and September 2002,
and began in October 2002 to call on a targeted list of approximately 8,000
obstetricians and gynecologists to encourage prescriptions and product
recommendations for Prochieve 8%, Advantage-S, and RepHresh. The sales force
began sales efforts for Prochieve 4% in April 2003.
 
 In March
2003, we entered into a second agreement with Innovex to commercialize Striant
in the United States. Under the terms of the agreement, Innovex provided a
dedicated team of 67 additional sales representatives for a two-and-a-half year
term. The new sales representatives were recruited in June 2003 and were trained
on our women’s healthcare products and began calling on obstetricians and
gynecologists in July 2003. The entire sales force of 122 sales representatives
and 13 managers was trained on Striant in September 2003 and subsequently added
endocrinologists, urologists and certain primary healthcare doctors to their
call lists.
 
 In
January 2004, the Company and Innovex restructured the sales force. The
restructured sales force was comprised of ten district managers employed by the
Company and 80 sales representatives, divided evenly between the Company and
Innovex. Under the terms of the restructuring, Innovex transferred
responsibility for management of the sales force to the Company, but continued
to provide half of the sales representatives.
 
 On
February 2, 2005, in order to align better expenses with projected revenues, we
further reduced the size of the sales force to five district managers and 23
sales representatives, 12 of whom are Innovex employees and 11 of whom are
Company employees. The
28-person sales force is focused on territories with potential for growth from
current products, while preparing the organization for potential near-term
opportunities from the Company’s clinical research programs. The sales
force calls on OB/GYN’s, endocrinologists, urologists, and certain primary
healthcare physicians and educates the doctors and other healthcare
professionals in their offices on the benefits of Striant and Prochieve.  Columbia
will take full responsibility for all the sales representatives after October
2005.
 
 We
receive revenues both from selling our products to licensees, which we refer to
as our “Partnered Products”, and selling our products that we promote through
our own sales force to wholesalers and other distributors, which we refer to as
our “Promoted Products.”
 
 
 12
 Partnered
Products are:
 ·
    Crinone®
      sold to Serono on a worldwide basis;
 ·
    Striant®
      sold to our ex-U.S. marketing partners;
 ·
    Replens®
      Vaginal Moisturizer sold to Lil’ Drug Store
ex-U.S.;
 ·
    RepHresh®
      Vaginal Gel and Advantage-S® Bioadhesive Contraceptive Gel sold to Lil’
      Drug Store on a worldwide basis; and,
 ·
    Royalty
      and licensing revenues.
 
 Promoted
Products are:
 ·
    Prochieve®
      8%, Prochieve 4% and Striant in the U.S.;
 ·
    Crinone®
      prescriptions in the U.S. from our OB/GYN audience, for which Serono pays
      us a 40% supplemental royalty ; and,
 ·
    Replens®
      Vaginal Moisturizer, RepHresh® Vaginal Gel and Advantage-S® Bioadhesive
      Contraceptive Gel, for which Lil’ Drug Store pays us promotion fees for
      presenting the products to OB/GYNs.
 
 **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 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 if we do not promote our products effectively. We
promote 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 Crinone,
Advantage-S, RepHresh, and Replens in the U.S. and foreign countries, and
Striant in foreign countries. Factors
that could affect our success in marketing our products include:
 
 §
    The
      ability of our sales force, which was recently reduced to 28 persons, to
      effectively generate prescriptions of our products from current product
      advocates and target physicians;
 §
    The
      effectiveness of our production, distribution and marketing capabilities;
 §
    The
      successful marketing of our products byour
      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 fails 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.
 
 13
 **Customers**
 
 Our
customers include trade customers, such as drug wholesalers and chain drug
stores, and our marketing partners. We utilize two employees to make calls on
the Company’s trade customers on behalf of Striant and Prochieve. 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 days in advance of the expected shipping date.
 
 **Revenue
by Product**
 
 The
following table sets forth the percentage of the Company's consolidated
revenues, consisting of sales, licensing fees, sales force promotional fees, and
royalty revenues, by revenue source for each product accounting for 3% or more
of consolidated revenues in any of the three years ended December
31:
 
 2004
    
    2003
    
    2002Crinone
    
    
    40
    %
    
    34
    %
    
    38
    %Striant
    
    
    18
    %
    
    13
    %
    
    0
    %Replens
    
    
    15
    %
    
    16
    %
    
    13
    %Prochieve
    
    
    10
    %
    
    26
    %
    
    37
    %Royalty
      income
    
    
    6
    %
    
    5
    %
    
    9
    %Sales
      force promotional fees
    
    
    3
    %
    
    1
    %
    
    0
    %Licensing
      fees
    
    
    3
    %
    
    2
    %
    
    1
    %Other
      products
    
    
    5
    %
    
    3
    %
    
    2
    %100
    %
    
    100
    %
    
    100
    %
 
 
 The
following table presents information about Columbia’s revenues, including
royalty and license revenue, by customer:
 2004
    
    2003
    
    2002Ares-Serono
    
    $
    8,512,147
    
    $
    8,655,947
    
    $
    3,878,513Lil'
      Drug Store Products, Inc.
    
    
    3,565,760
    
    
    3,281,034
    
    
    1,356,343Cardinal
      Healthcare
    
    
    1,419,962
    
    
    3,296,865
    
    
    1,624,556McKesson
    
    
    1,218,438
    
    
    2,890,998
    
    
    489,585Amerisource
      Bergen
    
    
    750,117
    
    
    447,455
    
    
    599,028ANDA,
      Inc.
    
    
    52,288
    
    
    -
    
    
    623,808All
      others (none over 5%)
    
    
    2,341,692
    
    
    3,842,729
    
    
    846,716$
    17,860,404
    
    $
    22,415,028
    
    $
    9,418,549
 
 14
 
 
 **Sales
by Geographic Area**
 
 The
following table sets forth the percentage of the Company's consolidated revenue,
based on sales by geographic area, for each area accounting for 5% or more of
consolidated revenues in any of the three years ended December 31:
 
 2004
    
    2003
    
    2002United
      State
    
    $
    11,236,330
    
    $
    13,573,723
    
    $
    6,458,323Europe
    
    
    6,624,074
    
    
    8,841,305
    
    
    2,960,226$
    17,860,404
    
    $
    22,415,028
    
    $
    9,418,549
 
 **Recent
Developments**
  On
February 2, 2005, the Company announced
a restructuring of its sales
force and marketing programs, effective immediately, to better align expenses
with projected revenues. The Company downsized its sales force from
approximately 80 to 28 sales professionals, and expects to reduce its selling
and distribution expenses by approximately 60% in 2005. Costs associated with
the restructuring are not considered to be material.
 
 On
February 25, 2005, the Company entered into an employment agreement with
Robert S. Mills defining the terms of his employment with the Company as its
Senior Vice President and Chief Operating Officer. The initial term of Mr.
Mills’ employment under the Agreement is through March 31, 2007. See
“Executive Compensation--Employment Agreements.”
 
 On
February 28, 2005, the Company paid a true-up payment of $1.9 million to
PharmaBio in accordance with the July 31, 2002 agreement.
 
 The
Company continues to explore a range of strategic options to enhance shareholder
value, including a variety of strategic partnership relationships ranging from
development projects for third parties, the out-license or sale of one or more
of the Company’s products, or a possible sale of the Company. Banc of America
Securities LLC, the Company's long-standing financial advisor, will continue to
assist the Company in this exploration process. No formal decisions have been
made, and no agreements have been reached. There can be no assurance given that
any particular alternative will be pursued or that any transaction will occur or
on what terms.
 
 **Competition**
 
 The
pharmaceutical industry is intensely competitive and 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.
 
 The
Company and our marketing partners compete against established pharmaceutical
and consumer product companies which market products addressing similar needs.
In addition, numerous companies are developing or, in the future, may develop
enhanced delivery systems and products competitive with the Company's present
and proposed products. Some of these competitors possess greater financial,
research and technical resources than the Company or its partners. Moreover,
these companies may possess greater marketing capabilities than the Company or
our partners, including the resources to implement extensive advertising
campaigns.
 
 15
 Crinone®/Prochieve®,
a natural progesterone product, competes in markets with other progestins, both
synthetic and natural, that may be delivered orally, by injection or by vaginal
suppository. Some of the more successful orally-dosed products include Provera®
(medroxyprogesterone acetate) marketed by Pfizer Inc., Prometrium® (oral
micronized progesterone) marketed by Solvay S.A., Prempro® (conjugated
estrogens/medroxyprogesterone acetate tablets) and Premphase® (conjugated
estrogens/medroxyprogesterone acetate tablets) marketed by Wyeth.
 
 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. and Androderm® (testosterone transdermal system) marketed
by Watson Pharma, Inc. 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.
 
 The
Company's success is dependent in part on the marketing efforts of our marketing
partners, over which the Company has limited influence, and in part on our own
efforts and those of our contract sales force.
 
 Our
competitive position may be adversely affected in the future by one or more of
the factors described in this section, or as yet undefined additional factors
that may arise.
 
 **Employees**
 
 As of
March 4, 2005, the Company had 44 employees: 4 in management, 5 in production,
14 in sales and marketing, and 21 in support functions. Our success is highly
dependent on our ability to attract and retain qualified employees. Competition
for employees is intense in the pharmaceutical industry. We believe we have been
successful in our efforts to recruit qualified employees, but we cannot
guarantee that we will continue to be as successful in the future. None of the
Company's employees are represented by a labor union or are subject to
collective bargaining agreements. We believe that our relationship with our
employees is good.
 
 The
Company has employment agreements with two employees, Mr. Wilkinson, President
and Chief Executive Officer, and Mr. Mills, Senior Vice President and Chief
Operating Officer. See “Executive Compensation--Employment Agreements.” The
Board of Directors of the Company has adopted an Indemnification Agreement for
Officers and Directors and an Executive Change of Control Severance Agreement
for Officers.
 
 **Available
Information**
 
 The
Company's Internet address is http://www.columbialabs.com. Through a link on the
Investor Relations page of this website, we make available, free of charge, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to those reports, as soon as reasonably practicable
after we electronically file such material with or furnish it to the SEC. In
addition, we will provide electronic or paper copies of our filings free of
charge upon request. Information contained on our corporate website or any other
website is not incorporated into this Annual Report and does not constitute a
part of this Annual Report.
 
 In
addition, the public may read and copy any materials filed by the Company with
the SEC at the SEC’s Reference Room, which is located at 450 Fifth Street, NW,
Washington, D.C., 20549. Interested parties may call (800) SEC-0330 for further
information on the Reference Room. The SEC also maintains a website containing
reports, proxy materials and information statements, among other information, at
http://www.sec.gov.
 
 
 16
 
 
 
 **Item
2. Properties**
 
 As of
December 31, 2004, the Company leased the following property:
 AnnualLocation
    Use
    Square
      feet
    Expiration
    RentLivingston,
      NJ
    Corporate
      office
    12,780
    July
      2007
    $182,000Paris,
      France
    European
      logistics office
    150
    June
      2005
    15,000
 **Item
3. Legal Proceedings**
 
 Claims
and lawsuits have been filed against the Company from time to time. Although
the results of pending claims are always uncertain, the Company does not believe
the results of any such actions, individually or in the aggregate, will have a
material adverse effect on our financial position or results of operation.
Additionally, the Company believes that it has reserves or insurance coverage in
respect of these claims, but no assurance can be given as to the sufficiency of
such reserves or insurance in the event of any unfavorable outcome resulting
from these actions.
 
 **Item
4. Submission of Matters to a Vote of Security Holders**
 
 No
matters were submitted to a vote of security holders during the fourth quarter
of fiscal year ended December 31, 2004.
 
 **Executive
Officers of the Registrant**
 
 Our
executive officers as of December 31, 2004, were as follows:
 
 Name
    Age
    Position
      with the CompanyG.
      Frederick Wilkinson
    49
    President
      and Chief Executive OfficerRobert
      S. Mills
    52
    Senior
      Vice President and Chief Operating OfficerDavid
      L. Weinberg
    59
    Vice
      President, Finance, Chief Financial Officer and
  TreasurerJames
      J. Apostolakis *
    62
    Vice
      President, Investor RelationsMichael
      McGrane
    55
    Vice
      President, General Counsel and Secretary
 * Effective
December 31, 2004, Mr. Apostolakis' employment as Vice President, Investor
Relations, was terminated.
 
 Officers
serve at the discretion of the Board of Directors. There is no family
relationship between any of the executive officers or between any of the
executive officers and the Company’s directors. There is no arrangement or
understanding between any executive officer and any other person pursuant to
which the executive officer was selected, except with respect to Mr. Wilkinson’s
and Mr. Mills’ employment agreements. See “Executive Compensation--Employment
Agreements.”
 
 Mr.
Wilkinson has been a director of the Company since 2001 and its President and
Chief Executive Officer since April 15, 2001. Prior to joining the Company, he
served as Chief Operating Officer and Senior Vice President, Sales and
Marketing, of Watson Pharmaceuticals, Inc. (“Watson”) from June 1999.
Previously, Mr. Wilkinson was Vice President of Watson from July 1997, and
Executive Vice President - Sales and Marketing of Watson from July 1996. Prior
to his employment at Watson, Mr. Wilkinson was the President and General Manager
of Creighton Pharmaceuticals, a wholly owned subsidiary of Novartis
Pharmaceuticals Corporation (formerly Sandoz Pharmaceuticals Corporation), from
1994 to 1996. He held various marketing management positions at Novartis from
1980. Mr. Wilkinson received his M.B.A. from Capital University and his B.S. in
Pharmacy from Ohio Northern University.
 
 17
 Mr. Mills
joined Columbia in May 2001 as Senior Vice President, Operations and was named
Chief Operating Officer in September 2003. He has responsibility for Clinical
Research, Regulatory Affairs and Information Systems as well as Product
Development, Manufacturing and Quality Assurance. Prior to joining the Company,
Mr. Mills served five years as Senior Vice President, Manufacturing Operations,
at Watson Pharmaceuticals, Inc. from 1996 to 2001. During his 30-year career in
the pharmaceutical industry he also served as Vice President, Operations, at
Alpharma, Inc. from 1993 to 1996 and held various positions with Aventis SA,
including Director-Plant Operations. Mr. Mills holds a B.S. from Grove City
College.
 
 Mr.
Weinberg has served as Vice President, Finance, Chief Financial Officer and
Treasurer since September 1997. From the Company’s inception until June 1991 he
was Vice President—Finance and Administration, Chief Financial Officer,
Treasurer and Secretary. From 1991 to 1997, he held positions of increasing
responsibility at Transmedia Network Inc., ultimately serving as Vice President
and Chief Financial Officer. Mr. Weinberg was previously with Key
Pharmaceuticals, Inc., where he served in various capacities, including Vice
President - Finance, Treasurer and Secretary, from February
1981 until its
sale to Schering-Plough Corporation in 1986. Mr. Weinberg holds a B.B.A. in
Accounting from Hofstra University.
 
 Mr. Apostolakis
served as Vice President, Investor Relations, from April 2001 until December
2004 and as President from January 2001 to April 2001. He has been a director of
Columbia since January 1999. He has been a Managing Director at Poseidon
Capital Corporation (investment banking) since February 1998 and President of
Lexington Shipping and Trading Corporation (shipping operations) since 1973. He
holds an A.B. in Economics from the University of Pennsylvania and an LL.B. from
Harvard University Law School.
 
 Mr.
McGrane has
served as Vice President, General Counsel and Secretary since January 2002. He
joined Columbia from The Liposome Company, Inc., a biotechnology company, where
he served as Vice President, General Counsel and Secretary from 1999
to 2001, prior to
which he was Vice President, General Counsel and Secretary to Novartis Consumer
Health, Inc. from 1997
to 1998 Previously, Mr. McGrane held various positions with Novartis Pharmaceuticals
Corporation (formerly Sandoz Pharmaceuticals Corporation), including Associate
General Counsel, from 1984
to 1996, and was
Regulatory Counsel to the U.S. Food and Drug Administration from 1975
to 1984. Mr.
McGrane received his J.D. degree from Georgetown University and his B.A. degree
from Cornell College. He is a member of the New Jersey bar.
 
 ****
 **Code
of Ethics**
 
 The Board
of Directors of the Company has adopted a Code of Ethics applicable to all Board
members, executive officers and all employees. We will
provide an electronic or paper copy of this Code of Ethics free of charge upon
request. If substantial amendments to the Code of Ethics are executed, or if
waivers are granted, the Company will post and disclose the nature of such
amendments or waivers on the Company’s website or in a report on Form
8-K.
  18
   **PART
II**
 **Item
5. Market for the Registrant's Common Equity and Related Stockholder Matters and
Issuer Purchases of Equity Securities**
 
 The
Company's $.01 par value common stock ("Common Stock") began trading on the
NASDAQ National Market System under the symbol CBRX on February 13, 2004. Prior
to that date it traded on the American Stock Exchange under the symbol COB. The
following table sets forth for the periods indicated the high and low sales
prices of the Common Stock on the NASDAQ and the American Stock Exchange, as
reported on the Composite Tape.
 
 High
    
    LowFiscal
      Year Ended December 31, 2003First
      Quarter
    
    $
    4.20
    
    $
    2.76Second
      Quarter
    
    
    11.60
    
    
    3.93Third
      Quarter
    
    
    16.15
    
    
    9.80Fourth
      Quarter
    
    
    12.07
    
    
    4.86Fiscal
      Year Ended December 31, 2004First
      Quarter
    
    $
    8.08
    
    $
    4.69Second
      Quarter
    
    
    5.40
    
    
    2.90Third
      Quarter
    
    
    3.59
    
    
    1.76Fourth
      Quarter
    
    
    3.45
    
    
    1.86
 At March
4, 2005, there were approximately 300 shareholders of record of the Company's
Common Stock. one shareholder of record of the Company's Series B convertible
preferred stock (“Series B Preferred Stock”) and 12 shareholders of record of
the Company’s Series C convertible preferred stock (“Series C Preferred Stock”).
The Company estimates that there are approximately 7,500 beneficial owners of
its Common Stock on such date.
 
 The
Series C Preferred Stock was issued and sold by the Company in January 1999 to
24 accredited investors, through which the Company raised approximately $6.4
million, net of expenses. The Series C Preferred Stock has a stated value of
$1,000 per share, and is convertible into Common Stock at the lower of: (i)
$3.50 per share of Common Stock, and (ii) 100% of the average of the closing
prices during the three trading days immediately preceding the conversion
notice. The Series C Preferred Stock pays a 5% dividend, payable quarterly in
arrears on the last day of the quarter.
 
 Effective
as of February 6, 2001, the Company entered into the Amended and Restated Common
Stock Purchase Agreement (the “Purchase Agreement”) with Acqua
Wellington North
American Equities Fund, Ltd., (“ Acqua
Wellington”) to sell up to $16.5 million of Common Stock under the Registration
Statement, the Prospectus, and the related Prospectus Supplement dated February
6, 2001 and amended on April 13, 2001. Pursuant to the Purchase Agreement, the
Company was able to issue and sell to Acqua Wellington up to $16.5 million of
Common Stock and grant Acqua Wellington a call option to purchase additional
shares of Common Stock, subject to the overall limit of $16.5
million.  The
Company and Acqua Wellington agreed to extend the term of the Purchase Agreement
until February 6, 2005, at which time it expired.
 
 During
2004, the Company issued 2,000,000 shares of its Common Stock to SJ Strategic
Investments LLC, a family investment vehicle owned and managed by John M.
Gregory, the founder and former Chairman and CEO of King Pharmaceuticals, which
resulted in the Company receiving $6,380,000 after expenses. Proceeds were used
for general corporate purposes.
 
 During
2003, the Company issued 2,764,612 shares of its Common Stock to a group of
institutional investors, which resulted in the Company receiving $28,805,091
after expenses. Also in 2003, outstanding options and warrants were exercised
resulting in the issuance of 1,318,190 shares of Common Stock and the receipt of
$6,994,115 by the Company. Proceeds were used for general corporate purposes.
 
 19
 **Equity
Compensation Plan Information**
 
 The
following table sets forth aggregate information for the fiscal year ended
December 31, 2004, regarding the Company's compensation plans, including
individual compensation agreements, under which equity securities of the Company
are authorized for issuance:
 
 Plan
      Category
    Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
    Weighted
      average exercise price of outstanding options, warrants and
      rights
    Number
      of securities remaining available for future issuance(a)
    (b)
    (c)Equity
      compensation plans approved by security holders
    5,479,400
    $8.73
    2,262,475Equity
      compensation plans not approved by security holders
    725,000
    $6.94
    0Total
    **6,204,400**
    **$8.52**
    **2,262,475**
 
 The
Company has two shareholder-approved equity compensation plans under which
securities may be issued upon exercise. The first is the Columbia Laboratories,
Inc. 1988 Stock Option Plan, as amended (the "1988 Plan"). All employees,
officers, directors, and consultants of the Company or any subsidiary were
eligible to participate in the 1988 Plan. Under the 1988 Plan, a total of
5,000,000 shares of Common Stock were authorized for issuance upon exercise of
the options. As of October 1996, no further options were granted pursuant to the
1988 Plan. The second shareholder-approved equity compensation plan is the 1996
Long-term Performance Plan (the “1996 Plan”), adopted in October 1996, which
provides for the grant of stock options, stock appreciation rights and
restricted stock to certain designated employees of the Company, non-employee
directors of the Company and certain other persons performing significant
services for the Company as designated by the Compensation Committee of the
Board of Directors. Pursuant to the 1996 Plan, an aggregate of 8,000,000 shares
of Common Stock have been reserved for issuance.
 
 On March
12, 2002, the Company adopted a Stockholder Rights Plan (“Rights Plan”) designed
to protect company stockholders in the event of takeover activity that would
deny them the full value of their investment. The Rights Plan was not adopted in
response to any specific takeover threat. In adopting the Rights Plan, the Board
declared a dividend distribution of one preferred stock purchase right for each
outstanding share of Common
Stock of the Company, payable to stockholders of record at the close of business
on March 22, 2002. The rights will become exercisable only in the event, with
certain exceptions, a person or group of affiliated or associated persons
acquires 15% or more of the Company’s voting stock, or a person or group of
affiliated or associated persons commences a tender or exchange offer which, if
successfully consummated, would result in such person or group owning 15% or
more of the Company’s voting stock. The rights will expire on March 12, 2012.
Each right, once exercisable, will entitle the holder (other than rights owned
by an acquiring person or group) to buy one one-thousandth of a share of a
series of the Company’s Series D Junior Participating Preferred Stock at a price
of $30 per one-thousandth of a share, subject to adjustments. In addition, upon
the occurrence of certain events, holders of the rights (other than rights owned
by an acquiring person or group) would be entitled to purchase either the
Company’s preferred stock or shares in an “acquiring entity” at approximately
half of market value. Further, at any time after a person or group acquires 15%
or more (but less than 50%) of the Company’s outstanding voting stock, subject
to certain exceptions, the Board of Directors may, at its option, exchange part
or all of the rights (other than rights held by an acquiring person or group)
for shares of the Company's Common Stock having a fair market value on the date
of such acquisition equal to the excess of (i) the fair market value of
preferred stock issuable upon exercise of the rights over (ii) the exercise
price of the rights. The Company generally will be entitled to redeem the rights
at $0.01 per right at any time prior to the close of business on the tenth day
after there has been a public announcement of the beneficial ownership by any
person or group of 15% or more of the Company’s voting stock, subject to certain
exceptions.
 
 20
 
 
 On March
12, 2001, the Company granted to James Apostolakis, a director and former
executive officer of the Company, warrants to purchase up to an aggregate of
100,000 shares of Common Stock at an exercise price of $5.85 per share. On March
12, 2001, the Company granted to Fred Wilkinson, pursuant to an employment
agreement, warrants to purchase up to an aggregate of 350,000 shares of Common
Stock at an exercise price of $8.35 per share.
 
 Between
January 7, 1999 and February 1, 1999 the Company sold: (i) 6,660 shares of
Series C Preferred Stock, convertible into shares of the Company’s Common Stock,
par value $.01 and, (ii) warrants to purchase up to an aggregate of 233,100
shares of Common Stock at an exercise price of $3.50 per share (the “Series C
Warrants”) for an aggregate purchase price of $6,660,000. The Series C Preferred
Stock may be converted into shares of Common Stock at a conversion price equal
to the lesser of (i) $3.50 and (ii) 100% of the average of the closing prices of
the Common Shares as reported on the exchange upon which they are registered for
the three trading days immediately preceding the date of conversion. The offer,
sale and delivery of the Series C Preferred Stock were made pursuant to Rule 501
of Regulation D under the Securities Act of 1933.
 
 **Dividend
Policy**
 
 The
Company has never paid a cash dividend on its Common Stock and does not
anticipate the payment of cash dividends in the foreseeable future. The Company
intends to retain any earnings for use in the development and expansion of its
business. The Company pays a 5% dividend on its Series C Preferred Stock each
quarter, as previously discussed.
 
 Applicable
provisions of the Delaware General Corporation Law may affect the ability of the
Company to declare and pay dividends on its Common Stock as well as on its
Series C Preferred Stock. In particular, pursuant to the Delaware General
Corporation Law, a company may pay dividends out of its surplus, as defined, or
out of its net profits, for the fiscal year in which the dividend is declared
and/or the preceding year. Surplus is defined in the Delaware General
Corporation Law to be the excess of net assets of the company over capital.
Capital is defined to be the aggregate par value of shares issued unless
otherwise established by the Board of Directors.
 
 **Item
6. Selected Financial Data**
 
 The
following selected financial data (not covered by the auditor’s report) are
derived from the Company’s audited financial statements and are qualified in
their entirety by reference to, and should be read in conjunction with, such
consolidated financial statements and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” of this Annual
Report. The historical results are not necessarily indicative of the results we
expect for future periods.
  21
  **Financial
Highlights**
 
 
 **For
      the Years Ended December 31,****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000****Statement
      of Operations Data: (000's except per share data)****Revenues**
    
    $
    17,860
    
    $
    22,415
    
    $
    9,419
    
    $
    2,154
    
    $
    13,173**Gross
      profit**
    
    
    10,072
    
    
    12,632
    
    
    4,190
    
    
    (505
    )
    
    8,626**Operating
      expenses**
    
    
    32,044
    
    
    32,214
    
    
    20,050
    
    
    14,941
    
    
    11,154**Interest
      expense**
    
    
    2,991
    
    
    1,846
    
    
    853
    
    
    755
    
    
    755**Net
      loss**
    
    
    (25,130
    )
    
    (21,151
    )
    
    (16,850
    )
    
    (15,846
    )
    
    (2,603
    )**Loss
      per common share**
    
    
    (0.62
    )
    
    (0.57
    )
    
    (0.50
    )
    
    (0.51
    )
    
    (0.09
    )**Weighted
      average number****of
      common shares outstanding-diluted**
    
    
    40,984
    
    
    37,440
    
    
    34,392
    
    
    31,243
    
    
    30,235**Balance
      Sheet Data: (000's)****Working
      capital**
    
    $
    9,303
    
    $
    33,690
    
    $
    4,717
    
    $
    4,622
    
    $
    10,936**Total
      assets**
    
    
    29,268
    
    
    42,755
    
    
    12,902
    
    
    8,662
    
    
    15,619**Note
      payable**
    
    
    0
    
    
    10,000
    
    
    10,000
    
    
    10,000
    
    
    10,000**Long-term
      portion of financing agreements**
    
    
    18,923
    
    
    15,747
    
    
    1,350
    
    
    -
    
    
    -**Stockholders'
      equity (deficiency)**
    
    
    (12,531
    )
    
    6,087
    
    
    (8,395
    )
    
    (3,421
    )
    
    3,494
 
 **Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations**
 
 **Overview**
 
 The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand the
Company’s financial condition and results of operations. MD&A is provided as
a supplement to, and should be read in conjunction with, our financial
statements and the accompanying notes (“Notes”).
 
 We are in
the business of developing, manufacturing and selling pharmaceutical products
that treat various medical conditions. Most of our products and developmental
product candidates address women’s healthcare issues. We have also developed
Striant, a buccal system for the treatment of hypogonadism in men, and a
desmopressin buccal product for the treatment of nocturnal enuresis in children.
 
 Over the
last few years we have laid a foundation for the Company’s long-term growth by
establishing marketing partnerships and forging alliances with strategic
partners to create a base business of products that these partners market and
that provide us with good margins and growth potential. In addition, in
September 2002, we developed our own commercial organization to commercialize
our women’s healthcare products in the United States. We more than doubled the
size of that sales organization in the summer of 2003 upon FDA approval of
Striant. Subsequently, in both January 2004 and February 2005, we restructured
our sales and marketing organizations and downsized them to reduce costs. We
have advanced several clinical research initiatives designed to realize
additional potential from currently marketed Prochieve products by developing
new indications, while also bringing new products through the clinic. Our focus
in fiscal 2005 is building on this foundation and executing well in key areas,
including the successful implementation of our selling strategy of targeting our
sales force on current prescribers of our products.
 
 
 22
 
 
 **Results
of Operations**
 
 **Summary**
 
 **(In
      thousands, except percentages)**
    
    **2004**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2003**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2002**Revenues
    
    **$**
    **17,860**
    
    
    (20.3
    )%
    $
    22,415
    
    
    138.0
    %
    $
    9,419
 
 Revenues
decreased 20% in 2004 to $17.9 million as compared to $22.4 million in 2003 and
$9.4 million in 2002. We receive revenues both from selling our products to
licensees, which we refer to as our “Partnered Products”, and selling our
products that we promote through our own sales force to wholesalers and other
distributors, which we refer to as our “Promoted Products.”
 
 
 Partnered
Products are:
 ·
    Crinone®
      sold to Serono on a worldwide basis;
 ·
    Striant®
      sold to our ex-U.S. marketing partners;
 ·
    Replens®
      Vaginal Moisturizer sold to Lil’ Drug Store
ex-U.S.;
 ·
    RepHresh®
      Vaginal Gel and Advantage-S® Bioadhesive Contraceptive Gel sold to Lil’
      Drug Store on a worldwide basis; and,
 ·
    Royalty
      and licensing revenues.
 
 Promoted
Products are:
 ·
    Prochieve®
      8%, Prochieve 4% and Striant in the U.S.;
 ·
    Crinone®
      prescriptions in the U.S. from our OB/GYN audience, for which Serono pays
      us a 40% supplemental royalty ; and,
 ·
    Replens®
      Vaginal Moisturizer, RepHresh® Vaginal Gel, and Advantage-S® Bioadhesive
      Contraceptive Gel, which Lil’ Drug Store pays us promotion fees to present
      to OB/GYNs.
 
 Revenues
from sales of Crinone to Serono were $7.2 million in 2004, compared to $7.7
million in 2003 and $3.6 million in 2002. 2003 was a full year of sales to
Serono, as compared to 2002 in which the Company resumed product sales to Serono
in June after resolution of a product recall in 2001.
  Revenues
from the Prochieve line of products were $1.7 million in 2004, $5.8 million in
2003 and $3.5 million in 2002. 2004 revenues reflect a provision for product
returns amounting to $3.0 million. In the 2004 fourth quarter, primarily two
customers returned $1.4 million of Prochieve that was to expire in 2005. The
Company re-evaluated its estimate for product returns, taking into consideration
such factors as
historical trends, distributor inventory levels and product prescription data and
booked an additional provision of $1.0 million. 2003 results reflect revenue
from the initial stocking of Prochieve 4%, which the Company began selling in
the 2003 first quarter. 2002 results reflect revenue from the initial stocking
of Prochieve 8%, which we began selling in the 2002 third quarter.
  Revenues
from Striant were $3.3 million in 2004 compared to $2.9 million in 2003. 2003
results reflected initial stocking of Striant, which we began selling in the
2003 third quarter. 2004 results include the sale of Striant to Ardana to
support the product launch in the United Kingdom.
 
 Revenues
from sales of Replens were approximately $2.7 million in 2004, compared to $3.6
million and $1.2 million in 2003 and 2002, respectively. In June 2004, the
Company sold the
foreign marketing rights for Replens to Lil’ Drug Store. After the first quarter
of 2004, Lil’ Drug Store no longer purchased batches of Replens for the U.S.
market, which dampened 2004 product revenues .
  23
 Gross
profit as a percentage of revenues was 56% in 2004 and 2003, and increased
from 44% in 2002. The 56% gross profit percentage in 2004 and 2003 resulted from
the introduction of Striant, a higher margin product, and the increase in
Crinone and Prochieve sales. Cost of goods sold for Prochieve includes a 30%
royalty on net sales paid to Serono.
 
 The net
loss for 2004 was $25.1 million, or $0.62 per share, as compared to a net loss
of $21.2 million, or $0.57 per share, in 2003 and a net loss of $16.8 million,
or $0.50 per share, in 2002 as a result of the following
components:
 
 **Selling
and Distribution**
 
 **(In
      thousands, except percentages)**
    
    **2004**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2003**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2002**Selling
      and distribution
    
    **$**
    **19,007**
    
    
    (15.8
    )%
    $
    22,570
    
    
    272.5
    %
    $
    6,054As
      a percentage of revenue
    
    
    **106.4**
    **%**
    
    5.7
      pp
    
    
    100.7
    %
    
    36.4
      pp
    
    
    64.3
    %
 *Note:
PP - percentage points*
 
 
 Selling
and distribution expenses include payroll, employee benefits, equity
compensation and other personnel-related costs associated with sales and
marketing personnel, and advertising, promotions, tradeshows, seminars, and
other marketing-related programs.  Selling
and distribution expenses were approximately $19.0 million, $22.6 million and
$6.1 million in 2004, 2003 and 2002, respectively. Selling and distribution
expenses decreased by approximately 16% in 2004 compared to 2003, and increased
by approximately 273% in 2003 compared to 2002. The Company commenced
commercialization efforts in September 2002 under the previously discussed
Innovex agreement, which accounts for the increase from 2002 to 2003. The
decrease from 2003 to 2004 reflects the restructuring of the sales force in
January 2004, as previously discussed.
 
 Included
in the 2004 expenses were sales force costs of approximately $10.9 million,
product marketing expenses of approximately $4.8 million and salary costs of
approximately $1.3 million. Expenses in 2003 included approximately $11.8
million in sales force costs, approximately $7.8 million in product marketing
expenses and approximately $1.2 million in salary costs. Expenses in 2002
included approximately $2.4 million in sales force costs, approximately $1.6
million in product marketing expenses and approximately $0.7 million in salary
costs.
 
 **General
and Administrative**
 
 **(In
      thousands, except percentages)**
    
    **2004**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2003**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2002**General
      and administrative
    
    **$**
    **7,588**
    
    
    19.0
    %
    $
    6,376
    
    
    24.2
    %
    $
    5,135As
      a percentage of revenue
    
    
    **42.5**
    **%**
    
    14.1
      pp
    
    
    28.4
    %
    
    (26.1)
      pp
    
    
    54.5
    %


General
and administrative costs include payroll, employee benefits, equity compensation
and otherpersonnel-related
costs associated with the finance, legal, regulatory affairs, information
technology, facilities, certain human resources, and other administrativepersonnel, as well
as legal costs and other administrative fees. General and administrative
expenses increased by approximately $1.2 million, or 19%, to approximately $7.6
million in 2004 from approximately $6.4 million in 2003. The increase resulted
from higher insurance costs ($358,000), salary expense, including the hiring of
additional administrative personnel ($415,000) and an increase in the cost of
non-legal consultants which included compliance with the provisions of the
Sarbanes-Oxley Act of 2002 ($339,000). General and administrative expenses
increased approximately $1.2 million or 24% to approximately $6.4 million in
2003 from approximately $5.1 million in 2002. The increase resulted from higher
insurance costs ($554,000), salary expense, including the hiring of additional
administrative personnel ($297,000) and the increase in the cost of non-legal
consultants ($261,000).
 
 ****
 24
 Research and
Development
 
 **(In
      thousands, except percentages)**
    
    **2004**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2003**
    
    **Percentage**
      **inc./
      (dec.)**
    
    **2002**Research
      and development
    
    **$**
    **5,449**
    
    
    66.7
    %
    $
    3,268
    
    
    (38.9
    )%
    $
    5,350As
      a percentage of revenue
    
    
    **30.5**
    **%**
    
    15.9
      pp
    
    
    14.6
    %
    
    (42.2)
      pp
    
    
    56.8
    %
 
 Research
and development expenses include payroll, employee benefits, equity compensation
and other personnel -related
costs associated with product development, as well as the cost of conducting and
administering clinical studies and the cost of regulatory filings for our
products.  Research
and development expenses increased to approximately $5.4 million in 2004 from
approximately $3.3 million in 2003. This increase primarily reflects costs
associated with the
Company’s PROTERMTM ( PRO gesterone
Gel for Reducing Pre TERM Labor
and Delivery) study.  This
Phase III, randomized, double-blind, placebo-controlled, multicenter study is
evaluating the efficacy, safety and tolerability of Prochieve 8% in preventing
preterm birth in pregnant women who have a history of a spontaneous preterm
delivery. 2004 costs also included payments
related to the Mutual Recognition Process (“MRP”) for Striant, a one-time event
which culminated in October 2004 with the approval of Striant in 14 European
countries. The Company expects to recoup MRP-related expenses through milestone
payments from its European marketing partners upon receipt of the final licenses
for Striant in major countries pursuant to the MRP.  Research
and development expenses in 2003 decreased to $3.3 million from $5.4 million in
2002 due primarily to the completion in 2002 of many of the Striant-related
studies, which had begun in 2000 and 2001.
 
 **Other
Operating Expenses**
 
 Litigation
settlement expense of approximately $4.0 million recorded in 2002 represents the
amount the Company agreed to pay Serono to settle the litigation that followed
the recall of Crinone in April 2001. Product recall costs amounting to negative
$449,000 represented the reversal of an accrual for the recall of Crinone made
in 2001.
 
 **Other
Income (Expense)**
 
 Interest
expense amounted to approximately $3.0 million, $1.8 million and $0.9 million in
2004, 2003 and 2002, respectively. 2004 and 2003 interest expense included
approximately $2.2 million and $1.1 million, respectively, as the result of
amortizing as interest expense over the term of the agreements the difference
between the minimum amounts to be paid to PharmaBio and the amounts received.
Interest expense related to the Company’s convertible subordinated note payable
totaled approximately $0.7 million in each of 2004, 2003 and 2002.
 
 The
Company recorded a loss of $577,917 in 2004 on sale of intangible assets when we
sold our intangible assets associated with our over-the-counter products to Lil’
Drug Store. See “Business - Licensing
and Development Agreements”.
 
 25
 **Contractual
Obligations**
 
 As
previously disclosed, in July 2002 and March 2003 the Company 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. In addition, the Company
enters into operating leases for many of our facility and equipment needs. These
leases allow us to conserve cash by paying a monthly lease rental fee for the
use of, rather than purchasing, facilities and equipment. At the end of the
lease, we have no further obligation to the lessor. Our future contractual
obligations include the following:
 
 For
      the Fiscal Years Ended December 31,Total
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Beyond(in
      thousands)Subordinated
      convertible note
    
    $
    10,363
    
    $
    10,363
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -PharmaBio
      women's healhcarefinance
      agreement
    
    
    7,309
    
    
    2,378
    
    
    769
    
    
    1,597
    
    
    2,565
    
    
    -
    
    
    -PharmaBio
      Striantfinance
      agreement
    
    
    29,547
    
    
    376
    
    
    12,172
    
    
    564
    
    
    662
    
    
    828
    
    
    14,945Operating
      lease obligations
    
    
    546
    
    
    220
    
    
    201
    
    
    125
    
    
    -
    
    
    -
    
    
    -Total
    
    $
    47,765
    
    $
    13,337
    
    $
    13,142
    
    $
    2,286
    
    $
    3,227
    
    $
    828
    
    $
    14,945
 **Recent
Accounting Pronouncements**
 
 In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 123R (Revised 2004), Share-Based
Payment ("SFAS No. 123R"), which requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements based on
alternative fair value models. The share-based compensation cost will be
measured based on the fair value of the equity or liability instruments issued.
The Company currently discloses pro forma compensation expense quarterly and
annually by calculating the stock option grants' fair value using the
Black-Scholes model and disclosing the impact on net loss and net loss per share
in a Note to the Consolidated Financial Statements. Upon adoption, pro forma
disclosure will no longer be an alternative. SFAS No. 123R also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption. The
Company will begin to apply SFAS No. 123R using the most appropriate fair value
model as of the interim reporting period ending September 30, 2005.
  The
Company does not believe that any other recently issued, but not yet effective,
accounting standards will have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.
 
 **Impact
of Inflation**
 
 Sales
revenues, manufacturing costs, selling and distribution expenses, general and
administrative expenses, and research and development costs tend to reflect the
general inflationary trends.
 
 **Liquidity
and Capital Resources**
 
 Cash and
cash equivalents decreased from approximately $31.0 million at
December 31, 2003 to approximately $19.8 million at
December 31, 2004. During 2004, the Company received approximately
$6.4 million , net of
expenses, from the sale of 2,000,000 shares of its Common Stock,
$3.0 million in
proceeds from the PharmaBio agreements, $0.3 million from the
sale of intangibles, and approximately $0.2 million from the
exercise of warrants. During 2004, the Company used approximately
$19.9 million of cash
for operating activities, approximately $0.5 million for
royalty payments to PharmaBio, approximately $0.2 million for
dividends on the Series C Preferred Stock, and approximately $0.6 million for
fixed asset additions. The effect of exchange rate changes increased cash by
approximately $50,000.
 
 26
 Cash and
cash equivalents increased from approximately $5.0 million at
December 31, 2002 to approximately $31.0 million at
December 31, 2003. During 2003, the Company received approximately
$28.8 million , net of
expenses, from the sale of 2,764,612 shares of its Common Stock,
$14.3 million from the
proceeds of the PharmaBio agreements and approximately $7.0 million from the
exercise of options and warrants. During 2003, the Company used approximately
$22.5 million of cash
for operating activities, approximately $0.6 million for
payments to PharmaBio, approximately $0.6 million to pay
off a note payable, approximately $0.2 million for
dividends, and approximately $0.4 million for
fixed asset additions. The effect of exchange rate changes increased cash by
approximately $0.1 million .
 
 At
December 31, 2004, the Company had $19.8 million of cash. On February 2, 2004,
the Company announced a restructure of its sales and marketing programs to
better align expenses with projected revenues. As part of this workforce
restructuring, the Company downsized its dedicated sales force to 28
professionals and expects to reduce its selling and distribution expenses by
approximately 60% in 2005. The Company believes that it has sufficient cash to
meet its operating plan for 2005.
 
 As
previously discussed, on July 31, 2002, we entered into an investment and
royalty agreement with PharmaBio under which we received $4.5 million in return
for a 5% royalty to PharmaBio 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, including a true-up payment due February 28, 2005
for the difference between royalties paid to that date and $2.75 million. We
made the required true-up payment of approximately $1.9 million on February 28,
2005, and have paid $2.75 million to date.
 
 Also, as
previously discussed, on March 5, 2003, we
entered into a second investment
and royalty agreement with
PharmaBio under which we received $15 million in return for a 9% royalty to
PharmaBio on net sales of Striant in the United States up to agreed annual sales
revenues, and a 4.5% royalty of net sales above those levels. The royalty term
is seven years. Royalty payments commenced in the 2003 third quarter and are
subject to aggregate minimum ($30 million) and maximum ($55 million)
amounts, including a true-up payment due in third quarter 2006 for the difference between
royalties paid to that period and $13,000,000 . We have
paid $581,450 to date.
 
 The
Company intends to pay off its $10 million convertible subordinated note on
March 15, 2005, the date on which it comes due.
 
 The
Company has an effective registration statement that we filed with the
Securities and Exchange Commission (the “SEC”) using a shelf registration
process. Under the shelf registration process, we may offer from time to time
shares of our Common Stock up to an aggregate amount of $75,000,000. To date the
Company has sold approximately $56,400,000 in Common Stock under the
registration statement. We cannot be certain that additional funding will be
available on acceptable terms, or at all. To the extent that we raise additional
funds by issuing equity securities, our stockholders may experience significant
dilution. Any debt financing, if available, may involve restrictive covenants
that impact our ability to conduct our business. If we are unable to raise
additional capital when required or on acceptable terms, we may have to
significantly delay, scale back or discontinue the marketing of one or more of
our products and the development and/or commercialization
of one or more of our product candidates.
 
 27
 Effective
as of February 6, 2001, the Company entered into a Purchase Agreement with Acqua
Wellington to sell up to $16.5 million of the Common Stock, as previously
discussed. The
Company and Acqua Wellington agreed to extend the term of the Agreement until
February 6, 2005, at which time it expired.
 
 In
connection with the 1989 purchase of the assets of Bio-Mimetics, which assets
consisted of the patents underlying the Company's BDS, other patent applications
and related technology, the Company pays Bio-Mimetics a royalty equal to two
percent of the net sales of products based on the BDS up to an aggregate of $7.5
million or until the last of the relevant patents expire. The Company is
required to prepay a portion of the remaining royalty obligation, in cash or
stock at the option of the Company, if certain conditions are met. Through
December 31, 2004, the Company has paid approximately $2.9 million in royalty
payments.
 
 As of
December 31, 2004, the Company had outstanding exercisable options and warrants
that, if exercised, would result in approximately $45.8 million of additional
capital and would cause the total number of shares outstanding to increase.
However, there can be no assurance that such options or warrants will be
exercised.
 
 Significant
expenditures anticipated by the Company in the near future are concentrated on
equipment. The Company anticipates it will spend approximately $500,000 on
equipment in 2005.
 
 As of
December 31, 2004, the Company had available net operating loss carryforwards of
approximately $114 million to offset its potential future U.S. taxable income.
There can be no assurance that the Company will have sufficient income to
utilize the net operating loss carryforwards or that the net operating loss
carryforwards will be available at that time.
 
 In
accordance with Statement of Financial Accounting Standards No. 109, as of
December 31, 2003 and 2002, other assets in the accompanying consolidated
balance sheet include deferred tax assets of approximately $41 million and $32
million, respectively, (comprised primarily of a net operating loss
carryforward) for which a valuation allowance has been recorded since the
realizability of the deferred tax assets are not determinable.
 
 **Critical
Accounting Policies and Estimates**
 
 Our
financial statements and accompanying notes are prepared in accordance with U.S.
Generally Accepted Accounting Principles (“GAAP”). The preparation of financial
statements requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. There can be no assurance
that actual results will not differ from those estimates. These estimates and
assumptions are affected by management’s application of accounting policies.
Critical accounting policies for us include revenue recognition, impairment of
intangible assets, and accounting for the agreements with PharmaBio. For a
detailed discussion on the application of these and other accounting policies,
see Note 1 of the consolidated financial statements included in Item 14 of this
Annual Report on Form 10-K.
 
 *Revenue
recognition.* The
Company’s revenue recognition is significant because revenue is a key component
of our results of operations. In addition, revenue recognition determines the
timing of certain expenses, such as commissions and royalties. Revenue results
are difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause operating results to vary significantly from quarter to
quarter. Revenues
from the sale of products are recorded at the time goods are shipped to
customers. Provisions for returns, rebates and other allowances are estimated
based on a percentage of sales, using such factors as historical trends,
distributor inventory levels and product prescription data, and are recorded in
the same period the related sales are recognized. Royalties
and additional monies owed to the Company based on the strategic alliance
partners’ sales are recorded as revenue as those sales are made by the strategic
alliance partners. License fees are recognized in net sales over the term of the
license.
 
 *Impairment
of intangible assets.* The
Company periodically evaluates its intangible assets for potential impairment
indicators. Judgments regarding the existence of impairment indicators are based
on legal factors, market condition and operational performance. Future events
could cause the Company to conclude that impairment factors exist and that
certain intangible assets are impaired. Any resulting impairment loss could have
a material adverse impact on results of operations.
 
 28
 *Accounting
For PharmaBio Agreements.* In July
2002 and March 2003, the Company entered into agreements with PharmaBio under
which the Company received upfront money paid in quarterly installments in
exchange for royalty payments on certain of the Company’s products to be paid to
PharmaBio for a fixed period of time. The
royalty payments are subject to minimum and maximum amounts. Because the minimum
amounts exceed the amount received by the Company, the Company has recorded the
monies received as liabilities. We are recording the excess of the minimum to be
paid by the Company over the amount received by the Company as interest expense
over the terms of the agreements.
 
 **Forward-Looking
Statements**
 
 This
Annual Report on Form 10-K contains statements that are forward-looking. These
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements include, without
limitation, the Company’s expectations regarding sales, earnings or other future
financial performance and liquidity, product introductions, entry into new
geographic regions, and general optimism about future operations or operating
results. Some of these statements can be identified by the use of
forward-looking terminology such as "prospects," "outlook," "believes,"
"estimates," "intends," "may," "will," "should," "anticipates," "expects, or
"plans," or the negative or other variation of these or similar words, or by
discussion of trends and conditions, strategy or risks and uncertainties.
 
 These
forward looking expectations are based on current assumptions within the bounds
of management’s knowledge of our business and operations and which management
believes are reasonable. These assumptions are subject to risks and
uncertainties, and actual results could differ materially from expectations
because of issues and uncertainties such as those listed below and elsewhere in
this Annual Report, which, among others, should be considered in evaluating our
future financial performance.  All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the cautionary statements in this Annual Report. Readers are
advised to consult any further disclosures the Company may make on related
subjects in subsequent reports filed with the SEC.
 
 **History
of Losses**
  The
Company has had a history of losses in each fiscal year since its founding. For
the fiscal year ended December 31, 2004, we had a net loss of $25.1 million. If
we are unable to successfully market our products, particularly Prochieve® 8%
and Striant®, and otherwise increase sales of our products, and contain our
operating expenses, we may not have sufficient funds to continue operations
unless we are able to raise additional funds from sales of securities or
otherwise. We cannot assure you that any additional financing will be available
to us on acceptable terms, if at all.
 
 As of
December 31, 2004, we had certain net operating loss carryforwards of
approximately $114 million that may be used to reduce our future U.S. federal
income tax liabilities. Our ability to use these loss carryforwards to reduce
our future U.S. federal income tax liabilities could be lost if we were to
experience more than a 50% change in ownership within the meaning of Section
382(g) of the Internal Revenue Code. If we were to lose the benefits of these
loss carryforwards, our future earnings and cash resources would be materially
and adversely affected.
 
 **Minimum
Royalty Obligations to PharmaBio**
 
 As
previously disclosed, in July 2002 and March 2003 we entered into investment and
royalty 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. In the
third quarter of 2006 we owe PharmaBio a royalty true-up for the difference
between the royalties paid to that period on Striant and $13,000,000. Sales of
Striant may not generate royalties which meet the minimum amount due at that
time. In that event, there can be no assurance that we will have sufficient cash
on hand to make the true-up payment.
 
 ****
 29
 **Healthcare
Insurance and Reimbursement Coverage**
  Our
ability to commercialize Prochieve and Striant and future prescription products
will depend, in part, on the extent to which reimbursement for such products is
available from third-party payors, such as health maintenance organizations,
health insurers and other public and private payors. If we succeed in bringing
prescription products to market in addition to Prochieve and Striant, we cannot
be assured that third-party payors will pay for such products, or establish and
maintain price levels sufficient for realization of an appropriate return on our
investment in product development.
 
 Many
health maintenance organizations and other third-party payors use formularies,
or lists of drugs for which coverage is provided under a health care benefit
plan, to control the costs of prescription drugs. Each payor that maintains a
drug formulary makes its own determination as to whether a new drug will be
added to the formulary and whether particular drugs in a therapeutic class will
have preferred status over other drugs in the same class. This determination
often involves an assessment of the clinical appropriateness of the drug and, in
some cases, the cost of the drug in comparison to alternative products. There
can be no assurance that our current or any of our future products will be added
to payors’ formularies, that our products will have preferred status to
alternative therapies, or that the formulary decisions will be conducted in a
timely manner. Once reimbursement at an agreed level is approved by a
third-party payor, we may lose that reimbursement entirely or we may lose the
similar or better reimbursement we receive compared to competitive products. As
reimbursement is often approved for a period of time, this risk is greater at
the end of the time period, if any, for which the reimbursement was approved. We
may also decide to enter into discount or formulary fee arrangements with
payors, which could result in us receiving lower or discounted prices for
Prochieve and Striant or future products.
 
 C **ompetition**
  We and
our partners operate in or intend to enter intensely competitive markets. We
compete against established pharmaceutical and consumer product companies that
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. Many competitors have greater financial,
research and technical resources than we have. These competitors may also have
greater marketing capabilities, including the resources to implement extensive
advertising campaigns. It is possible that we may not have the resources to
withstand these and other competitive forces. As a result, we may not gain, and
may lose, market share.
 
 **Hormone
Replacement Risk**
  In the
past, certain studies of female hormone replacement therapy products such as
estrogen, have reported an increase in health risks. Progesterone is a natural
female hormone, present at normal levels in most women through their lifetimes.
However, some women require progesterone supplementation due to a natural or
chemical-related progesterone deficiency. It is possible that data suggesting
risks or problems may come to light in the future which could demonstrate a
health risk associated with progesterone or progestin supplementation or our 8%
and 4% progesterone gels. It is also possible that future study results for
hormone replacement therapy could be negative and could result in negative
publicity about the risks and benefits of hormone replacement therapy. As a
result, physicians and patients may not wish to prescribe or use progestins,
including our progesterone gels.
 
 Similarly,
while testosterone is a natural male hormone, present at normal levels in most
men through their lifetime, some men require testosterone replacement therapy
(“TRT”), to normalize their testosterone levels. It is possible that data
suggesting risks or problems may come to light in the future which could
demonstrate a health risk associated with TRT or Striant. It is also possible
that future study results for hormone replacement therapy could be negative and
could result in negative publicity about the risks and benefits of hormone
replacement therapy. As a result, physicians and patients may not wish to
prescribe or use TRT products, including Striant.
 
 30
 In
addition investors may become concerned about these issues and decide to sell
our Common Stock. These factors could adversely affect our business and the
price of our Common Stock.
 
 **Product
Liability**
  The
Company could be exposed to future product liability claims by consumers.
Although the Company presently maintains product liability insurance coverage in
the amount of $15 million, there can be no assurance that such insurance will be
sufficient to cover all possible liabilities. An award
against us in an amount greater than our insurance coverage could have a
material adverse effect on our operations. Some customers require us to have a
minimum level of product liability insurance coverage before they will purchase
or accept our products for distribution. Our failure to satisfy insurance
requirements could limit our ability to achieve broad distribution of our
products. This could have a material adverse effect upon our business and
financial condition.
 
  **Intellectual
Property Rights**
  Our
success and competitive position are partially dependent on our ability to
protect our proprietary position for our technology, products and product
candidates. We rely primarily on a combination of patents, trademarks,
copyrights, trade secret laws, third-party confidentiality and nondisclosure
agreements, and other methods to protect our proprietary rights. The steps we
take to protect our proprietary rights, however, may not be adequate. Third
parties may infringe or misappropriate our patents, copyrights, trademarks, and
similar proprietary rights. Moreover, we may not be able or willing, for
financial, legal or other reasons, to enforce our rights. To date, we have never
been a party to a proprietary rights action.
 
 Even
though we have patents covering our BDS, other companies may independently
develop or obtain patent or similar rights to equivalent or superior
technologies or processes. Additionally, although we believe that our patented
technology has been independently developed and does not infringe on the
proprietary rights of others, we cannot assure you that our products do not and
will not infringe on the proprietary rights of others. In the event of
infringement, we may be required to modify our technology or products, obtain
licenses or pay license fees. We may not be able to do so in a timely manner or
upon acceptable terms and conditions. This may have a material adverse effect on
our operations.
 
 The
standards that the U.S. Patent and Trademark Office and its foreign counterparts
use to grant patents are not always applied predictably or uniformly and can
change. Limitations on patent protection in some countries outside the U.S., and
the differences in what constitutes patentable subject matter in these
countries, may limit the protection we seek outside of the U.S. For example,
methods of treating humans are not patentable subject matter in many countries
outside of the U.S. In addition, laws of foreign countries may not protect our
intellectual property to the same extent as would laws of the U.S. In
determining whether or not to seek a patent or to license any patent in a
particular foreign country, we weigh the relevant costs and benefits, and
consider, among other things, the market potential of our product candidates in
the jurisdiction, and the scope and enforceability of patent protection afforded
by the law of the jurisdiction.
 
 We own or
are seeking registration of the following as trademarks in countries throughout
the world: Crinone, Prochieve, Striant, and Striant SR. These trademarks,
however, may not afford us adequate protection or we may not have the financial
resources to enforce our rights under these trademarks.
  31
  **Government
Regulation**
  Nearly
every aspect of the development, manufacture and commercialization of our
approved pharmaceutical products is subject to time-consuming and costly
regulation by various governmental entities, including the FDA, the Drug
Enforcement Administration and state agencies, as well as regulatory agencies in
those foreign countries in which our products are manufactured or distributed. The FDA
has the power to seize adulterated or misbranded products and unapproved new
drugs, to require their recall from the market, to enjoin further manufacture or
sale, and to publicize certain facts concerning a product. The manufacturing of
our products which are either manufactured and/or sold in the United States is
subject to current Good Manufacturing Practices prescribed by the FDA.
 
 We employ
various quality control measures in our efforts to ensure that our products
conform to their intended specifications and meet the standards proscribed by
applicable governmental regulations. However, notwithstanding our efforts, our
products or the ingredients we purchase from our suppliers for inclusion in our
products may contain undetected defects or non-conformities with specifications.
Such defects or non-conformities could compel us to recall the affected product,
make changes to or restrict distribution of the product, or take other remedial
actions. The occurrence of such events may harm our relations with or result in
the loss of customers, injure our reputation, impair market acceptance of our
products, harm our financial results, and, in certain circumstances, expose us
to product liability or other claims.
 
 
 **Product
Development**
  Some of
our pharmaceutical products are in various stages of development. In the United
States and most foreign countries, we must complete extensive human clinical
trials that demonstrate the safety and efficacy of a product in order to apply
for regulatory approval to market the product.
 
 The
process of developing product candidates involves a degree of risk and may take
several years. Product candidates that appear promising in the early phases of
development may fail to reach the market for several reasons, including:
 
 •
    Clinical
      trials may show our product candidates to be ineffective or to have
      harmful side effects;
 •
    Product
      candidates may fail to receive regulatory approvals required to bring the
      products to market;
 •
    Manufacturing
      costs or other factors may make our product candidates uneconomical; and,
 •
    The
      proprietary rights of others and their competing products and technologies
      may prevent our product candidates from being effectively commercialized.
 
 Success
in early clinical trials does not ensure that large-scale clinical trials will
be successful. Clinical results are frequently susceptible to varying
interpretations that may delay, limit or prevent regulatory approvals.
 
 The
length of time necessary to complete clinical trials and to submit an
application for marketing approval for a final decision by a regulatory
authority varies significantly and may be difficult to predict. The speed with
which we can complete clinical trials and applications for marketing approval
will depend on several factors, including the following:
 •
    The
      rate of patient enrollment, which is a function of many factors, including
      the size of the patient population, the proximity of patients to clinical
      sites, the eligibility criteria for the study, and the nature of the study
      protocol;
 •
    IRB
      approval of the study protocol and the informed consent
      form;
 •
    Prior
      regulatory agency review and
approval;
 •
    Analysis
      of data obtained from clinical activities, which are susceptible to
      varying interpretations and which interpretations could delay, limit or
      prevent regulatory approval;
 •
    Changes
      in the policies of regulatory authorities for drug approval during the
      period of product development;
and
 •
    The
      availability of skilled and experienced staff to conduct and monitor
      clinical studies and to prepare the appropriate regulatory
      applications.
  32
 In
addition, developing product candidates is very expensive and will continue to
have a significant impact on our ability to generate profits. Factors affecting
our product development expenses include:
 
 •
    Our
      ability to raise any additional funds that we need to complete our trials;
 •
    The
      number and outcome of clinical trials conducted by us and/or our
      collaborators;
 •
    The
      number of products we may have in clinical development;
 •
    In-licensing
      or other partnership activities, including the timing and amount of
      related development funding, license fees or milestone payments; and
 •
    Future
      levels of our revenue.
 
 Clinical
trials are expensive and can take years to complete, and there is no guarantee
that the clinical trials will demonstrate sufficient safety and/or efficacy of
the products to meet FDA requirements, or those of foreign regulatory
authorities.
  **Adverse
Events in Clinical Trials**
  Our
product candidates may produce serious adverse events. These adverse events
could interrupt, delay or halt clinical trials of our product candidates and
could result in FDA or other regulatory authorities denying approval of our
product candidates for any or all targeted indications. An IRB or independent
data safety monitoring board, the FDA, other regulatory authorities, or we may
suspend or terminate clinical trials at any time. Our product candidates may
prove not to be safe for human use.
  **Regulatory
Approval for Product Candidates**
  Other
than Prochieve, all of our product candidates are in clinical development and
have not received regulatory approval from the FDA or any foreign regulatory
authority. The regulatory approval process typically is extremely expensive,
takes many years, and the timing or likelihood of any approval cannot be
accurately predicted. Delays in obtaining regulatory approval can be extremely
costly in terms of lost sales opportunities and increased clinical trial costs.
If we fail to obtain regulatory approval for our current or future product
candidates or expanded indications for currently marketed products, we will be
unable to market and sell such products and indications and therefore may never
be profitable.
 
 As part
of the regulatory approval process, we must conduct clinical trials for each
product candidate to demonstrate safety and efficacy. The number of clinical
trials that will be required varies depending on the product candidate, the
indication being evaluated, the trial results and regulations applicable to any
particular product candidate.
 
 The
results of initial clinical trials of our product candidates do not necessarily
predict the results of later-stage clinical trials. Product candidates in later
stages of clinical trials may fail to show the desired safety and efficacy
despite having progressed through initial clinical trials. We cannot assure you
that the data collected from the clinical trials of our product candidates will
be sufficient to support FDA or other regulatory approval. In addition, the
continuation of a particular study after review by an IRB or independent data
safety monitoring board does not necessarily indicate that our product candidate
will achieve the clinical endpoint.
 
 The FDA
and other regulatory agencies can delay, limit or deny approval for many
reasons, including:
 
 §
    A
      product candidate may not be deemed to be safe or effective;
 §
    The
      manufacturing processes or facilities we have selected may not meet the
      applicable requirements; and
 §
    Changes
      in their approval policies or adoption of new regulations may require
      additional clinical trials or other data.
 
 33
 Any delay
in, or failure to receive, approval for any of our product candidates could
prevent us from growing our revenues or achieving profitability.
 
 **Dependence
on a Principal Supplier**
  Medical
grade, cross-linked polycarbophil, the polymer used in our products using our
BDS, is currently available from only one supplier, Noveon. We believe that
Noveon will supply as much of the material as we require because our products
rank among the highest value-added uses of the polymer. In the event that Noveon
cannot or will not supply enough of the product to satisfy our needs, we will be
required to seek alternative sources of polycarbophil. An alternative source of
polycarbophil may not be available on satisfactory terms which would impair our
ability to manufacture and sell our products.
 
 **Dependence
on Third Party Developers and Manufacturers**
  We rely
on third parties to develop and manufacture our products. These third parties
may not be able to satisfy our needs in the future, and we may not be able to
find or obtain FDA approval of alternate developers and manufacturers. The
failure to develop new products or delays in development and manufacture of our
products could have a material adverse effect on our business. This reliance on
third parties could have an adverse effect on our profit margins. Any
interruption in the manufacture of our products would impair our ability to
deliver our products to customers on a timely and competitive basis, and could
result in the loss of revenues.
 
 **Key
Employees**
  Our
success depends in large part upon the abilities and continued service of our
executive officers and other key employees, particularly G. Frederick Wilkinson,
our President and Chief Executive Officer, and Robert S. Mills, our Senior Vice
President and Chief Operating Officer. We have entered into employment
agreements with Mr. Wilkinson and Mr. Mills, both of which expire in March 2007. The Board
of Directors of the Company has adopted a Form of Indemnification Agreement for
Officers and Directors and a Form of Executive Change of Control Severance
Agreement. The loss
of services of these persons could have a material adverse effect on our
business and prospects.
 
 **Stock
Options, Warrants and Other Securities**
  As of March 4,
2005, we had 41,751,934 shares of Common Stock outstanding, of which
approximately 41,251,934 shares were freely tradable. Approximately 500,000
shares of our Common Stock are restricted securities, but may be sold pursuant
to Rule 144 under the Securities Act of 1933. We also have the following
securities outstanding: Series B Preferred Stock, Series C Preferred Stock, a
subordinated convertible note, warrants, and options. If all of these securities
are exercised or converted, an additional 8,816,424 shares of Common Stock will
be outstanding, 8,366,424 of which have been registered under the Securities
Act. When issued, these registered shares will be freely tradable and restricted
shares will be saleable under Rule 144 in the future. The exercise and
conversion of these securities is likely to dilute the book value per share of
our Common Stock. In addition, the existence of these securities may adversely
affect the terms on which we can obtain additional equity
financing.
 
 We have
never paid a cash dividend on our Common Stock and we do not anticipate paying
cash dividends in the foreseeable future. We intend to retain any earnings for
use in the development and expansion of our business. In addition, applicable
provisions of Delaware law may affect our ability to declare and pay dividends
on our Common Stock and our Preferred Stock. Accordingly, you should not expect
to receive any periodic income from owning our Common Stock. Any economic gain
on your investment will be solely from an appreciation, if any, in the price of
the stock.
 
 34
 **Anti-takeover
Measures**
  Columbia
Laboratories, Inc. is a Delaware corporation. Anti-takeover provisions of
Delaware law impose various obstacles to the ability of a third party to acquire
control of our company, even if a change in control would be beneficial to our
existing stockholders. In addition, our Board of Directors has adopted a
Stockholder Rights Plan and has designated a series of preferred stock that
could be used defensively if a takeover is threatened. Our incorporation under
Delaware law and our Stockholder Rights Plan could impede a merger, takeover or
other business combination involving our Company or discourage a potential
acquiror from making a tender offer for our Common Stock. This could reduce the
market value of our Common Stock if investors view these factors as preventing
stockholders from receiving a premium for their shares.
 
  **Market
Risk from Foreign Currency Exchange Rates**
  With two
operating subsidiaries and third party manufacturers in Europe, economic and
political developments in the European Union can have a significant impact on
our business. Crinone®, Prochieve®, Advantage-S®, RepHresh®, and Striant®
products are manufactured in Europe. We are exposed to currency fluctuation
related to payment for the manufacture of our products in Euros and other
currencies and selling them in U.S. dollars and other currencies.
 
 **Item
7A. Quantitative and Qualitative Disclosures About Market
Risks**
 
 The
Company does not believe that it has material exposure to market rate risk. The
Company has only a fixed rate debt obligation that comes due in 2005. The
Company may, however, require additional financing to fund future obligations
and no assurance can be given that the terms of future sources of financing will
not expose the Company to material market risk.
 
 **Item
8. Financial Statements and Supplementary Data**
 
 The
financial statements and supplementary data required by this item are set forth
at the pages indicated in Item 15, set forth in this annual report.
 
 **Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure**
 
 None
 
 **Item
9 A. Controls and Procedures**
  **Evaluation
of Disclosure Controls and Procedures**
 
 The
Company maintains disclosure controls and procedures designed to ensure that the
information the Company must disclose in its filings with the SEC is recorded,
processed, summarized, and reported on a timely basis. The Company’s management,
under the supervision and with the participation of the Chief Executive Officer
and the Chief Financial Officer, evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) as of
December 31, 2004. Based on this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2004, the Company’s
disclosure controls and procedures were effective.
 
 **Changes
in Internal Control over Financial Reporting**
 
 There
were no significant changes in the Company’s internal controls over financial
reporting that occurred during the quarter ended December 31, 2004, that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
 
 35
 **45**-**Day
Extension for Filing Section 404 Report and Attestation**
 
 The
Sarbanes-Oxley Act of 2002 ("SOX") imposed many requirements regarding
corporate governance and financial reporting.  One requirement, under
Section 404 SOX, beginning with this Annual Report, is for management to
report on the Company’s internal controls over financial reporting and for our
independent registered public accountants to attest to this report.  In
late November 2004, the SEC issued an exemptive order providing a 45-day
extension for the filing of these reports and attestations by eligible
companies.  We elected to utilize this 45-day extension; therefore, this
Form 10-K does not include these reports.  These reports will be included
in an amended Form 10-K.  During 2004, we spent considerable time and
resources analyzing, documenting and testing our system of internal
controls.  Currently, we are not aware of any material weaknesses in our
internal controls over financial reporting and related disclosures.
 
 **Item
9 B. Other Information**
 
 In the
fourth quarter of 2004 the Company reported all required disclosures on Form
8-K.
 36
  
 **PART
III**
 
 
 **Item
10. Directors and Executive Officers of the Company**
 
 The
information concerning directors and all audit committee financial experts
required by Item 10 is incorporated herein by reference to Columbia’s Proxy
Statement for its 2005 Annual Meeting of Shareholders. The information
concerning compliance with Section 16(a) of the Exchange Act is incorporated
herein by reference to Columbia’s Proxy Statement for its 2005 Annual Meeting of
Shareholders. The information concerning executive officers required by Item 10
is contained in the discussion entitled Executive Officers of the Registrant in
Part I hereof.
 
 **Item
11. Executive Compensation**
 
 The
information required by Item 11 is incorporated herein by reference to
Columbia’s Proxy Statement for its 2005 Annual Meeting of Shareholders under the
heading “ Executive
Compensation ”.
 
 
 **Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters**
 
 The
information required by Item 12 is incorporated herein by reference to
Columbia’s Proxy Statement for its 2005 Annual Meeting of Shareholders under the
heading “ Ownership
of the Company ”.
 
 **Item
13. Certain Relationships and Related Transactions**
 
 The
information required by Item 13 is incorporated herein by reference to
Columbia’s Proxy Statement for its 2005 Annual Meeting of Shareholders under the
heading “Certain Relationships and Related Transactions”.
 
 **Item
14. Principal Accountant Fees and Services**
 
 The
information required by Item 14 is incorporated herein by reference to
Columbia’s Proxy Statement for its 2005 Annual Meeting of Shareholders under the
heading “Relationship with Independent Auditors”.
 
 
 
 
 37
 
 **PART
IV**
 
 
 **Item
15. Exhibits and Financial Statement Schedules**
 
 **(a)(1)(2)
Financial Statements and Financial Statement Schedules**
 
 Indexes
to financial statements and financial statement schedules appear on F-1 and
F-26, respectively.
 **(b)
Exhibits**
 
 3.1
    --
    Restated
      Certificate of Incorporation of the Company, as amended1/
 3.2
    --
    Amended
      and Restated By-laws of Company10/
 4.1
    --
    Certificate
      of Designations, Preferences and Rights of Series C Convertible Preferred
      Stock of the Company, dated as of January 7, 199910/
 4.2
    --
    Securities
      Purchase Agreement, dated as of January 7, 1999, between the Company and
      each of the purchasers named on the signature pages thereto10/
 4.3
    --
    Securities
      Purchase Agreement, dated as of January 19, 1999, among the Company, David
      M. Knott and Knott Partners, L.P.10/
 4.4
    --
    Securities
      Purchase Agreement, dated as of February 1, 1999, between the Company and
      Windsor Partners, L.P.10/
 4.5
    --
    Registration
      Rights Agreement, dated as of January 7, 1999, between the Company and
      each of the purchasers named on the signature pages thereto10/
 4.6
    --
    Form
      of Warrant to Purchase Common Stock10/
 4.7
    --
    Warrant
      to Purchase Common Stock granted to James J. Apostolakis on September 23,
      1999
 10.1
    --
    Employment
      Agreement dated as of January 1, 1996, between the Company and Norman M.
      Meier6/*
 10.2
    --
    Employment
      Agreement dated as of January 1, 1996, between the Company and William J.
      Bologna6/*
 10.3
    --
    1988
      Stock Option Plan, as amended, of the Company4/
 10.4
    --
    1996
      Long-term Performance Plan, as amended, of the Company7/
 10.5
    --
    License
      and Supply Agreement between Warner-Lambert Company and the Company dated
      December 5, 19913/
 10.6
    --
    Asset
      Purchase, License and Option Agreement, dated November 22,
      19891/
 10.7
    --
    Employment
      Agreement dated as of April 15, 1997, between the Company and Nicholas A.
      Buoniconti8/*
 10.8
    --
    License
      and Supply Agreement for Crinone between Columbia Laboratories, Inc.
      (Bermuda) Ltd. and American Home Products dated as of May 21,
      19955/
 10.9
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and Norman M. Meier8/*
 10.10
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and
 William
      J. Bologna8/*
 10.11
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and
 Nicholas
      A. Buoniconti8/*
 10.12
    --
    Convertible
      Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due March
      15, 2005 and Registration Rights Agreement all dated as of March 16, 1998
      between the Company and SBC Warburg Dillon Read Inc.9/
  38
  10.13
    --
    Termination
      Agreement dated as of April 1, 1998 between the Company and the
      Warner-Lambert Company9/
 10.14
    --
    Addendum
      to Employment Agreement dated as of October 8, 1998, between the Company
      and Nicholas A. Buoniconti.10/*
 10.15
    --
    Agreement
      dated as of December 14, 1998, by and among Columbia Laboratories, Inc.,
      William J. Bologna, Norman M. Meier, James J. Apostolakis, David Ray,
      Bernard Marden, Anthony R. Campbell, David M. Knott and Knott Partners,
      L.P.10/
 10.16A
    --
    
    License
      and Supply Agreement by an between the Company and Mipharm S.p.A. dated
      March 5, 199911/
 10.16B
    --
    License
      and Supply Agreement for Crinone between Columbia Laboratories (Bermuda)
      Limited and Ares Trading S.A. dated as of May 20, 199912/
 10.17
    --
    Addendum
      to Employment Agreement dated as of January 1, 2000 between the Company
      and Norman M. Meier12/*
 10.18
    --
    Addendum
      to Employment Agreement dated as of January 1, 2000 between the Company
      and William J. Bologna12/*
 10.19
    --
    Employment
      Agreement dated as of January 1, 2000 between the Company and James J.
      Apostolakis12/*
 10.20
    --
    Employment
      Agreement dated December 30, 1999 between the Company and Dominique de
      Ziegler12/*
 10.21
    --
    Settlement
      Agreement and Release dated as of March 16, 2000 between Columbia
      Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.12/
 10.22
    --
    Replens
      Purchase and License Agreement dated April 18, 2000, between the Company
      and Lil’ Drug Store Products, Inc.13/
 10.23
    --
    License
      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
      Products, Inc.13/
 10.24
    --
    Distribution
      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
      Products, Inc.13/
 10.25
    --
    Stock
      Purchase Agreement, dated January 31, 2001, between the Company and
      Ridgeway Investment Limited14/
 10.26
    --
    Amended
      and Restated Common Stock Purchase Agreement by and between the Company
      and Acqua Wellington North American Equities Fund, Ltd., effective as of
      February 6, 2001.15/
 10.27
    --
    Employment
      Agreement dated March 16, 2001 between the Company and G. Frederick
      Wilkinson16/*
 10.28
    --
    Stock
      Purchase Agreement, dated May 10, 2001, between the Company and Ridgeway
      Investment Limited17/
 10.29
    --
    Stock
      Purchase Agreement, dated July 23, 2001, between the Company and Ridgeway
      Investment Limited18/
 10.30
    --
    Rights
      Agreement dated as of March 13, 2002, by and between Columbia
      Laboratories, Inc. and First Union National Bank, as Rights
      Agent19/
 10.31†
    --
    Semi-Exclusive
      Supply Agreement dated May 7, 2002 between the Company and Mipharm
      S.p.A.20/
 10.32†
    --
    Amended
      and Restated License and Supply Agreement dated June 4, 2002 between the
      Company and Ares Trading S.A.20/
 10.33†
    --
    Marketing
      License Agreement dated June 4, 2002 between the Company and Ares Trading
      S.A. and Serono, Inc.20/
 10.34†
    --
    Master
      Services Agreement dated July 31, 2002 between the Company and Innovex
      LP20/
 10.35†
    --
    Stock
      Purchase Agreement dated July 31, 2002 By and Between Columbia
      Laboratories, Inc. and PharmaBio Development Inc.20/
 10.36†
    --
    Investment
      and Royalty Agreement dated July 31, 2002 between the Company and
      PharmaBio Development Inc.20/
 10.37†
    --
    License
      and Supply Agreement dated October 16, 2002 between the Company and Ardana
      Bioscience Limited21/
  39
  10.38†
    --
    Development
      and License Agreement dated December 26, 2002 between the Company and
      Ardana Bioscience Limited21/
 10.39
    --
    Amendment
      No. 1 to the Amended and Restated Common Stock Purchase Agreement by and
      between the Company and Acqua Wellington North American Equities Fund,
      Ltd., effective as of January 31, 200321/
 10.40†
    --
    Investment
      and Royalty Agreement dated March 5, 2003 between the Company and
      PharmaBio Development Inc.21/
 10.41†
    --
    Sales
      Force Work Order #8872 pursuant to the Master Services Agreement having an
      Effective Date of July 31, 2002, between the Company and Innovex LP21/
 10.42
    --
    Separation
      and Consulting Agreement dated April 15, 2003 between the Company and
      William J. Bologna22/
 10.43†
    --
    License
      and Supply Agreement Dated May 27, 2003 between the Company and Mipharm
      S.p.A.23/
 10.44
    --
    Standstill
      Agreement dated December 1, 2003 between the Company and Perry
      Corp.24/
 10.45†
    --
    Amended
      and Restated Sales Force Work Order #8795 And Termination of Work Order
      #8872 pursuant to the Master Services Agreement having an effective date
      of January 26, 2004 between the Company and Innovex25/
 10.46
    --
    Form
      of Indemnification Agreement for Officers and Directors25/
 10.47
    --
    Form
      of Executive Change of Control Severance Agreement25/
 10.48
    --
    Employment
      Agreement dated as of March 16, 2004 between the Company and G. Frederick
      Wilkinson26/*
 10.49†
    --
    Asset
      Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug
      Store Products, Inc.27/
 10.50†
    --
    Supply
      Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
      Products, Inc.27/
 10.51†
    --
    Professional
      Promotion Agreement dated June 29, 2004, between the Company and Lil’ Drug
      Store Products, Inc.27/
 10.52
    --
    Letter
      Agreement and General Release of Claims, effective as of December 31,
      2004, between Columbia Laboratories, Inc. and James J.
      Apostolakis28/
 10.53
    --
    Employment
      Agreement dated as of February 25, 2005 between the Company and Robert S.
      Mills29/*
 10.54
    --
    Columbia
      Laboratories Inc. Incentive Plan, 200429/*
 14
    --
    Code
      of Ethics of the Company25/
 21
    --
    Subsidiaries
      of the Company30/
 23
    --
    Consent
      of Goldstein Golub Kessler LLP30/
 31.1
    --
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
      Company30/
 31.2
    --
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the
      Company30/
 32.1
    --
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.30/
 32.2
    --
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.30/
  *
    
    Management
      contract or compensatory plan or arrangement required to be filed as an
      exhibit to this form pursuant to item 601 of Regulation
    S-K.
 
 †
    
    Confidential
      treatment has been requested with respect to certain portions of this
      exhibit. Omitted portions have been filed separately with the
      SEC.
 
 1/
    
    Incorporated
      by reference to the Registrant's Registration Statement on Form S-1 (File
      No. 33-31962) declared effective on May 14,
1990.
 
 2/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1990.
 
 40
  3/
    
    Incorporated
      by reference to the Registrant's Current Report on Form 8-K, filed on
      January 2, 1992.
 
 4/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1993.
  5/
    
    Incorporated
      by reference to the Registrant's Registration Statement on Form S-1 (File
      No. 33-60123) declared effective August 28,
1995.
 6/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1995.
 
 7/
    
    Incorporated
      by reference to the Registrant's Proxy Statement dated May 10,
      2000.
 
 8/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1997.
 
 9/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1998.
 
 10/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1998.
 
 11/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1999.
 
 12/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1999
 
 13/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2000.
 
 14/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated January
      31, 2001.
 
 15/
    
    Incorporated
      by reference to the Registrant’s Registration Statement on Form S-3 (File
      No. 333-38230) declared effective May 7,
2001.
 
 16/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      16, 2001.
 
 17/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated May 10,
      2001.
 
 18/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated July
      23, 2001.
 
 19/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      12, 2002.
 
 20/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated
      August 14, 2002.
 21/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2002
 
 22/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated May
      14, 2003.
  41
  23/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated
      August 14, 2003.
 
 24/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      December 1, 2003.
 25/
    
    Incorporated
      by reference to the Registrant’s Annual Report
      onForm 10-K for the year ended December 31,
2003
  26/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q dated May
      10, 2004.
 27/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q dated
      August 4, 2004.
 28/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated January
      3, 2005.
 29/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      1, 2005.
 30/
    
    Filed
      herewith.
 
 42
 **SIGNATURES**
 
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 
 COLUMBIA LABORATORIES, INC.Date: March 15, 2005
    By:
    /s/ David L. WeinbergDavid L. Weinberg, Vice President
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
 
 /s/
      Fred Wilkinson
    
    President
      and Chief Executive Officer
    March
      15, 2005Fred
      Wilkinson
    
    (Principal
      Executive Officer)/s/
      David L. Weinberg
    
    Vice
      President-Finance, Chief
    March
      15, 2005David
      L. Weinberg
    
    Financial Officer and Treasurer(Principal
      Financial and AccountingOfficer)/s/
      James J. Apostolakis
    
    Director
    March
      11, 2005James
      J. Apostolakis/s/
      Edward A. Blechschmidt
    
    Vice
      Chairman of the Board of Directors
    March
      12, 2005Edward
      A. Blechschmidt/s/
      Stephen G. Kasnet
    
    Chairman
      of the Board of Directors
    March
      11, 2005Stephen
      G. Kasnet/s/
      Max Link
    
    Director
    March
      12, 2005Max
      Link/s/
      Denis M. O’Donnell
    
    Director
    March
      14, 2005Denis
      M. O’Donnell/s/
      Selwyn P. Oskowitz
    
    Director
    March
      14, 2005Selwyn
      P. Oskowitz/s/
      Robert C. Strauss
    
    Director
    March
      14, 2005Robert
      C. Strauss
 
 43
  
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 
 INDEX
TO FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered accounting Firm
    F-2Consolidated
      Balance Sheetsas
      of December 31, 2004 and 2003
    F-3Consolidated
      Statements of Operationsfor
      the Three Years Ended December 31, 2004
    F-5Consolidated
      Statements of Comprehensive Operationsfor
      the Three Years Ended December 31, 2004
    F-6Consolidated
      Statements of Stockholders' Equity (Deficiency)for
      the Three Years Ended December 31, 2004
    F-7Consolidated
      Statements of Cash Flowsfor
      the Three Years Ended December 31, 2004
    F-9Notes
      to Consolidated Financial Statements
    F-11
 
 
 F-1
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To the
Board of Directors and Stockholders
 of
Columbia Laboratories, Inc.:
  We have
audited the accompanying consolidated balance sheets of Columbia Laboratories,
Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of operations, comprehensive operations,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Columbia Laboratories, Inc. and
Subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004 in conformity with United States generally accepted accounting
principles.
 GOLDSTEIN
GOLUB KESSLER LLP
 New York,
New York
 February
14, 2005


F-2
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
 
 AS OF
DECEMBER 31, 2004 AND 2003
  ASSETS
 
 2004
    
    2003CURRENT
      ASSETS:Cash
      and cash equivalents, of which $19,230,486 isinterest-bearing
      as of December 31, 2004
    
    $
    19,781,591
    
    $
    30,965,517Accounts
      receivable, net of allowancefor
      doubtful accounts of $86,114and
      $120,000 in 2004 and 2003, respectively
    
    
    4,260,379
    
    
    5,055,921Inventories
    
    
    2,742,544
    
    
    2,469,224Prepaid
      expenses and other current assets
    
    
    1,155,673
    
    
    2,240,920Total
      current assets
    
    
    27,940,187
    
    
    40,731,582PROPERTY
      AND EQUIPMENT:Machinery
      and equipment
    
    
    2,672,189
    
    
    2,151,482Computer
      software
    
    
    437,180
    
    
    445,385Office
      equipment and furniture and fixtures
    
    
    590,585
    
    
    770,7023,699,954
    
    
    3,367,569Less-accumulated
      depreciation and amortization
    
    
    (2,492,913
    )
    
    (2,405,574
    )1,207,041
    
    
    961,995INTANGIBLE
      ASSETS, net
    
    
    -
    
    
    920,418OTHER
      ASSETS
    
    
    121,140
    
    
    140,654TOTAL
      ASSETS
    
    $
    29,268,368
    
    $
    42,754,649
  (Continued)
  
 F-3
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
BALANCE SHEETS
  AS OF
DECEMBER 31, 2004 AND 2003
  (Continued)
  LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
 
 2004
    
    2003CURRENT
      LIABILITIES:Note
      payable - short-term
    
    $
    10,000,000
    
    $
    -Current
      portion of financing agreements
    
    
    2,753,486
    
    
    1,228,865Accounts
      payable
    
    
    2,772,107
    
    
    2,806,236Accrued
      expenses
    
    
    3,111,198
    
    
    3,006,692Total
      current liabilities
    
    
    18,636,791
    
    
    7,041,793NOTE
      PAYABLE - long-term
    
    
    -
    
    
    10,000,000DEFERRED
      REVENUE
    
    
    4,239,060
    
    
    3,879,618LONG-TERM
      PORTION OF FINANCING AGREEMENTS
    
    
    18,923,440
    
    
    15,746,695TOTAL
      LIABILITIES
    
    
    41,799,291
    
    
    36,668,106COMMITMENTS
      AND CONTINGENCIES (Note 7)STOCKHOLDERS'
      EQUITY (DEFICIENCY):Preferred
      stock, $.01 par value; 1,000,000 shares authorized:Series
      B Convertible Preferred Stock, 130 shares issuedand
      outstanding in 2004 and 2003, respectively(liquidation
      preference of $13,000 at December 31, 2004)
    
    
    1
    
    
    1Series
      C Convertible Preferred Stock, 3,250 sharesissued
      and outstanding in 2004 and 2003, respectively
    
    
    32
    
    
    32(liquidation
      preference of $3,250,000 at December 31, 2004)Common
      stock, $.01 par value; 100,000,000 sharesauthorized;
      41,751,934 and 39,679,381 shares issued andoutstanding
      in 2004 and 2003, respectively
    
    
    417,519
    
    
    396,794Capital
      in excess of par value
    
    
    168,587,536
    
    
    162,146,561Accumulated
      deficit
    
    
    (181,777,838
    )
    
    (156,648,214
    )Accumulated
      other comprehensive income
    
    
    241,827
    
    
    191,369Stockholders'
      equity (deficiency)
    
    
    (12,530,923
    )
    
    6,086,543TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
    
    $
    29,268,368
    
    $
    42,754,649
 
 
 The
accompanying notes to consolidated financial statements are an
integral part of these statements.
  
 F-4
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
 2004
    
    2003
    
    2002REVENUES
    
    $
    17,860,404
    
    $
    22,415,028
    
    $
    9,418,549COST
      OF GOODS SOLD
    
    
    7,788,601
    
    
    9,782,784
    
    
    5,228,519Gross
      profit
    
    
    10,071,803
    
    
    12,632,244
    
    
    4,190,030OPERATING
      EXPENSES:Selling
      and distribution
    
    
    19,006,585
    
    
    22,570,177
    
    
    6,053,732General
      and administrative
    
    
    7,588,437
    
    
    6,376,274
    
    
    5,135,121Reseach
      and development
    
    
    5,448,685
    
    
    3,267,966
    
    
    5,350,156Litigation
      settlement expense
    
    
    -
    
    
    -
    
    
    3,960,000Product
      recall costs
    
    
    -
    
    
    -
    
    
    (449,489
    )Total
      operating expenses
    
    
    32,043,707
    
    
    32,214,417
    
    
    20,049,520Loss
      from operations
    
    
    (21,971,904
    )
    
    (19,582,173
    )
    
    (15,859,490
    )OTHER
      INCOME (EXPENSE):Interest
      income
    
    
    241,342
    
    
    134,387
    
    
    51,844Interest
      expense
    
    
    (2,991,136
    )
    
    (1,846,281
    )
    
    (852,864
    )Loss
      on sale of intangible assets
    
    
    (577,917
    )
    
    -
    
    
    -Other,
      net
    
    
    169,991
    
    
    143,048
    
    
    (189,279
    )(3,157,720
    )
    
    (1,568,846
    )
    
    (990,299
    )Net
      loss
    
    $
    (25,129,624
    )
    $
    (21,151,019
    )
    $
    (16,849,789
    )LOSS
      PER COMMONSHARE
      - BASIC AND DILUTED
    
    $
    (0.62
    )
    $
    (0.57
    )
    $
    (0.50
    )WEIGHED-AVERAGE
      NUMBER OFCOMMON
      SHARES OUTSTANDING:BASIC
      AND DILUTED
    
    
    40,984,083
    
    
    37,440,270
    
    
    34,392,060
  The
accompanying notes to consolidated financial statements are an
integral part of these statements.
  F-5
 
 
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF COMPREHENSIVE OPERATIONS
 
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
 
 2004
    
    2003
    
    2002NET
      LOSS
    
    $
    (25,129,624
    )
    $
    (21,151,019
    )
    $
    (16,849,789
    )Other
      comprehensive income:Foreign
      curency translation, net of tax
    
    
    50,458
    
    
    108,508
    
    
    101,459Comprehensive
      loss
    
    $
    (25,079,166
    )
    $
    (21,042,511
    )
    $
    (16,748,330
    )
 
 The
accompanying notes to consolidated financial statements are an
integral part of these statements.
  
 F-6
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
  FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
  Series
      B Convertible Preferred Stock
    
    Series
      C Convertible
      Preferred
      Stock
    
    Common
      Stock
    
    Capital
      in
    
    
    
    Accumulated
      OtherNumber
      of
    
    
    
    Number
      of
    
    
    
    Number
      of
    
    
    
    Excess
      of
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Par
      Value
    
    Deficit
    
    Income
      (Loss)
    
    TotalBalance,
      January 1, 2002
    
    
    1,630
    
    $
    16
    
    
    3,750
    
    $
    38
    
    
    32,752,425
    
    $
    327,524
    
    $
    114,917,247
    
    $
    (118,647,406
    )
    $
    (18,598
    )
    $
    (3,421,179
    )Issuance
      of common stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,691,012
    
    
    26,910
    
    
    11,935,156
    
    
    -
    
    
    -
    
    
    11,962,066Dividends
      on preferred stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (187,500
    )
    
    -
    
    
    -
    
    
    (187,500
    )Translation
      adjustment
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    101,459
    
    
    101,459Conversion
      of preferred stock
    
    
    (500
    )
    
    (5
    )
    
    0
    
    
    0
    
    
    10,285
    
    
    103
    
    
    (98
    )
    
    -
    
    
    -
    
    
    -Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (16,849,789
    )
    
    -
    
    
    (16,849,789
    )Balance,
      December 31, 2002
    
    
    1,130
    
    
    11
    
    
    3,750
    
    
    38
    
    
    35,453,722
    
    
    354,537
    
    
    126,664,805
    
    
    (135,497,195
    )
    
    82,861
    
    
    (8,394,943
    )Issuance
      of common stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,764,612
    
    
    27,646
    
    
    28,777,445
    
    
    -
    
    
    
    
    
    28,805,091Options
      exercised
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,260,268
    
    
    12,603
    
    
    6,781,574
    
    
    
    
    
    
    
    
    6,794,177Warrants
      exercised
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    57,922
    
    
    579
    
    
    199,359
    
    
    
    
    
    
    
    
    199,938Fair
      market value of optionsgranted
      to non-employees
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    96,152
    
    
    -
    
    
    -
    
    
    96,152Dividends
      on preferred stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (178,125
    )
    
    -
    
    
    -
    
    
    (178,125
    )Translation
      adjustment
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    108,508
    
    
    108,508Conversion
      of preferred stock
    
    
    (1000
    )
    
    (10
    )
    
    (500
    )
    
    (6
    )
    
    163,427
    
    
    1,634
    
    
    (1,619
    )
    
    -
    
    
    -
    
    
    (1
    )Payment
      of related party loan
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (20,570
    )
    
    (205
    )
    
    (193,030
    )
    
    -
    
    
    -
    
    
    (193,235
    )Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (21,151,019
    )
    
    -
    
    
    (21,151,019
    )Balance,
      December 31, 2003
    
    
    130
    
    $
    1
    
    
    3,250
    
    $
    32
    
    
    39,679,381
    
    $
    396,794
    
    $
    162,146,561
    
    $
    (156,648,214
    )
    $
    191,369
    
    $
    6,086,543
 
 (Continued)
 
 F-7
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
  FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
 (Continued)
  Series
      B Convertible
      Preferred
      Stock
    
    Series
      C Convertible
      Preferred
      Stock
    
    Common
      Stock
    
    Capital
      in
    
    
    
    Accumulated
      OtherNumber
      of
    
    
    
    Number
      of
    
    
    
    Number
      of
    
    
    
    Excess
      of
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Par
      Value
    
    Deficit
    
    Income
      (Loss)
    
    TotalBalance,
      December 31, 2003
    
    
    130
    
    $
    1
    
    
    3,250
    
    $
    32
    
    
    39,679,381
    
    $
    396,794
    
    $
    162,146,561
    
    $
    (156,648,214
    )
    $
    191,369
    
    $
    6,086,543Issuance
      of common stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,000,000
    
    
    20,000
    
    
    6,360,000
    
    
    -
    
    
    -
    
    
    6,380,000Warrants
      exercised
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    72,553
    
    
    725
    
    
    228,961
    
    
    -
    
    
    -
    
    
    229,686Fair
      market valueof optionsgranted
      to non-employees
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    14,514
    
    
    -
    
    
    -
    
    
    14,514Dividends
      on preferred stock
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (162,500
    )
    
    -
    
    
    -
    
    
    (162,500
    )Translation
      adjustment
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    50,458
    
    
    50,458Net
      loss
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (25,129,624
    )
    
    -
    
    
    (25,129,624
    )Balance,
      December 31, 2004
    
    
    130
    
    $
    1
    
    
    3,250
    
    $
    32
    
    
    41,751,934
    
    $
    417,519
    
    $
    168,587,536
    
    $
    (181,777,838
    )
    $
    241,827
    
    $
    (12,530,923
    )
 The
accompanying notes to consolidated financial statements are an integral part of
these statements.
 F-8
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
 
 2004
    
    2003
    
    2002CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
    
    $
    (25,129,624
    )
    $
    (21,151,019
    )
    $
    (16,849,789
    )Adjustments
      to reconcile net loss to netcash
      used in operating activities -Depreciation
      and amortization
    
    
    379,855
    
    
    513,109
    
    
    579,412Provision
      for doubtful accounts
    
    
    48,917
    
    
    133,509
    
    
    (1,191
    )Provision
      for sales returns
    
    
    3,336,339
    
    
    406,000
    
    
    310,183Write-down
      of inventories
    
    
    1,018,677
    
    
    461,648
    
    
    453,797Loss
      on disposal of fixed assets
    
    
    -
    
    
    -
    
    
    6,384Interest
      expense on financing agreements
    
    
    2,235,777
    
    
    1,085,073
    
    
    -Loss
      on sale of intangible assets
    
    
    577,917
    
    
    -
    
    
    -Issuance
      of options for services
    
    
    14,514
    
    
    96,152
    
    
    -Changes
      in assets and liabilities -(Increase)
      decrease in:Accounts
      receivable
    
    
    (872,704
    )
    
    (2,716,249
    )
    
    (1,385,342
    )Inventories
    
    
    (1,291,997
    )
    
    (605,662
    )
    
    (1,786,554
    )Prepaid
      expenses and other current assets
    
    
    1,085,247
    
    
    (1,415,087
    )
    
    (287,571
    )Other
      assets
    
    
    19,514
    
    
    29,053
    
    
    (16,032
    )Increase
      (decrease) in:Accounts
      payable
    
    
    (34,129
    )
    
    (682,882
    )
    
    2,858,650Accrued
      expenses
    
    
    (1,612,504
    )
    
    1,440,086
    
    
    (775,312
    )Deferred
      revenue
    
    
    359,442
    
    
    (70,241
    )
    
    3,949,859Net
      cash used in operating activities
    
    
    (19,864,759
    )
    
    (22,476,510
    )
    
    (12,943,506
    )
 
  (Continued)
  
 F-9
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
 
 (Continued)
 2004
    
    2003
    
    2002CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
    
    $
    (582,367
    )
    $
    (357,993
    )
    $
    (808,104
    )Sale
      of intangible assets
    
    
    300,000
    
    
    -
    
    
    -Net
      cash provided by (used in) investing activities
    
    
    (282,367
    )
    
    (357,993
    )
    
    (808,104
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of common stock
    
    
    6,380,000
    
    
    28,805,091
    
    
    11,962,067Issuance
      of note payable
    
    
    -
    
    
    -
    
    
    3,960,000Payment
      of note payable
    
    
    -
    
    
    (586,667
    )
    
    (3,373,333
    )Proceeds
      from exercise of options and warrants
    
    
    229,686
    
    
    6,994,115
    
    
    -Proceeds
      from financing agreements
    
    
    3,000,000
    
    
    14,250,000
    
    
    2,250,000Payments
      pursuant to financing agreements
    
    
    (534,412
    )
    
    (609,513
    )
    
    -Dividends
      paid
    
    
    (162,500
    )
    
    (178,125
    )
    
    (187,500
    )Net
      cash provided by financing activities
    
    
    8,912,774
    
    
    48,674,901
    
    
    14,611,234EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
    
    
    50,426
    
    
    106,754
    
    
    97,905NET
      INCREASE (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
    
    
    (11,183,926
    )
    
    25,947,152
    
    
    957,529CASH
      AND CASH EQUIVALENTS,Beginning
      of year
    
    
    30,965,517
    
    
    5,018,365
    
    
    4,060,836CASH
      AND CASH EQUIVALENTS,End
      of year
    
    $
    19,781,591
    
    $
    30,965,517
    
    $
    5,018,365SUPPLEMENTAL
      DISCLOSURES OF CASH FLOWINFORMATIONInterest
      paid
    
    $
    712,500
    
    $
    761,208
    
    $
    807,595Taxes
      paid
    
    $
    110,700
    
    $
    24,800
    
    $
    93,900NON-CASH
      INVESTING AND FINANCINGACTIVITIESRelated
      party loan repaid with common stock
    
    $
    -
    
    $
    193,235
    
    $
    -
 
 
 The
accompanying notes to consolidated financial statements are an
integral part of these
 
 F-10
 
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 (1)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES :
 
 Organization -
 
 Columbia
Laboratories, Inc. (the "Company") was incorporated as a Delaware corporation in
December 1986. The Company is dedicated to research and development of women’s
healthcare and endocrinology products, including those intended to treat
infertility, endometriosis and hormonal deficiencies. The Company is also
developing a buccal delivery system for peptides. The Company’s products
primarily utilize its patented Bioadhesive Delivery System
technology.
 
 Principles
of Consolidation -
 
 The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
 
 Liquidity -
 
 As shown
in the financial statements, the Company has had recurring losses from
operations and has a stockholders' deficiency. The Company has been able to
raise additional funds from equity offerings and finance arrangements and
management believes it can continue to do so in the future. Management believes
that the cost reduction measures taken in 2005 and potential equity offerings
and/or financing arrangements, together with increased projected revenue in
2005, will enable the Company to sustain its operations. However, there can be
no assurance given that this will occur.
 
 Accounting
Estimates -
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates in the near term.
 
 Foreign
Currency -
 
 The
assets and liabilities of the Company's foreign subsidiaries are translated into
U.S. dollars at current exchange rates and revenue and expense items are
translated at average rates of exchange prevailing during the period. Resulting
translation adjustments are accumulated as a separate component of stockholders'
equity.
 
 Accounts
Receivable-
 
 Accounts
receivable are reported at their outstanding unpaid principal balances reduced
by allowances for doubtful accounts and potential returns.  The
Company estimates doubtful accounts based on historical bad debts, factors
related to specific customers’ ability to pay and current economic trends. The
Company writes off accounts receivable against the allowance when a balance is
determined to be uncollectible.
 
 F-11
 
 Inventories -
 
 Inventories
are stated at the lower of cost (first-in, first-out) or market. Components of
inventory cost include materials, labor and manufacturing overhead. Inventories
consist of the following:
  December
      31,2004
    
    2003Finished
      goods
    
    $
    1,993,190
    
    $
    1,096,785Raw
      materials
    
    
    749,354
    
    
    1,372,439$
    2,742,544
    
    $
    2,469,224
 Shipping
costs are included in selling and distribution expenses and amounted to
approximately $63,000, $93,000 and $119,000 in 2004, 2003 and 2002
respectively.
 
 Property
and Equipment -
 
 Property
and equipment is stated at cost less accumulated depreciation. Leasehold
improvements are amortized over the term of the respective leases. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
respective assets, as follows:
 YearsSoftware
    
    
    3Machinery
      and equipment
    
    
    5-10Furniture
      and fixtures
    
    
    5
 
 Costs of
major additions and improvements are capitalized and expenditures for
maintenance and repairs that do not extend the term of the assets are expensed.
Upon sale or disposition of property and equipment, the cost and related
accumulated depreciation are eliminated from the accounts and any resultant gain
or loss is credited or charged to operations.
 
 Depreciation
expense amounted to approximately $337,000, $270,000 and $291,000 in 2004, 2003
and 2002, respectively.
  Concentration
of Credit Risk-
 
 The
Company sells its products to customers worldwide. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Management believes that the Company is not subject to any significant
concentrations of credit risk.
 
 Intangible Assets-
  Intangible
assets consist of the following:
 December
      31,2004
    
    2003Patents
    
    $
    2,600,000
    
    $
    2,600,000Trademarks
    
    
    341,000
    
    
    1,566,000Licensing
      rights
    
    
    100,000
    
    
    100,0003,041,000
    
    
    4,266,000Less
      accumulated amortization
    
    
    (3,041,000
    )
    
    (3,345,582
    )$
    -
    
    $
    920,418
  
 F-12
 Patents
were being amortized on a straight-line basis over their remaining lives
(through 2003). Trademarks were being amortized on a straight-line basis over
ten years to fifteen years. Licensing rights were being amortized over a period
of five years.
 
 On March
16, 2000, the Company acquired the U.S. rights for the product Advantage-S. The
cost of the acquisition was $1,225,000 (in cash and Company common stock) which
was being amortized over a 15-year period. The U.S. rights were sold on June 29,
2004. The Company recorded a loss of $577,917 on the sale.
 
 Amortization
expense amounted to $42,500, $242,924 and $288,276 in 2004, 2003 and 2002,
respectively.
  Long-lived
Assets -
 
 Following
the acquisition of any long-lived assets, the Company continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of the long-lived asset may warrant revision or that the
remaining balance of the long-lived asset may not be recoverable. When factors
indicate that a long-lived asset may be impaired, the Company uses an estimate
of the underlying product's future cash flows, including amounts to be received
over the remaining life of the long-lived asset from license fees, royalty
income, and related deferred revenue, in measuring whether the long-lived asset
is recoverable. Unrecoverable amounts are charged to operations.
 
 Accrued
Expenses -
 
 Accrued
expenses consist of the following:
 2004
    
    2003Sales
      returns
    
    $
    1,992,010
    
    $
    275,000Salaries
    
    
    434,045
    
    
    175,370Royalties
    
    
    222,335
    
    
    564,582Interest
    
    
    207,812
    
    
    207,812Professional
      fees
    
    
    182,574
    
    
    196,666Contract
      sales force
    
    
    -
    
    
    900,000Marketing
      costs
    
    
    -
    
    
    399,618Other
    
    
    72,422
    
    
    287,644$
    3,111,198
    
    $
    3,006,692
 Income
Taxes -
 
 The
reconciliation of the effective income tax rate to the federal statutory rate is
as follows:
 
 2004
    
    2003
    
    2002Federal
      income tax rate
    
    
    (34.0
    )%
    
    (34.0
    )%
    
    (34.0
    )%Increase
      in valuation allowance
    
    
    34.0
    
    
    34.0
    
    
    34.0Effective
      income tax rate
    
    
    0.0
    %
    
    0.0
    %
    
    0.0
    %
 
 As of
December 31, 2004, the Company has U.S. tax net operating loss carryforwards of
approximately $114 million which expire through 2024. The Company also has
unused tax credits of approximately $1.4 million which expire at various dates
through 2024. Utilization of net operating loss carryforwards may be limited in
any year due to limitations in the Internal Revenue Code. As of December 31,
2004 and 2003, other assets in the accompanying consolidated balance sheets
include deferred tax assets of approximately $41 million and $32 million,
respectively (comprised primarily of a net operating loss carryforward), for
which a 100% valuation allowance has been recorded since the realizability of
the deferred tax assets is not determinable.
 
 F-13
 
 Revenue
Recognition -
 
 Revenue
from sales of products is recognized at the time title of goods passes to the
buyer and the buyer assumes the risks and rewards of ownership. This is at the
time products are shipped to the customer .Provisions for returns, rebates and
other allowances are estimated based on a percentage of sales, using such
factors as historical trends, distributor inventory levels and product
prescription data, and are recorded in the same period the related sales are
recognized. Royalties
and additional monies owed to the Company based on the Company’s strategic
alliance partners’ sales are included in revenues as sales are recorded by the
strategic alliance partners.
 
 In the
2004 fourth quarter, primarily two customers of the Company returned $1,362,000
of one of the Company’s products, Prochieve 8%, which was going to expire in
2005. Prochieve 8% was introduced to the trade in the second half of 2002. As a
result, the Company re-evaluated its estimate for product returns and recorded
an additional provision of approximately $886,000 for estimated
additional Prochieve 8% returns in the fourth quarter.
 
 The total
provision for returns during the years ended December 31, 2004, 2003 and 2002
were $3,336,339, $406,000 and $310,183, respectively, and were recorded as a
reduction of sales.
 
 License
Fees -
 
 License
revenue consists of up-front, milestone and similar payments under license
agreements and is recognized when earned under the terms of the applicable
agreements. Milestone payments represent payments for the occurrence of
contract-specified events and coincide with the achievement of a substantive
element in a multi-element arrangement (See Note 2). License revenue, including
milestone payments, is deferred and recognized in revenues over the estimated
product life cycle or the length of relevant patents, whichever is shorter.
  
 Advertising
Expense -
 
 All costs
associated with advertising and promoting products are expensed in the year
incurred. Advertising and promotion expense was approximately $4,576,000 in
2004, $6,800,000 in 2003 and $1,317,000 in 2002, and is included in selling and
distribution expense.
 
 Research
and Development Costs-
 
 Company-sponsored
research and development costs related to future products are expensed as
incurred.
 
 Loss
per Share -
 
 Basic
loss per share is computed by dividing the net loss plus preferred dividends by
the weighted-average number of shares of common stock outstanding during the
period. Diluted earnings per share gives effect to dilutive options, warrants
and other potential common stock outstanding during the year. Shares to be
issued upon the exercise of the outstanding options and warrants or the
conversion of the preferred stock are not included in the computation of diluted
loss per share as their effect is anti-dilutive. Outstanding options and
warrants excluded from the calculation amounted to 6,204,400, 6,944,911 and
7,704,618 at December 31, 2004, 2003 and 2002, respectively.
 
 Statements
of Cash Flows -
 
 For
purposes of the statements of cash flows, the Company considers all investments
purchased with an original maturity of three months or less to be cash
equivalents.
 
 
 F-14
 
 Stock-based
Compensation -
 
 The
Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for the stock option plans and warrants issued to employees.
Had compensation cost been determined based on the fair value at the grant dates
for those awards consistent with the method of Statement of Financial Accounting
Standard No. 123, the Company’s net loss per share would have been increased to
the pro forma amounts indicated below.
 2004
    
    2003
    
    2002Net
      loss, as reported
    
    $
    (25,129,624
    )
    $
    (21,151,019
    )
    $
    (16,849,789
    )Deduct:
      Total stock-basedemployee
      compensation expensedetermined
      under-fair-value basedmethods
      for all awards
    
    
    (1,918,022
    )
    
    (1,707,678
    )
    
    (1,441,491
    )Pro
      forma net loss
    
    $
    (27,047,646
    )
    $
    (22,858,697
    )
    $
    (18,291,280
    )Loss
      per share: As reported
    
    $
    (0.62
    )
    $
    (0.57
    )
    $
    (0.50
    )Pro
      forma
    
    $
    (0.66
    )
    $
    (0.62
    )
    $
    (0.54
    )
 
 The
estimated grant date fair value reflected in the above table is determined using
the Black-Scholes model. The material assumptions and adjustments incorporated
in the Black-Scholes model in estimating the value of the options reflected in
the above table include the following: (i) an exercise price equal to the fair
market value of the underlying stock on the dates of grant, (ii) an option life
of five years in 2004 and 2003 and three years in 2002, (iii) a risk-free rate
of 3.01% in 2004, 4.25% in 2003 and 5.0% in 2002 which represents the interest
rate on a U.S. Treasury security with a maturity date corresponding to that of
the option term, (iv) volatility of 54.0% in 2004, 59.2% for 2003 and 57.8% for
2002 and (v) no annualized dividends paid with respect to a share of Common
Stock at the date of grant. The ultimate values of the options will depend on
the future price of the Company's Common Stock, which cannot be forecasted with
reasonable accuracy. The actual value, if any, an optionee will realize upon
exercise of an option will depend on the excess of the market value of the
Company's Common Stock over the exercise price on the date the option is
exercised.
 
 The
weighted-average fair value of options and warrants granted to employees during
2004, 2003 and 2002 was $2.20, $3.33 and $1.81, respectively.
 
 Recent
Accounting Pronouncements -
  In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123R (Revised 2004), Share-Based Payment ("SFAS No. 123R"), which requires that
the compensation cost relating to share-based payment transactions be recognized
in financial statements based on alternative fair value models. The share-based
compensation cost will be measured based on the fair value of the equity or
liability instruments issued. The Company currently discloses pro forma
compensation expense quarterly and annually by calculating the stock option
grants' fair value using the Black-Scholes model and dis closing
the impact on net loss and net loss per share in a Note to the Consolidated
Financial Statements. Upon adoption, pro forma disclosure will no longer be an
alternative. SFAS No. 123R also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow
rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. The Company has not completed its evaluation of
SFAS No. 123R and therefore has not determined the impact that adopting SFAS No.
123R will have on its results of operations. The Company will begin to apply
SFAS No. 123R using the most appropriate fair value model as of the interim
reporting period ending September 30, 2005.
  The
Company does not believe that any other recently issued, but not yet effective,
accounting standards would have a material effect on the Company’s consolidated
financial position, results of operations or cash flows.
 
 F-15
 
 
 Product
Recall Costs-
 
 Product
recall costs represent the direct out-of-pocket costs related to the recall of
the product Crinone that took place in April 2001. In 2002, the unused portion
of the accrual was reversed.
 
 Reclassification
of Prior-year Amounts-
 
 Prior-year
financial statements have been reclassified to conform to the 2004
presentation.
  (2)
STRATEGIC ALLIANCE AGREEMENTS :
 
 In May
1995, the Company entered into a worldwide license and supply agreement, except
for South Africa, with American Home Products Corporation (“AHP”) under which
the Wyeth-Ayerst Laboratories division of AHP marketed Crinone. The Company
supplied Crinone to AHP at a price equal to 30% of AHP’s net selling price. On
July 2, 1999, AHP assigned the license and supply agreement to Ares-Serono, a
Swiss pharmaceutical company. The Company supplies Crinone to Ares Trading S.A.
(“Serono”) under the same terms as in the agreement with AHP.  In June
2002, as part of the settlement of litigation between the two companies, the
Company acquired
the right to market a second brand of its 8% and 4% progesterone gel products
under the trade name “Prochieve ® ” to a
defined audience of obstetricians, gynecologists and primary care physicians in
the United States. Under this agreement the Company is required to pay a 30%
royalty to Serono based on net sales of the product and an
additional royalty of 40% of Prochieve’s net sales to the infertility specialist
market. The
Company paid approximately $863,889, $1,685,852 and $989,640 to Serono in
accordance with this agreement for the years 2004, 2003 and 2002,
respectively.
 
 In March
1999, the Company entered into a license and supply agreement with Mipharm SpA
under which Mipharm SpA will be the exclusive marketer of the Company’s
previously unlicensed women’s healthcare products in Italy, Portugal, Greece and
Ireland with a right of first refusal for Spain. Under the terms of the
agreement, the Company has received $540,000, net of expenses, and expects to
receive future milestone payments as products are made available by the
Company.
 
 Effective
May 5, 2000, the Company sold various tangible and intangible assets related to
the U.S. rights for Replens, to Lil’ Drug Store Products Inc. for a total of
$4.5 million cash. Additionally, the purchaser agreed to buy up to $500,000 of
Replens inventory from the Company and to pay future royalties of up to $2
million equal to 10% of future U.S. sales of Replens. Additionally, effective
May 5, 2000, the Company licensed its Legatrin PM, Legatrin GCM, Vaporizer in a
Bottle and Diasorb brands to the same purchaser mentioned above. Legatrin GCM
and Diasorb are no longer sold by Lil’Drug Store Products, Inc. Under the terms
of this agreement, the Company receives license fees equal to 20% of the
licensee’s net sales of Legatrin PM. This agreement has a five-year term with
provisions for renewal and contains options that allow the licensee to acquire
these brands from the Company. On December 29, 2000, Lil’ Drug Store Products,
Inc. acquired the Vaporizer in a Bottle brand for $201,800.
 
 On July
31, 2002, the Company and Quintiles Transnational Corp. (“Quintiles”) entered
into an agreement to commercialize the Company’s portfolio of women’s healthcare
products in the United States. Under the terms of this agreement, Quintiles’
commercialization unit, Innovex, will provide a dedicated team of 55 sales
representatives on a three-year, fee-for-service basis, to commercialize the
Company’s women’s healthcare products. On March 5, 2003, the
Company and Quintiles
Transnational Corp. announced an agreement to commercialize the Company’s
Striant® testosterone buccal bioadhesive product in the United States. Under the
terms of the agreement, Quintiles’ commercialization unit, Innovex, will provide
a dedicated team of approximately 75 sales representatives for two-and-a-half
years. In January 2004, the Company and Innovex restructured the sales force
dedicated to exclusively promoting the Company’s women’s healthcare products and
Striant®. The restructured sales force would be made up of nine Company district
managers as well as 80 sales representatives divided evenly between the Company
and Innovex. Under the terms of this restructuring, Innovex will accelerate the
transfer of responsibility for management of the sales force to the Company, but
would continue to provide half the sales representatives. Effective immediately,
the Company would take responsibility for all field sales management, all sales
force support and will hire one-half of the field sales representatives. The
Company will take full responsibility for the remaining Sales Representatives by
October 2005. The restructuring of the Innovex agreement will have no effect on
the product royalty agreements between the Company and Quintiles’ subsidiary,
PharmaBio Development, Inc. (See note 5)
 
 F-16
 On
October 16, 2002, the Company and Ardana Bioscience, Ltd. (“Ardana”) entered
into a license and supply agreement for the Company’s Striant® testosterone
buccal mucoadhesive product in 18 European countries (excluding Italy). Under
the terms of the agreement, Ardana markets, distributes and sells Striant. In
exchange for the license, the Company will receive total payments of $8 million,
including $4 million in signature and milestone fees received in the fourth
quarter of 2002. Initial regulatory approval of the U.K. application will be the
basis for mutual recognition applications to be filed in the rest of Europe.
Additional milestone payments totaling $2 million (of which $800,000 was
received in 2004) are due upon marketing approvals in major European countries
included in the agreement. A performance payment of $2 million is also due upon
achievement of a certain level of sales. Ardana is obligated to purchase its
requirements of product from the Company during the term of the agreement. The
agreement shall continue for a period of the later of 10 years from the first
commercial sale of the finished product by Ardana or the date of expiration or
lapse of the last to expire or lapse Company’s patent rights in the territory,
determined on a country by country basis. The Company is recognizing the license
revenue on this agreement over a 10-year period and accordingly has recognized
revenue of $478,603, $401,681and $50,141 in 2004, 2003 and 2002, respectively.
The remaining $3,869,575 is shown as deferred revenue in the accompanying
consolidated balance sheets.
 
 In May
2003, the Company and Mipharm S.p.A. entered into an agreement, under which
Mipharm will market, distribute and sell Striant in Italy. In exchange for these
rights, the Company will receive payments of $1.4 million, including the
immediate reimbursement of $350,000 in development costs, which was paid in
2003. An additional $76,048, net of VAT, was received in 2004. A mutual
recognition application for marketing in Italy was filed based on initial
regulatory approval of the pending application in the United Kingdom. Mipharm
will provide additional performance payments upon 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 the Company’s manufacturer for Striant
under a May 2002 agreement. The
Company is recognizing revenue on this agreement over a 132-month period and
accordingly has recognized revenue of $38,003 in 2004 and $18,560 in 2003. The
remaining $369,485 is shown as deferred revenue in the accompanying consolidated
balance sheets.
 
 In
June 2004,
the Company sold the worldwide rights to its over-the-counter products
Advantage-S® Contraceptive Gel and RepHresh® Vaginal Gel and the foreign rights
to Replens® Vaginal Moisturizer to Lil’ Drug Store Products, Inc. The Company
also sold its existing finished goods inventory of these products to Lil’ Drug
Store Products. Additionally, the companies executed a five year supply
agreement and a two and one-half year agreement for the Company’s sales force to
continue to promote these products to obstetricians and gynecologists in the
United States. Upon closing, the Company received payments amounting to
$832,000, which were paid in 2004, from the sale of the rights and inventory. In
June 2004, the Company recorded a loss of $577,917 on the loss of the sale of
the intangibles assets associated with the products. The Company will receive
revenues from the manufacture and sale of product to Lil’ Drug Store Products,
promotional fees under a professional services agreement and royalties on sales
of products manufactured by third parties.
 
 (3)
PRODUCT RECALL:
 
 On April
5, 2001, the Company announced that it had requested its licensee, Serono, to
voluntarily recall a number of batches of Crinone, a progesterone vaginal gel
used in the treatment of infertile women. The recall was initiated due to an
application problem of the gel in the recalled batches. The Company estimated
that the direct out-of-pocket costs related to the recall would cost
approximately $1.5 million, which was recorded in the first quarter of 2001. The
Company’s original estimate of the expenses necessary to complete the product
recall exceeded the actual expense by approximately $449,000. This amount is
shown as a reduction in 2002 operating expenses in the consolidated statements
of operations.
 F-17
 
 (4)
NOTES PAYABLE:
  On March
16, 1998, the Company issued to an institutional investor a $10 million
convertible subordinated note due March 15, 2005. The note is subordinate to
other senior securities of the Company and bears interest at 7.125% which is
payable semiannually on March 15 and September 15. The note is convertible into
662,032 shares of Common Stock at a price equal to $15.105 per share.
 
 The
carrying amount of the Company’s note payable approximates fair value using the
Company’s estimated incremental borrowing rate.
  (5)
FINANCING AGREEMENTS:
 
 In an
agreement dated July 31, 2002, Quintiles’ strategic investment group, PharmaBio
Development, agreed to pay $4.5 million, to be paid in four equal quarterly
installments commencing third quarter 2002 for the right to receive a 5% royalty
on the 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 minimum ($8 million) and maximum ($12 million) amounts
and 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 12.51%. $625,295 and $498,369 were recorded as
interest expense for the years 2004 and 2003, respectively. The agreement calls
for a true-up payment, if by February 28, 2005, the Company has not made
$2,750,000 in royalty payments to PharmaBio. The amounts paid to PharmaBio were
$423,137 for 2004 and $434,919 for 2003. Accordingly the Company made a true-up
payment of $1,891,944 on February 28, 2005.
 
 In an
agreement dated March 5, 2003, Quintiles’ strategic investment group, PharmaBio
Development, agreed to pay $15
million, to be paid in five quarterly installments commencing with the signing
of this agreement. In return, Quintiles will receive a 9% royalty on net sales
of Striant in the United States up to agreed annual sales revenues, and a 4.5%
royalty of net sales above those levels. The royalty term is seven years.
Royalty payments commenced for the 2003 third quarter and are subject to minimum
($30 million) and maximum ($55 million) amounts. Because
the minimum amount exceeds the $15 million to be received, 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 to be received by the
Company is being recognized as interest expense over the seven-year term of the
agreement, assuming an interest rate of 10.67%. $1,610,482 and $586,704 were
recorded as interest expense in 2004 and 2003, respectively . The
agreement calls for a true-up payment, if by September 30, 2006, the Company has
not made $13 million in royalty payments to PharmaBio. The true-up payment is
equal to the difference between the royalties paid to September 30, 2006, and
$13 million. The amounts paid to PharmaBio were $314,792 for 2004 and $266,658
for 2003.
 
 F-18
 Liabilities
from financing agreements consist of the following:
 
 December
      31,2004
    
    2003July
      31, 2002 financing agreement
    
    $
    4,932,548
    
    $
    4,648,018March
      5, 2003 financing agreement
    
    
    16,744,378
    
    
    12,327,54221,676,926
    
    
    16,975,560Less:
      current portion
    
    
    2,753,486
    
    
    1,228,865$
    18,923,440
    
    $
    15,746,695
   Because
of their terms, the fair value of the future value of the financial agreements
cannot be determined.
  (6)
STOCKHOLDERS' EQUITY (DEFICIENCY) :
 
 Preferred
Stock -
 
 In August
1991, the Company completed a private placement of 150,000 shares of Series B
Convertible Preferred Stock ("Series B Preferred Stock"). Each share of Series B
Preferred Stock is convertible into 20.57 shares of Common Stock.
 
 Upon
liquidation of the Company, the holders of the Series B Preferred Stock are
entitled to $100 per share. The Series B Preferred Stock will be automatically
converted into Common Stock upon the occurrence of certain events. Holders of
the Series B Preferred Stock are entitled to one vote for each share of Common
Stock into which the preferred stock is convertible.
 
 In April
2002, 500 shares of the Series B Preferred Stock were converted into 10,285
shares of the Common Stock. In June 2003, 1,000 shares of the Series B Preferred
Stock were converted into 20,570 shares of the Common Stock.
 
 In
January 1999, the Company raised approximately $6.4 million, net of expenses
from the issuance and sale of Series C Convertible Preferred Stock (“Series C
Preferred Stock”). The Series C Preferred Stock, sold to 24 accredited
investors, has a stated value of $1,000 per share. The Series C Preferred Stock
is convertible into common stock at the lower of: (i) $3.50 per common share or
(ii) 100% of the average of the closing prices during the three trading days
immediately preceding the conversion notice. The Series C Preferred Stock pays a
5% dividend, payable quarterly in arrears on the last day of the quarter. In
2003, 500 shares of the Series C Preferred Stock were converted into 142,857
shares of the Common Stock.
 
 On March
12, 2002, the Company adopted a Stockholder Rights Plan (“Rights Plan”) designed
to protect company stockholders in the event of takeover activity that would
deny them the full value of their investment. The Rights Plan was not adopted in
response to any specific takeover threat. In adopting the Rights Plan, the Board
declared a dividend distribution of one preferred stock purchase right for each
outstanding share of Common Stock of the Company, payable to stockholders of
record at the close of business on March 22, 2002. The rights will become
exercisable only in the event, with certain exceptions, a person or group of
affiliated or associated persons acquires 15% or more of the Company’s voting
stock, or a person or group of affiliated or associated persons commences a
tender or exchange offer, which if successfully consummated, would result in
such person or group owning 15% or more of the Company’s voting stock. The
rights will expire on March 12, 2012. Each right, once exercisable, will entitle
the holder (other than rights owned by an acquiring person or group) to buy one
one-thousandth of a share of a series of the Company’s Series D Junior
Participating Preferred Stock at a price of $30 per one-thousandth of a share,
subject to adjustments. In addition, upon the occurrence of certain events,
holders of the rights (other than rights owned by an acquiring person or group)
would be entitled to purchase either the Company’s preferred stock or shares in
an “acquiring entity” at approximately half of market value. Further, at any
time after a person or group acquires 15% or more (but
less than 50%) of the Company’s outstanding voting stock, subject to certain
exceptions, the Board of Directors may, at its option, exchange part or all of
the rights (other than rights held by an acquiring person or group) for shares
of the Company's common stock having a fair market value on the date of such
acquisition equal to the excess of (i) the fair market value of preferred stock
issuable upon exercise of the rights over (ii) the exercise price of the rights.
The Company generally will be entitled to redeem the rights at $0.01 per right
at any time prior to the close of business on the tenth day after there has been
a public announcement of the beneficial ownership by any person or group of 15%
or more of the Company’s voting stock, subject to certain exceptions. These
rights are deemed to have no value and accordingly have not been recorded in the
accompanying financial statements.
 
 F-19
 Common
Stock-
 
 During
2002, the Company issued 2,691,012 shares of its common stock to several
institutional investors, which resulted in the Company receiving $11,962,067
after expenses.
 
 During
2003, the Company issued 2,764,612 shares of its common stock to a group of
institutional investors, which resulted in the Company receiving $28,805,091
after expenses. Also in 2003, outstanding options and warrants were exercised
resulting in the issuance of 1,318,190 shares of common stock and the receipt of
$6,994,115 by the Company.
 
 During
2004, the Company issued 2,000,000 shares of its common stock to an
institutional investor, which resulted in the Company receiving $6,380,000 after
expenses. Also in 2004, outstanding warrants were exercised resulting in the
issuance of 72,553 shares of common stock and the receipt of $229,688 by the
Company.
 
 Warrants -
 
 As of
December 31, 2004, the Company had warrants outstanding for the purchase of
725,000 shares of Common Stock. Information on outstanding warrants is as
follows:
 
 
 ExercisePrice4.81
    
    
    200,0005.85
    
    
    100,0007.50
    
    
    75,0008.35
    
    
    350,000725,000
 
 
 During
2001, a warrant to purchase 350,000 shares of Common Stock at an exercise price
of $8.35 was issued pursuant to an employment agreement with the Company’s new
President and Chief Executive Officer. A warrant to purchase
 100,000
shares of Common Stock at an exercise price of $5.85 per share was issued to an
officer and director of the Company. As of December 31, 2004, 637,500 warrants
were exercisable.
 
 Stock
Option Plans -
 
 All
employees, officers, directors and consultants of the Company or any subsidiary
were eligible to participate in the Columbia Laboratories, Inc. 1988 Stock
Option Plan, as amended (the "Plan"). Under the Plan, a total of 5,000,000
shares of Common Stock were authorized for issuance upon exercise of the
options. As of October 1996, no further options were granted pursuant to this
Plan.
 
 In
October 1996, the Company adopted the 1996 Long-term Performance Plan
(“Performance Plan”) which provides for the grant of stock options, stock
appreciation rights and restricted stock to certain designated employees of the
Company, non-employee directors of the Company and certain other persons
performing significant services for the Company as designated by the
Compensation/Stock Option Committee of the Board of Directors. Pursuant to the
Performance Plan, an aggregate of 8,000,000 shares of Common Stock have been
reserved for issuance.
 
 F-20
 
 
 A summary of the status of the Company’s two stock
option plans as of December 31, 2004, 2003 and 2002 and changes during the years
ending on those dates is presented below:
  2004
    
    2003
    
    2002Weighted-
    
    
    
    Weighted-
    
    
    
    WeightedAverage
    
    
    
    Average
    
    
    
    AverageExercise
    
    
    
    Exercise
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding
      at beginning of year
    
    
    6,087,050
    
    $
    8.57
    
    
    6,783,143
    
    $
    8.23
    
    
    6,218,643
    
    $
    8.69Granted
    
    
    852,400
    
    
    4.51
    
    
    667,175
    
    
    6.04
    
    
    692,500
    
    
    4.18Exercised
    
    
    -
    
    
    -
    
    
    (1,260,268
    )
    
    5.39
    
    
    -
    
    
    -Forfeited
    
    
    (1,460,050
    )
    
    5.60
    
    
    (103,000
    )
    
    8.47
    
    
    (128,000
    )
    
    8.67Outstanding
      at end of year
    
    
    5,479,400
    
    
    8.73
    
    
    6,087,050
    
    
    8.57
    
    
    6,783,143
    
    
    8.23Options
      exercisable at year end
    
    
    4,141,314
    
    
    
    
    
    4,628,000
    
    
    
    
    
    5,566,943
 
 The
following table summarizes information about stock options outstanding at
December 31, 2004:
 
 Options
      Outstanding
    
    
    Options
      ExercisableWeighted-Average
    
    Weighted-
    
    
    
    Weighted-Range
      of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Outstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExercisePrices
    
    at
      December 31, 2004
    
    Life
      (Years)
    
    Price
    
    at
      December 31, 2004
    
    Price$2.14
      - $3.83
    
    
    728,950
    
    
    7.27
    
    $
    3.26
    
    
    373,814
    
    $
    3.31$4.05
      - $7.90
    
    
    2,123,950
    
    
    7.11
    
    
    5.57
    
    
    1,175,500
    
    
    6.01$8.06
      - $12.13
    
    
    1,499,500
    
    
    3.23
    
    
    11.02
    
    
    1,474,000
    
    
    11.03$12.25
      - $18.63
    
    
    1,127,000
    
    
    2.24
    
    
    15.16
    
    
    1,118,000
    
    
    15.18$2.14
      - $18.63
    
    
    5,479,400
    
    
    5.07
    
    
    8.73
    
    
    4,141,314
    
    
    10.03
  F-21
 
 (7)
LOSS PER COMMON AND POTENTIAL COMMON SHARE:
 
 The
calculation of basic and diluted loss per common and potential common share is
as follows:
  2004
    
    2003
    
    2002Net
      loss
    
    $
    (25,129,624
    )
    $
    (21,151,019
    )
    $
    (16,849,789
    )Less:
      Preferred stock dividends
    
    
    (162,500
    )
    
    (178,125
    )
    
    (187,500
    )Net
      loss applicable tocommon
      stock
    
    $
    (25,292,124
    )
    $
    (21,329,144
    )
    $
    (17,037,289
    )Basic
      and dilutedWeighted-average
      number ofcommon
      shares outstanding
    
    
    40,984,083
    
    
    37,440,270
    
    
    34,392,060Basic
      and diluted net loss percommon
      share
    
    $
    (0.62
    )
    $
    (0.57
    )
    $
    (0.50
    )
 8)
COMMITMENTS AND CONTINGENCIES:
 
 Cash
and cash equivalents-
 
 The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company believes that there is no credit risk with
respect to these accounts.
 
 Leases -
 
 The
Company leases office space, apartments and office equipment under noncancelable
operating leases. Lease expense for each of the three years ended December 31,
2004, 2003 and 2002 totaled $355,005, $392,222 and $323,977, respectively.
Future minimum lease payments as of December 31, 2004 are as
follows:
 
 2005
    
    
    219,6282006
    
    
    201,0972007
    
    
    125,216545,941
 
 Royalties -
 
 In 1989,
the Company purchased the assets of Bio-Mimetics, Inc. which consisted of the
patents underlying the Company's Bioadhesive Delivery System, other patent
applications and related technology, for $2,600,000, in the form of 9%
convertible debentures which were converted into 500,000 shares of Common Stock
during 1991, and $100,000 in cash. In addition, Bio-Mimetics, Inc. receives a
royalty equal to 2% of the net sales of products based on the Bioadhesive
Delivery System up to an aggregate amount of $7,500,000. In addition, beginning
in March 1995, the Company agreed to prepay a portion of the remaining royalty
obligation if certain conditions are met. The Company may not assign the patents
underlying the Bioadhesive Delivery System without the prior written consent of
Bio-Mimetics, Inc. until the aggregate royalties have been paid. Royalty expense
under this agreement amounted to $339,706, $444,933 and $239,357 in 2004, 2003
and 2002, respectively.
 
 F-22
 In June
2002, as part of the settlement of litigation between Serono and the Company,
the Company acquired
the right to market a second brand of its 8% and 4% progesterone gel products
under the trade name “Prochieve ® ” to a
defined audience of obstetricians, gynecologists and primary care physicians in
the United States. Under this agreement the Company is required to pay a 30%
royalty to Serono based on net sales of the products and an additional royality
of 40% of Prochieve net sales to the infertility specialist market.
 
 Geographic
Area of Operations-
 
 Included
in the Company’s Consolidated Balance sheet at December 31, 2004 are the net
assets of the Company’s subsidiaries located in Bermuda, France and the United
Kingdom that total approximately $15.1 million.
 
 Employment
Agreements -
 
 In March
2001, the Company entered into a three-year employment agreement with an
individual to serve as President and Chief Executive Officer of the Company.
Pursuant to his employment agreement, the employee is entitled to a base salary
of $450,000 per year plus a minimum 10% bonus. Additionally, the employee was
granted options to purchase 500,000 shares of the Company’s Common Stock at an
exercise price of $5.85 per share and a warrant to purchase 350,000 shares of
the Company’s Common Stock at an exercise price of $8.35 per share. The options
and warrants vest ratably over a four-year period. In March 2004, the Company
entered into a new three-year employment agreement with the employee to serve as
President and Chief Executive Officer of the Company. Pursuant to his employment
agreement, the employee is entitled to a base salary of $500,000 per year plus a
target fifty percent bonus. Additionally, the employee was granted options to
purchase 50,000 shares of the Company’s Common Stock at an exercise price of
$4.05 per share.
 
 In
February 2005, the Company entered into a two-year employment agreement with an
individual to serve as Senior vice President-Operations and Chief Operating
Officer of the Company. Pursuant to his employment agreement, the employee is
entitled to a base salary of $300,000 per year plus a target 40% bonus. In
addition, the employee was granted a signing bonus and is entitled to certain
payments upon the completion of certain milestones. Additionally, the employee
was granted options to purchase 175,000 shares of the Company’s Common Stock at
an exercise price of $2.05 per share. The options vest ratably over a four-year
period.
 
 During
1993, the Company's stockholders approved an Incentive Compensation Plan
covering all employees pursuant to which an aggregate of 5% of pretax earnings
of the Company for any year will be awarded to designated employees of the
Company. No provision was required in 2002 and 2001. In November 2002, the
Incentive Compensation Plan was terminated by the Board of
Directors.
 
 Legal
Proceedings -
 
 In August
2001, Ares Trading S.A. (“Serono”) filed a lawsuit in the Supreme Court of the
State of New York (the “Action”) naming the Company as defendant. The Action set
forth claims for an alleged breach of contract for failure to supply Crinone® in
accordance with the supply agreement between the parties. In November 2001, the
Company filed counterclaims against Serono. In June 2002, the Company reached a
settlement with Serono. The
companies agreed to release all claims against each other in Serono’s suit
against the Company and the Company’s counterclaims against Serono. Under the
terms of the settlement, Columbia has rights to market a second brand of its 8%
and 4% progesterone gel products under the trade name “Prochieve  ® to a
defined audience of obstetricians, gynecologists and primary care physicians in
the United States. As part of the settlement, Columbia gave Ares a note for
$3.96 million, which was paid in full in March 2003 to cover out of pocket costs
resulting from the recall. This amount is shown as litigation settlement expense
in Operating Expenses of the Consolidated Statements of Operations.
 
 Other
claims and lawsuits have been filed against the Company. Although
the results of pending litigation are always uncertain, the Company does not
believe the results of any such actions, individually or in the aggregate, will
have a material adverse effect on our financial position or results of
operation. Additionally, the Company believes that it has adequate reserves or
adequate insurance coverage for any unfavorable outcome resulting from these
actions.
 
 F-23
 (9)
RELATED PARTY TRANSACTIONS :
 
 During
1993, the Company loaned an individual, who was an officer, director and
stockholder of the Company, an aggregate of $110,350. These notes, bearing
interest at 10% per annum and due on or before December 7, 1997, were
subsequently extended through December 7, 1999. On June 30, 2003, the notes and
accrued interest totaling $216,637 were paid in full by transferring, to the
Company, Columbia stock valued at $193,235 and $23,402 in cash.
  (10)
SEGMENT INFORMATION :
 
 The
Company and its subsidiaries are engaged in one line of business, the
development, licensing and sale of pharmaceutical products. The following table
shows selected information by geographic area:
   (Loss)
      profit from
    
    IdentifiableRevenues
    
    Operations
    
    AssetsAs
      of and for the yearended
      December 31, 2004-United
      States
    
    $
    11,236,330
    
    $
    (22,733,040
    )
    $
    14,207,833Europe
    
    
    6,624,074
    
    
    761,136
    
    
    15,060,535$
    17,860,404
    
    $
    (21,971,904
    )
    $
    29,268,368As
      of and for the yearended
      December 31, 2003-United
      States
    
    $
    13,573,723
    
    $
    (20,156,126
    )
    $
    33,196,720Europe
    
    
    8,841,305
    
    
    573,953
    
    
    9,557,929$
    22,415,028
    
    $
    (19,582,173
    )
    $
    42,754,649As
      of and for the yearended
      December 31, 2002-United
      States
    
    $
    6,458,323
    
    $
    (8,190,386
    )
    $
    5,437,294Europe
    
    
    2,960,226
    
    
    (7,669,104
    )
    
    7,465,019$
    9,418,549
    
    $
    (15,859,490
    )
    $
    12,902,313
 F-24
 
 The
following table presents information about Columbia’s revenues by customer,
including royalty and license revenue:
 
 2004
    
    2003
    
    2002Ares-Serono
    
    $
    8,512,147
    
    $
    8,655,947
    
    $
    3,878,513Lil'
      Drug Store Products, Inc.
    
    
    3,565,760
    
    
    3,281,034
    
    
    1,356,343Cardinal
      Healthcare
    
    
    1,419,962
    
    
    3,296,865
    
    
    1,624,556McKesson
    
    
    1,218,438
    
    
    2,890,998
    
    
    489,585Amerisource
      Bergen
    
    
    750,117
    
    
    447,455
    
    
    599,028ANDA,
      Inc.
    
    
    52,288
    
    
    -
    
    
    623,808All
      others (none over 5%)
    
    
    2,341,692
    
    
    3,842,729
    
    
    846,716$
    17,860,404
    
    $
    22,415,028
    
    $
    9,418,549  (11)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
 
 The
following table summarizes selected quarterly data for the years ended December
31, 2004 and 2003:
 
 First
    
    Second
    
    Third
    
    Fourth
    
    FullQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Year2004Net
      sales
    
    $
    3,910,450
    
    $
    3,703,056
    
    $
    4,129,864
    
    $
    2,595,833
    
    $
    14,339,203Fee
      income
    
    
    629,229
    
    
    960,902
    
    
    962,955
    
    
    968,115
    
    
    3,521,201Gross
      profit
    
    
    2,854,483
    
    
    2,846,283
    
    
    2,910,679
    
    
    1,460,358
    
    
    10,071803Loss
      from operations
    
    
    (5,562,880
    )
    
    (5,323,902
    )
    
    (5,219,876
    )
    
    (5,865,246
    )
    
    (21,971,904
    )Net
      loss
    
    
    (6,254,829
    )
    
    (6,603,280
    )
    
    (5,981,839
    )
    
    (6,289,676
    )
    
    (25,129,624
    )Basic
      and diluted lossper
      common share
    
    
    (0.16
    )
    
    (0.16
    )
    
    (0.14
    )
    
    (0.15
    )
    
    (0.62
    )2003Net
      sales
    
    $
    3,005,812
    
    $
    4,245,832
    
    $
    8,079,976
    
    $
    4,366,442
    
    $
    19,698,062Fee
      income
    
    
    599,734
    
    
    673,968
    
    
    683,981
    
    
    759,283
    
    
    2,716,966Gross
      profit
    
    
    1,928,198
    
    
    2,782,433
    
    
    5,740,598
    
    
    2,181,015
    
    
    12,632,244Loss
      from operations
    
    
    (4,393,335
    )
    
    (4,007,791
    )
    
    (3,830,193
    )
    
    (7,350,854
    )
    
    (19,582,173
    )Net
      loss
    
    
    (4,704,070
    )
    
    (4,366,608)
    )
    
    (4,254,547
    )
    
    (7,825,794
    )
    
    (21,151,019
    )Basic
      and diluted lossper
      common share
    
    
    (0.13
    )
    
    (0.12
    )
    
    (0.11
    )
    
    (0.20
    )
    
    (0.57
    )
 
 (1) 2004
fourth quarter net sales includes sales returns for Prochieve 8% of $1,362,000
plus an additional provision for returns of approximately $886,000.
 
 F-25
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 INDEX
TO FINANCIAL STATEMENT SCHEDULE
 
 
 PageReport
      of Independent Registered Accounting Firm
    
    F-27Schedule
      II-Valuation and Qualifying Accounts
    
    F-28
  F-26
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 of
Columbia Laboratories, Inc.:
  We have
audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the financial statements of Columbia
Laboratories, Inc. and Subsidiaries for each of the three years in the period
ended December 31, 2004 included in this Form 10-K and have issued our report
thereon dated February 14, 2005. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. Schedule II is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
 
 GOLDSTEIN
GOLUB KESSLER LLP
 
 New York,
New York
 February
14, 2005
 
  
 F-27
 COLUMBIA
LABORATORIES, INC. AND SUBSIDIARIES
 
 SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
 
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2004
  Description
    
    
    Balance
      atbeginning
      of
      period
    
    
    Charged
      to(credited to)costs and
      expenses
    
    
    Deductions
    
    
    Balanceat
      end
      of
      periodYEAR
      ENDED DECEMBER 31, 2004:Allowance
      for doubtful accounts
    
    $
    120,000
    
    $
    48,917
    
    $
    82,803
    
    $
    86,114YEAR
      ENDED DECEMBER 31, 2003:Allowance
      for doubtful accounts
    
    $
    30,000
    
    $
    133,509
    
    $
    43,509
    
    $
    120,000YEAR
      ENDED DECEMBER 31, 2002:Allowance
      for doubtful accounts
    
    $
    40,000
    
    $
    (1,191
    )
    $
    8,809
    
    $
    30,000
  F-28
 
 
 **EXHIBIT
INDEX**
 **Exhibit
Numbers**
  3.1
    --
    Restated
      Certificate of Incorporation of the Company, as amended1/
 3.2
    --
    Amended
      and Restated By-laws of Company10/
 4.1
    --
    Certificate
      of Designations, Preferences and Rights of Series C Convertible Preferred
      Stock of the Company, dated as of January 7, 199910/
 4.2
    --
    Securities
      Purchase Agreement, dated as of January 7, 1999, between the Company and
      each of the purchasers named on the signature pages thereto10/
 4.3
    --
    Securities
      Purchase Agreement, dated as of January 19, 1999, among the Company, David
      M. Knott and Knott Partners, L.P.10/
 4.4
    --
    Securities
      Purchase Agreement, dated as of February 1, 1999, between the Company and
      Windsor Partners, L.P.10/
 4.5
    --
    Registration
      Rights Agreement, dated as of January 7, 1999, between the Company and
      each of the purchasers named on the signature pages thereto10/
 4.6
    --
    Form
      of Warrant to Purchase Common Stock10/
 4.7
    --
    Warrant
      to Purchase Common Stock granted to James J. Apostolakis on September 23,
      1999
 10.1
    --
    Employment
      Agreement dated as of January 1, 1996, between the Company and Norman M.
      Meier6/*
 10.2
    --
    Employment
      Agreement dated as of January 1, 1996, between the Company and William J.
      Bologna6/*
 10.3
    --
    1988
      Stock Option Plan, as amended, of the Company4/
 10.4
    --
    1996
      Long-term Performance Plan, as amended, of the Company7/
 10.5
    --
    License
      and Supply Agreement between Warner-Lambert Company and the Company dated
      December 5, 19913/
 10.6
    --
    Asset
      Purchase, License and Option Agreement, dated November 22,
      19891/
 10.7
    --
    Employment
      Agreement dated as of April 15, 1997, between the Company and Nicholas A.
      Buoniconti8/*
 10.8
    --
    License
      and Supply Agreement for Crinone between Columbia Laboratories, Inc.
      (Bermuda) Ltd. and American Home Products dated as of May 21,
      19955/
 10.9
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and Norman M. Meier8/*
 10.10
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and
 William
      J. Bologna8/*
 10.11
    --
    Addendum
      to Employment Agreement dated as of September 1, 1997, between the Company
      and
 Nicholas
      A. Buoniconti8/*
 10.12
    --
    Convertible
      Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due March
      15, 2005 and Registration Rights Agreement all dated as of March 16, 1998
      between the Company and SBC Warburg Dillon Read Inc.9/
 10.13
    --
    Termination
      Agreement dated as of April 1, 1998 between the Company and the
      Warner-Lambert Company9/
 10.14
    --
    Addendum
      to Employment Agreement dated as of October 8, 1998, between the Company
      and Nicholas A. Buoniconti.10/*
 10.15
    --
    Agreement
      dated as of December 14, 1998, by and among Columbia Laboratories, Inc.,
      William J. Bologna, Norman M. Meier, James J. Apostolakis, David Ray,
      Bernard Marden, Anthony R. Campbell, David M. Knott and Knott Partners,
      L.P.10/
 10.16A
    --
    
    License
      and Supply Agreement by an between the Company and Mipharm S.p.A. dated
      March 5, 199911/
 10.16B
    --
    License
      and Supply Agreement for Crinone between Columbia Laboratories (Bermuda)
      Limited and Ares Trading S.A. dated as of May 20, 199912/
 10.17
    --
    Addendum
      to Employment Agreement dated as of January 1, 2000 between the Company
      and Norman M. Meier12/*
 10.18
    --
    Addendum
      to Employment Agreement dated as of January 1, 2000 between the Company
      and William J. Bologna12/*
 10.19
    --
    Employment
      Agreement dated as of January 1, 2000 between the Company and James J.
      Apostolakis12/*
 10.20
    --
    Employment
      Agreement dated December 30, 1999 between the Company and Dominique de
      Ziegler12/*
 10.21
    --
    Settlement
      Agreement and Release dated as of March 16, 2000 between Columbia
      Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc.12/
 10.22
    --
    Replens
      Purchase and License Agreement dated April 18, 2000, between the Company
      and Lil’ Drug Store Products, Inc.13/
  F-29
  10.23
    --
    License
      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
      Products, Inc.13/
 10.24
    --
    Distribution
      Agreement dated April 18, 2000, between the Company and Lil’ Drug Store
      Products, Inc.13/
 10.25
    --
    Stock
      Purchase Agreement, dated January 31, 2001, between the Company and
      Ridgeway Investment Limited14/
 10.26
    --
    Amended
      and Restated Common Stock Purchase Agreement by and between the Company
      and Acqua Wellington North American Equities Fund, Ltd., effective as of
      February 6, 2001.15/
 10.27
    --
    Employment
      Agreement dated March 16, 2001 between the Company and G. Frederick
      Wilkinson16/*
 10.28
    --
    Stock
      Purchase Agreement, dated May 10, 2001, between the Company and Ridgeway
      Investment Limited17/
 10.29
    --
    Stock
      Purchase Agreement, dated July 23, 2001, between the Company and Ridgeway
      Investment Limited18/
 10.30
    --
    Rights
      Agreement dated as of March 13, 2002, by and between Columbia
      Laboratories, Inc. and First Union National Bank, as Rights
      Agent19/
 10.31†
    --
    Semi-Exclusive
      Supply Agreement dated May 7, 2002 between the Company and Mipharm
      S.p.A.20/
 10.32†
    --
    Amended
      and Restated License and Supply Agreement dated June 4, 2002 between the
      Company and Ares Trading S.A.20/
 10.33†
    --
    Marketing
      License Agreement dated June 4, 2002 between the Company and Ares Trading
      S.A. and Serono, Inc.20/
 10.34†
    --
    Master
      Services Agreement dated July 31, 2002 between the Company and Innovex
      LP20/
 10.35†
    --
    Stock
      Purchase Agreement dated July 31, 2002 By and Between Columbia
      Laboratories, Inc. and PharmaBio Development Inc.20/
 10.36†
    --
    Investment
      and Royalty Agreement dated July 31, 2002 between the Company and
      PharmaBio Development Inc.20/
 10.37†
    --
    License
      and Supply Agreement dated October 16, 2002 between the Company and Ardana
      Bioscience Limited21/
 10.38†
    --
    Development
      and License Agreement dated December 26, 2002 between the Company and
      Ardana Bioscience Limited21/
 10.39
    --
    Amendment
      No. 1 to the Amended and Restated Common Stock Purchase Agreement by and
      between the Company and Acqua Wellington North American Equities Fund,
      Ltd., effective as of January 31, 200321/
 10.40†
    --
    Investment
      and Royalty Agreement dated March 5, 2003 between the Company and
      PharmaBio Development Inc.21/
 10.41†
    --
    Sales
      Force Work Order #8872 pursuant to the Master Services Agreement having an
      Effective Date of July 31, 2002, between the Company and Innovex LP21/
 10.42
    --
    Separation
      and Consulting Agreement dated April 15, 2003 between the Company and
      William J. Bologna22/
 10.43†
    --
    License
      and Supply Agreement Dated May 27, 2003 between the Company and Mipharm
      S.p.A.23/
 10.44
    --
    Standstill
      Agreement dated December 1, 2003 between the Company and Perry
      Corp.24/
 10.45†
    --
    Amended
      and Restated Sales Force Work Order #8795 And Termination of Work Order
      #8872 pursuant to the Master Services Agreement having an effective date
      of January 26, 2004 between the Company and Innovex25/
 10.46
    --
    Form
      of Indemnification Agreement for Officers and Directors25/
 10.47
    --
    Form
      of Executive Change of Control Severance Agreement25/
 10.48
    --
    Employment
      Agreement dated as of March 16, 2004 between the Company and G. Frederick
      Wilkinson26/*
 10.49†
    --
    Asset
      Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug
      Store Products, Inc.27/
 10.50†
    --
    Supply
      Agreement dated June 29, 2004, between the Company and Lil’ Drug Store
      Products, Inc.27/
 10.51†
    --
    Professional
      Promotion Agreement dated June 29, 2004, between the Company and Lil’ Drug
      Store Products, Inc.27/
 10.52
    --
    Letter
      Agreement and General Release of Claims, effective as of December 31,
      2004, between Columbia Laboratories, Inc. and James J.
      Apostolakis28/
 10.53
    --
    Employment
      Agreement dated as of February 25, 2005 between the Company and Robert S.
      Mills29/*
 10.54
    --
    Columbia
      Laboratories Inc. Incentive Plan, 200429/*
 14
    --
    Code
      of Ethics of the Company25/
 21
    --
    Subsidiaries
      of the Company30/
 23
    --
    Consent
      of Goldstein Golub Kessler LLP30/
 31.1
    --
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
      Company30/
 31.2
    --
    Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the
      Company30/
   F-30
  32.1
    --
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.30/
 32.2
    --
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.30/
  *
    
    Management
      contract or compensatory plan or arrangement required to be filed as an
      exhibit to this form pursuant to item 601 of Regulation
    S-K.
 
 †
    
    Confidential
      treatment has been requested with respect to certain portions of this
      exhibit. Omitted portions have been filed separately with the
      SEC.
 
 1/
    
    Incorporated
      by reference to the Registrant's Registration Statement on Form S-1 (File
      No. 33-31962) declared effective on May 14,
1990.
 
 2/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1990.
  3/
    
    Incorporated
      by reference to the Registrant's Current Report on Form 8-K, filed on
      January 2, 1992.
 
 4/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1993.
  5/
    
    Incorporated
      by reference to the Registrant's Registration Statement on Form S-1 (File
      No. 33-60123) declared effective August 28,
1995.
 6/
    
    Incorporated
      by reference to the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1995.
 
 7/
    
    Incorporated
      by reference to the Registrant's Proxy Statement dated May 10,
      2000.
 
 8/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1997.
 
 9/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1998.
 
 10/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1998.
 
 11/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended March 31, 1999.
 
 12/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 1999
 
 13/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended June 30, 2000.
 
 14/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated January
      31, 2001.
 
 15/
    
    Incorporated
      by reference to the Registrant’s Registration Statement on Form S-3 (File
      No. 333-38230) declared effective May 7,
2001.
 
 16/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      16, 2001.
 
 17/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated May 10,
      2001.
 
 18/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated July
      23, 2001.
 
 F-31
  19/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      12, 2002.
 
 20/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated
      August 14, 2002.
 21/
    
    Incorporated
      by reference to the Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2002
 
 22/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated May
      14, 2003.
  23/
    
    Incorporated
      by reference to the registrant’s Quarterly Report on Form 10-Q dated
      August 14, 2003.
 
 24/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated
      December 1, 2003.
 25/
    
    Incorporated
      by reference to the Registrant’s Annual Report
      onForm 10-K for the year ended December 31,
2003
  26/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q dated May
      10, 2004.
 27/
    
    Incorporated
      by reference to the Registrant’s Quarterly Report on Form 10-Q dated
      August 4, 2004.
 28/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated January
      3, 2005.
 29/
    
    Incorporated
      by reference to the Registrant’s Current Report on Form 8-K, dated March
      1, 2005.
 30/
    
    Filed
      herewith.
 
 F-32