**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C** **.
      20549**








**FORM
      10-Q**








[X]
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      the
      quarterly period ended June 30, 2007





OR





[
                 ]
            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.
                  Employerincorporation
                  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**





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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check
      one):




Large
                  accelerated filer [ ]
              Accelerated
                  filer [X]
              Non-accelerated
                  filer [ ]




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).





[
      ]
      Yes     [X] No





Number
      of
      shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding
      as
      of August 1, 2007: 51,427,651.








**PART
      1 - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





The
      following unaudited, condensed consolidated financial statements of Columbia
      Laboratories, Inc. (“Columbia” or the “Company”) have been prepared in
      accordance with the instructions to Form 10-Q and therefore omit or condense
      certain footnotes and other information normally included in financial
      statements prepared in accordance with generally accepted accounting principles
      (GAAP). In the opinion of management, all adjustments (consisting only of normal
      recurring accruals) necessary for a fair presentation of the financial
      information for the interim periods reported have been made. Results of
      operations for the three and six months ended June 30, 2007 are not necessarily
      indicative of the results for the year ending December 31, 2007 . It
      is
      suggested that these financial statements be read in conjunction with the
      financial statements and related disclosures for the year ended December 31,
      2006 included in the Company’s Annual Report on Form 10-K filed with the
      Securities and Exchange Commission (the “SEC”).




Page
          2 of 29


COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED BALANCE SHEETS




June
                  30,
              
              December
                  31,2007
              
              2006(Unaudited)ASSETS:Cash
                  and cash equivalents
              
              $
              19,994,621
              
              $
              25,270,377Accounts
                  receivable, net
              
              
              4,355,099
              
              
              2,445,318Inventories
              
              
              2,184,540
              
              
              2,105,038Prepaid
                  expenses and other current assets
              
              
              333,081
              
              
              853,504Total
                  current assets
              
              
              26,867,341
              
              
              30,674,237Property
                  and equipment, net
              
              
              659,071
              
              
              763,836Intangible
                  Assets, net
              
              
              31,382,152
              
              
              32,865,556Other
                  Assets
              
              
              1,620,019
              
              
              1,535,115TOTAL
                  ASSETS
              
              $
              60,528,583
              
              $
              65,838,744LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  portion of financing agreements
              
              $
              3,800,806
              
              $
              553,947Accounts
                  payable
              
              
              3,080,245
              
              
              3,586,770Accrued
                  expenses
              
              
              2,932,613
              
              
              3,123,092Total
                  Current Liabilities
              
              
              9,813,664
              
              
              7,263,809Notes
                  Payable
              
              
              26,385,162
              
              
              25,299,135Deferred
                  revenue
              
              
              3,939,853
              
              
              4,182,648Long-term
                  portion of financing agreements
              
              
              9,128,976
              
              
              11,229,777TOTAL
                  LIABILITIES
              
              
              49,267,655
              
              
              47,975,369Stockholders'
                  equityPreferred
                  Stock, $0.01 par value; 1,000,000 shares authorizedSeries
                  B Convertible Preferred Stock, 130 shares issued andand
                  outstanding in 2007 and 2006
              
              
              1
              
              
              1Series
                  C Convertible Preferred Stock, 1,125 and 3,200 sharesissued
                  and outstanding in 2007 and 2006
              
              
              11
              
              
              32Series
                  E Convertible Preferred Stock, 68,742 and 69,000 sharesissued
                  and outstanding in 2007 and 2006
              
              
              687
              
              
              690Common
                  Stock, $0.01 par value; 100,000,000authorized;
                  51,439,651 and 49,694,213 shares issuedin
                  2007 and 2006 respectively
              
              
              514,391
              
              
              496,942Capital
                  in excess of par value
              
              
              222,790,253
              
              
              221,887,945Less
                  cost of 12,000 and 6,000 treasury shares in 2007 and 2006respectively
              
              
              (40,140
              )
              
              (26,880
              )Accumulated
                  deficit
              
              
              (212,206,921
              )
              
              (204,694,399
              )Accumulated
                  other comprehensive income
              
              
              202,646
              
              
              199,044TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              11,260,928
              
              
              17,863,375TOTAL
                  LIABILITIES AND STOCKHOLDERSEQUITY
              
              $
              60,528,583
              
              $
              65,838,744





See
      notes
      to condensed consolidated financial statements


Page
          3 of 29


COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Six
                  Months Ended
              
              Three
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006NET
                  REVENUES
              
              $
              13,971,634
              
              $
              10,068,490
              
              $
              7,287,014
              
              $
              5,523,113COST
                  OF REVENUES
              
              
              4,875,476
              
              
              4,182,007
              
              
              2,803,289
              
              
              2,303,739Gross
                  profit
              
              
              9,096,158
              
              
              5,886,483
              
              
              4,483,725
              
              
              3,219,374OPERATING
                  EXPENSES:Selling
                  and distribution
              
              
              4,061,132
              
              
              3,239,490
              
              
              2,163,850
              
              
              1,739,511General
                  and administrative
              
              
              3,899,773
              
              
              3,348,796
              
              
              1,915,248
              
              
              1,761,146Research
                  and development
              
              
              2,359,600
              
              
              3,370,370
              
              
              1,008,699
              
              
              1,643,753Amortization
                  of licensing right
              
              
              2,483,404
              
              
              -
              
              
              1,261,183
              
              
              -Total
                  operating expenses
              
              
              12,803,909
              
              
              9,958,656
              
              
              6,348,980
              
              
              5,144,410Loss
                  from operations
              
              
              (3,707,751
              )
              
              (4,072,173
              )
              
              (1,865,255
              )
              
              (1,925,036
              )OTHER
                  INCOME (EXPENSE):Interest
                  income
              
              
              505,589
              
              
              355,899
              
              
              242,033
              
              
              255,404Interest
                  expense
              
              
              (4,291,587
              )
              
              (1,216,470
              )
              
              (2,163,844
              )
              
              (545,479
              )Other,
                  net
              
              
              (18,773
              )
              
              (291,173
              )
              
              3,709
              
              
              (262,484
              )(3,804,771
              )
              
              (1,151,744
              )
              
              (1,918,102
              )
              
              (552,559
              )Net
                  loss
              
              $
              (7,512,522
              )
              $
              (5,223,917
              )
              $
              (3,783,357
              )
              $
              (2,477,595
              )NET
                  LOSS PER COMMON SHARE:Basic
                  and diluted
              
              $
              (0.15
              )
              $
              (0.11
              )
              $
              (0.07
              )
              $
              (0.05
              )WEIGHTED
                  AVERAGE NUMBER OFCOMMON
                  SHARES OUTSTANDING:Basic
                  and diluted
              
              
              50,713,299
              
              
              46,467,128
              
              
              51,342,528
              
              
              49,555,297





See
      notes
      to condensed consolidated financial statements


Page
          4 of 29





COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS


(Unaudited)





Six
                  Months Ended
              
              Three
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006NET
                  LOSS
              
              $
              (7,512,522
              )
              $
              (5,223,917
              )
              $
              (3,783,357
              )
              $
              (2,477,595
              )Other
                  comprehensive income (loss):Foreign
                  currency translation, net of tax
              
              
              3,602
              
              
              23,754
              
              
              3,149
              
              
              16,629Comprehensive
                  loss
              
              $
              (7,508,920
              )
              $
              (5,200,163
              )
              $
              (3,780,208
              )
              $
              (2,460,966
              )





See
      notes
      to condensed consolidated financial statements





Page
          5 of 29


COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES





CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six
                  Months Ended June 30,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (7,512,522
              )
              $
              (5,223,917
              )Adjustments
                  to reconcile net loss to netcash
                  used in operating activities-Depreciation
                  and amortization
              
              
              2,710,728
              
              
              131,018Amortization
                  on beneficial conversion features
              
              
              613,208
              
              
              -Amortization
                  on warrant valuation
              
              
              472,819
              
              
              -Provision
                  for doubtful accounts
              
              
              -
              
              
              55,855Provision
                  for sales returns
              
              
              495,784
              
              
              620,868Writedown
                  of inventories
              
              
              -
              
              
              349,722Stock
                  based compensation
              
              
              957,143
              
              
              390,054Interest
                  expense on financing agreements
              
              
              1,485,432
              
              
              1,206,910Loss
                  on partial extinguishment of financing agreement
              
              
              -
              
              
              280,000Loss
                  on disposal of fixed asset
              
              
              -
              
              
              2,178Changes
                  in assets and liabilities-
              
              
              -
              
              
              -(Increase)
                  decrease in:Accounts
                  receivable
              
              
              (1,909,781
              )
              
              169,559Inventories
              
              
              (79,502
              )
              
              (297,045
              )Prepaid
                  expenses and other current assets
              
              
              520,423
              
              
              (98,667
              )Other
                  assets
              
              
              (205,032
              )
              
              4,552Increase
                  (decrease) in:Accounts
                  payable
              
              
              (506,525
              )
              
              (142,215
              )Accrued
                  expenses
              
              
              (1,687,197
              )
              
              (913,350
              )Deferred
                  revenue
              
              
              (242,795
              )
              
              477,593Net
                  cash used in operating activities
              
              
              (4,887,817
              )
              
              (2,986,885
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of property and equipment
              
              
              (1,497
              )
              
              (9,500
              )Net
                  cash used in investing activities
              
              
              (1,497
              )
              
              (9,500
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from the sale of common stock, net
              
              
              -
              
              
              28,766,126Proceeds
                  from exercise of options
              
              
              11,360
              
              
              972,511Payment
                  for purchase of treasury stock
              
              
              (13,260
              )
              
              -Payments
                  pursuant to financing agreements
              
              
              (339,375
              )
              
              (11,817,933
              )Dividends
                  paid
              
              
              (48,770
              )
              
              (81,250
              )Net
                  cash provided by (used in) financing activities
              
              
              (390,045
              )
              
              17,839,454





Page
          6 of 29


COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES




CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





(Continued)





Six
                  Months Ended June 30,2007
              
              2006EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              3,602
              
              
              23,754NET
                  INCREASE (DECREASE) IN CASH
              
              
              (5,275,756
              )
              
              14,866,823CASH,
                  BEGINNING OF PERIOD
              
              
              25,270,377
              
              
              7,136,854CASH
                  END OF PERIOD
              
              $
              19,994,621
              
              $
              22,003,677SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFONON-CASH
                  INVESTING ACTIVITIESAccrued
                  US Crinone Licensing Right purchase cost increase
              
              $
              1,000,000
              
              $
              -NON-CASH
                  FINANCING ACTIVITIESConversion
                  of preferred Series C&E shares
              
              $
              13,789
              
              $
              -








See
      notes
      to condensed consolidated financial statements


Page
          7 of 29


COLUMBIA
      LABORATORIES, INC. AND SUBSIDIARIES


NOTES
      TO CONDENSED CONSOLIDATED
      FINANCIAL STATEMENTS


(Unaudited)





(1)
      SIGNIFICANT ACCOUNTING POLICIES :





The
      significant accounting policies followed for interim financial reporting are
      the
      same as those disclosed in Note (1) of the Notes to Consolidated Financial
      Statements included in the Company's Annual Report on Form 10-K for the fiscal
      year ended December 31, 2006.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation
      of FASB Statement No. 109.” FIN 48 provides detailed guidance for the financial
      statement recognition, measurement and disclosure of uncertain tax positions
      recognized in the financial statements in accordance with SFAS No. 109. Tax
      positions must meet a “more-likely-than-not” recognition threshold at the
      effective date to be recognized upon the adoption of FIN 48 and in subsequent
      periods. Upon the adoption of FIN 48, the Company had no unrecognized tax
      benefits. During the six months ended June 30, 2007, the Company recognized
      no
      adjustments for uncertain tax benefits.





Income
      taxes are computed using the asset and liability method of accounting. Under
      the
      asset and liability method, a deferred tax asset or liability is recognized
      for
      estimated future tax effects attributable to temporary differences and
      carryforwards. The measurement of deferred income tax assets is adjusted by
      a
      valuation allowance, if necessary, to recognize future tax benefits only to
      the
      extent, based on available evidence; it is more likely than not that such
      benefits will be realized. The Company’s deferred tax assets were fully reserved
      at June 30, 2007 and December 31, 2006.





The
      Company recognizes interest and penalties, if any, related to uncertain tax
      positions in general and administrative expenses. No interest and penalties
      related to uncertain tax positions were accrued at June 30, 2007.





The
      Company has not been audited by the IRS to date. However, the Company expects
      no
      material changes to unrecognized tax positions within the next twelve
      months.





(2)
      SALES RETURN RESERVES:





Revenues
      from the sale of products are recorded at the time goods are shipped to
      customers. The Company believes that it has not made any shipments in excess
      of
      its customers' ordinary course of business inventory levels. Our return policy
      allows product to be returned for a period beginning three months prior to
      the
      product expiration date and ending twelve months after the product expiration
      date. Provisions for returns on sales to wholesalers, distributors and retail
      chain stores are estimated based on a percentage of sales, using such factors
      as
      historical sales information, distributor inventory levels and product
      prescription data, and are recorded as a reduction to sales in the same period
      as the related sales are recognized. We also continually analyze the reserve
      for
      future sales returns and adjust such reserve if deemed appropriate. The Company
      purchases prescription data on all of its products from IMS Health, a leading
      provider of market information to the pharmaceutical and healthcare industries.
      The Company also purchases certain information regarding inventory levels from
      its largest wholesale customer. This information includes, for each of the
      Company’s products, the quantity on hand, the number of days of inventory on
      hand and a 28-day forecast of sales by units. Using this information and
      historical information, the Company estimates potential returns by taking the
      number of product units sold by the Company by expiration date and then
      subtracting actual units and potential units that may be sold to end users
      (consumers) based on prescription data up to five months prior to the product’s
      expiration date. The Company assumes that our customers are using the first-in,
      first-out method in filling orders so that the oldest saleable product is used
      first. The Company also assumes that our customers will not ship product that
      has expiration dating of less than six months to a retail pharmacy, but that
      retail pharmacies will continue to dispense product they have on hand until
      two
      months prior to the product’s expiration date. The Company’s products are used
      by the consumer immediately so no shelf life is needed. Retail pharmacies tend
      not to maintain a large supply of our products in their inventory, so they
      order
      on an ‘as needed’ basis. The Company also subtracts units that have already been
      returned or, based on notifications received from customers, will be returned.
      The Company then records a provision for returns on a quarterly basis using
      an
      estimated rate and adjusts the provision if the above analysis indicates that
      the potential for product non-saleability exists.


Page
          8 of 29





An
      analysis of the reserve for sales returns is as follows:





Six
                months ended
            
            Six
                months endedJune
                30,
            
            June
                30,2007
            
            2006Balance
                at beginning of year
            
            $
            1,240,235
            
            $
            745,882Provision:Related
                to current period sales
            
            
            231,101
            
            
            90,655Related
                to prior period sales
            
            
            264,683
            
            
            530,213495,784
            
            
            620,868Returns:Related
                to prior period sales
            
            
            746,977
            
            
            561,759Balance
                at end of quarter
            
            $
            989,042
            
            $
            804,991





The
      Company believes that the greatest potential for uncertainty in estimating
      sales
      returns is the estimation of future prescriptions. They are wholly dependent
      on
      the Company’s ability to market the products. If prescriptions are lower in
      future periods, then the current reserve will be inadequate.





(3)
      INVENTORIES:





Inventories
      consisted of the following:




June
                  30,
              
              December
                  31,2007
              
              2006Finished
                  goods
              
              $
              1,351,860
              
              $
              1,305,872Raw
                  materials
              
              
              832,680
              
              
              799,166$
              2,184,540
              
              $
              2,105,038





Page
          9 of 29








(4)
      Intangibles:





On
      December 22, 2006, the Company acquired the US rights to Crinone. The cost
      of
      the acquisition was $33,000,000 in cash and is being amortized over a 6.75-year
      period. On April 1, 2007, the Company recorded a liability from the contract
      with Merck Serono that it had an obligation for certain sales returns associated
      with sales made by Merck Serono. The Company recorded the estimated liability
      of
      $1,000,000 as an increase in the purchase price that is being amortized over
      the
      remaining term of the license.





(5)
      FINANCING AGREEMENTS:





In
      an
      agreement dated July 31, 2002, Quintiles Transnational Corp.’s (“Quintiles”)
      strategic investment group, PharmaBio Development, Inc. (“PharmaBio”) agreed to
      pay the Company $4.5 million in four equal quarterly installments commencing
      in
      the third quarter of 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%. $0.2 million and $0.2 million were recorded as interest expense
      for the three months ended June 30, 2007 and June 30, 2006, respectively and
      $0.4 million and $0.4 million were recorded as interest expense for the six
      months ended June 30, 2007 and June 30, 2006, respectively. The Company has
      paid
      PharmaBio $3.9 million under this agreement through June 30, 2007. This
      agreement matures in December 2007 with a final payment due in
      2008.





In
      an
      agreement dated March 5, 2003, PharmaBio agreed to pay the Company $15
      million in five quarterly installments commencing 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 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 received by the Company, the Company
      has recorded the amounts received as liabilities. The excess of the minimum
      ($30
      million) to be paid by the Company over the $15 million received by the Company
      is being recognized as interest expense over the seven-year term of the
      agreement, assuming an interest rate of 10.67%. $0.5 million and $0.5 million
      were recorded as interest expense for the quarters ended June 30, 2007 and
      June
      30, 2006, respectively. For the
      six months ended June 30, 2007 and 2006, the interest expense was $1.1 and
      $1.0
      million respectively. The
      agreement called for a true-up payment on November 14, 2006 equal to the difference
      between royalties paid through and for the third quarter of 2006, and $13
      million. On April 14, 2006, the Company entered into a letter agreement (the
      “Letter Agreement”) with PharmaBio pursuant to which the Company agreed to pay
      approximately $12 million of this true-up payment seven months early.
      Accordingly, on April 14, 2006, the Company paid PharmaBio $11.6 million (the
      “Early Payment”), which was the present value of a November 14, 2006 $12 million
      true-up payment using a six percent (6%) annual discount factor. In
      consideration of such payment, PharmaBio agreed that PharmaBio was deemed to
      have received on account of that payment $12 million for purposes of the true-up
      payment. Although the Company paid and recorded approximately $0.4 million
      less
      in interest expense during 2006 due to this early payment, for accounting
      purposes, the payment resulted in a non cash loss of approximately $0.3 million
      during the second quarter of 2006. The Company has paid PharmaBio $13.0 million
      under this agreement through June 30, 2007. This agreement matures in September
      2010 with a final payment due in November 2010.




Long
      term
      l iabilities
      from financing agreements consisted of the following:


Page
          10 of
          29




June
                  30,
              
              December
                  31,2007
              
              2006July
                  31, 2002 financing agreement
              
              $
              3,623,712
              
              $
              3,485,672March
                  5, 2003 financing agreement
              
              
              9,306,070
              
              
              8,298,05212,929,782
              
              
              11,783,724Less:
                  current portion
              
              
              3,800,806
              
              
              553,947$
              9,128,976
              
              $
              11,229,777




(6)
      NOTES PAYABLE:





On
      December 22, 2006, the Company raised approximately $40 million in gross
      proceeds to the Company from the sale of convertible subordinated notes to
      a
      group of institutional investors. The notes bear interest at a rate of 8% per
      annum, are subordinated to the PharmaBio financing agreements and mature on
      December 31, 2011. They are convertible into a total of approximately 7.6
      million shares of common stock, par value of $.01 per share (“Common Stock”) at
      a conversion price of $5.25. Investors also received warrants to purchase
      2,285,714 shares of Common Stock at an exercise price of $5.50 per share. The
      warrants became exercisable on June 19, 2007, and expire on December 22, 2011
      unless earlier exercised or terminated. The Company used the proceeds of this
      offering to acquire from Ares Trading S.A. (“Merck Serono”) the U.S. marketing
      rights to CRINONE ® for $33
      million and purchased Merck Serono’s existing inventory of that product. The
      balance of the proceeds was used to pay other costs related to the transaction
      and for general corporate purposes. The Company filed a registration statement
      with the SEC to register for resale the shares of Common Stock issuable upon
      the
      conversion of the notes and the exercise of the warrants, which registration
      statement was declared effective on April 17, 2007.





We
      recorded original issue discount of $6.3 million to the notes based upon the
      fair value of warrants granted. In addition, beneficial conversion features
      totaling $8.5 million have been recorded as a discount to the notes and
      warrants. These discounts are being amortized at an imputed rate over the five
      year term of the related notes. For the three and six month periods ended June
      30, 2007, $0.6 million and $1.1 million of amortization related to these
      discounts is classified as interest expense in our condensed consolidated
      statements of operations. Unamortized discounts of $13.6 million have been
      reflected as a reduction to the face value of the convertible notes in our
      condensed consolidated balance sheet as of June 30, 2007.





(7)
      COMMON STOCK





During
      the six months ended June 30, 2007 1,744,838 shares of Common Stock were issued.
      2,075 shares of series C convertible preferred stock were converted to 1,564,548
      shares of Common Stock. 258 shares of series E convertible preferred stock
      were
      converted into 12,900 shares of Common Stock. 159,390 shares of restricted
      stock
      were issued to employees and directors of the Company, and 8,000 options were
      exercised. Also during the three months ended June 30, 2007, 6,000 treasury
      shares were acquired for $13,260.





On
      March
      10, 2006, the Company entered into a Securities Purchase Agreement with certain
      investors for the private placement of 7,428,220 shares of the common stock,
      at
      a price of $4.04 per share, and warrants to purchase 1,857,041 shares of Common
      Stock (the “Warrants”). The gross proceeds from the sale of the Shares were
      approximately $30 million. The Warrants are exercisable for Common Stock at
      $5.39 per share beginning on September 9, 2006, and expiring on March 11, 2011.
      The exercise price and number of shares issuable upon exercise of the Warrants
      are subject to adjustment in the event of stock split, stock dividend,
      recapitalization, reclassification, combination or exchange of shares,
      reorganization, liquidation, dissolution, consolidation, or merger. Pursuant
      to
      the Securities Purchase Agreement, the Company filed within 30 days, a
      registration statement with the SEC to register for resale the Shares and the
      shares of Common Stock issuable upon the exercise of the Warrants, which
      registration statement was declared effective on April 14, 2006.


Page
          11 of
          29











(8)
      GEOGRAPHIC INFORMATION:





The
      Company and its subsidiaries are engaged in one line of business, the
      development and sale of pharmaceutical products. In certain foreign countries
      these products may be classified as medical devices or cosmetics by those
      countries’ regulatory agencies. The following table shows selected unaudited
      information by geographic area:





Net
              
              Profit
                  (loss) from
              
              IdentifiableRevenues
              
              Operations
              
              AssetsAs
                  of and for the six monthsended
                  June 30, 2007United
                  States
              
              $
              6,985,402
              
              $
              (6,222,498
              )
              $
              52,566,594Europe
              
              
              6,986,232
              
              
              2,514,747
              
              
              7,961,989$
              13,971,634
              
              $
              (3,707,751
              )
              $
              60,528,583As
                  of and for the six monthsended
                  June 30, 2006United
                  States
              
              $
              5,016,298
              
              $
              (6,066,893
              )
              $
              21,350,900Europe
              
              
              5,052,192
              
              
              1,994,720
              
              
              7,939,801$
              10,068,490
              
              $
              (4,072,173
              )
              $
              29,290,701As
                  of and for the three monthsended
                  June 30, 2007United
                  States
              
              $
              3,576,763
              
              $
              (3,066,017
              )Europe
              
              
              3,710,251
              
              
              1,200,762$
              7,287,014
              
              $
              (1,865,255
              )As
                  of and for the three monthsended
                  June 30, 2006United
                  States
              
              $
              2,964,606
              
              $
              (2,975,544
              )Europe
              
              
              2,558,507
              
              
              1,050,508$
              5,523,113
              
              $
              (1,925,036
              )





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          12 of
          29


(9)
      INCOME (LOSS) PER COMMON AND POTENTIAL COMMON SHARE:





The
      calculation of basic and diluted loss per common and common equivalent share
      is
      as follows:




Six
                  Months Ended
              
              Three
                  Months EndedJune
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Net
                  loss
              
              $
              (7,512,522
              )
              $
              (5,223,917
              )
              $
              (3,783,357
              )
              $
              (2,477,595
              )Less:
                  Preferred stock dividends
              
              
              (48,770
              )
              
              (81,250
              )
              
              (14,707
              )
              
              (40,625
              )Net
                  loss applicable tocommon
                  stock
              
              $
              (7,561,292
              )
              $
              (5,305,167
              )
              $
              (3,798,064
              )
              $
              (2,518,220
              )Basic
                  and diluted:Weighted
                  average number ofcommon
                  shares outstanding
              
              
              50,713,299
              
              
              46,467,128
              
              
              51,342,528
              
              
              49,555,297Basic
                  and diluted net loss per common share
              
              $
              (0.15
              )
              $
              (0.11
              )
              $
              (0.07
              )
              $
              (0.05
              )





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,
      convertible notes, convertible preferred stock, and other potential Common
      Stock
      outstanding during the period. Shares to be issued upon the exercise of the
      outstanding options and warrants or the conversion of the convertible notes
      and
      preferred stock are not included in the computation of diluted loss per share
      as
      their effect is anti-dilutive. Shares to be issued upon the exercise of the
      outstanding options and warrants or the conversion of the convertible notes
      and
      preferred stock excluded from the calculation amounted to 21,506,406 and
      11,821,413 at June 30, 2007 and 2006, respectively.





(10)
      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 the Company’s financial position or results of
      operations. 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.





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          29











(11)
      STOCK-BASED COMPENSATION:





As
      a
      result of the adoption of SFAS No. 123R, the Company’s net loss for the three
      months ended June 30, 2007 and June 30, 2006 includes $0.3 million and $0.3
      million, respectively, of compensation expense and for the six months ended
      June
      30, 2007 and 2006, the compensation expense was $1.0 million and $0.4 million,
      respectively. The compensation expense related to all of the Company’s
      stock-based compensation arrangements is recorded as a component of cost of
      revenues, selling, general administrative, and research and development
      expenses.




(12)
      RECENT ACCOUNTING PRONOUNCEMENTS:





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.










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          14 of
          29


**Item
      2. 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. The MD&A is
      provided as a supplement to, and should be read in conjunction with, our
      financial statements and the accompanying notes thereto.




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




Our
      U.S.
      sales organization currently promotes
      three natural progesterone gel products, CRINONE ® 8%,
      PROCHIEVE ® 8% and
      PROCHIEVE 4%. We acquired the U.S. marketing rights to CRINONE in December
      2006,
      enabling us to address the full range of reproductive endocrinologists,
      obstetricians and gynecologists who treat infertility in 2007 and beyond. We
      also promote STRIANT ® (testosterone buccal system) for the treatment of hypogonadism in men. However, our
      focus
      in fiscal 2007 is to increase prescriptions
      of, and revenues from, our infertility products.




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




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




Our
      net
      loss for 2006 was $ 12.6 million, or $0.27 per basic and diluted common share.
      We expect to continue to incur operating losses in the near future principally
      because of the significant non-cash items related to the CRINONE ® acquisition that our future financial statements will reflect. Our sales and
      distribution expenses will be higher in 2007 than in 2006 in order to fund
      market research and medical education programs critical to our growth strategy.
      In 2007, we expect our research and development expenses will be lower than
      those in 2006 as we focus on the streamlined clinical development of vaginal
      lidocaine for dysmenorrhea and look to begin a Phase III trial with PROCHIEVE
      8%
      to reduce the risk of preterm birth in women with a short cervix at
      mid-pregnancy.





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          15 of
          29





**Results
      of Operations - Six Months Ended June 30, 2007 compared with Six Months Ended
      June 30, 2006**


Progesterone
      Products are:


·
            CRINONE®8%
                (progesterone gel) marketed by the Company in the
                U.S.;


·
            CRINONE®8%
                sold to Merck Serono for foreign
                markets;


·
            PROCHIEVE®8%
                (progesterone gel); and,


·
            PROCHIEVE®4%
                (progesterone gel).





Other
      Products/Revenue are:


·
            STRIANT®(testosterone buccal system) marketed by the Company in the U.S.


·
            STRIANT®sold to our partners for foreign markets;


·
            Replens®Vaginal Moisturizer sold to Lil’ Drug Store Products, Inc. (“Lil’ Drug
                Store”) for foreign markets;


·
            RepHresh®Vaginal Gel sold to Lil’ Drug Store on a worldwide basis;
                and,


·
            Royalty
                and licensing revenues.





Net
      revenues increased 39% in the six months ended June 30, 2007 to $14.0 million
      as
      compared to $10.1 million in the six months ended June 30, 2006.




Revenues
      from Progesterone Products increased 35% to $9.0 million in the six months
      ended
      June 30, 2007 as compared to $6.7 million in the six months ended June 30,
      2006,
      primarily as a result of the addition of the U.S. CRINONE sales generated by
      the
      Company under marketing rights purchased from Merck Serono in December 2006,
      partially offset by the semi-annual batch purchase by Merck Serono of $1.6
      million in the second quarter of 2006. The Company continues to reduce trade
      inventories of PROCHIEVE to achieve demand status. Revenues from Other Products
      increased 47% to $5.0 million in the six months ended June 30, 2007 as compared
      to $3.4 million in the six months ended June 30, 2006, primarily as a result
      of
      the increase in orders of RepHresh and STRIANT.





Gross
      profit as a percentage of revenues was 65% in the six months ended June 30,
      2007
      and 58% in the six months ended June 30, 2006. The
      seven
      percentage point increase in gross profit percentage from 2006 to 2007 was
      the
      result of the change in product mix to the higher margin CRINONE sales,
      including the elimination of royalty expense formerly recognized under the
      license agreement with Merck Serono. In 2006, cost of goods sold for PROCHIEVE
      included a 30% royalty on net sales paid to Merck Serono that was terminated
      simultaneously with the December 2006 acquisition of the U.S. rights to CRINONE.
      Other Products have a significantly lower gross margin than the progesterone
      products, and therefore the 47% revenue increase in that category had the effect
      of lowering the overall gross profit margin.





Selling
      and distribution expenses increased 25%, to $4.1 million, in the six months
      ended June 30, 2007, as compared to $3.2 million in the six months ended June
      30, 2006. The primary reason for the increase was an increase in market research
      and marketing expenses to aid the Company in marketing CRINONE. Additional
      expenses included market research on the preterm market, including recurrent
      preterm birth and a new potential indication for PROCHIEVE 8%, the reduction
      of
      the risk of preterm birth in women with a short cervix at mid-pregnancy. Selling
      and distribution expenses include payroll, employee benefits, equity
      compensation and other personnel-related costs associated with sales and
      marketing personnel, and advertising, market research, market data capture,
      promotions, tradeshows, seminars, other marketing-related programs and
      distribution costs. For the six months ended June 30, 2007, sales force and
      management costs were $2.3 million compared with $2.1 million for the same
      period in 2006. Market research costs in the six months of 2007 were $1.6
      million compared with $0.8 million for the same period in 2006. Other sales
      and
      marketing costs were approximately $0.2 million and $0.3 million in the six
      months of 2007 and 2006, respectively.


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          16 of
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General
      and administrative expenses include
      payroll, employee benefits, equity compensation and other personnel-related
      costs associated with the finance, legal, regulatory affairs, information
      technology, facilities, certain human resources and other administrative
      personnel, as well as legal costs and other administrative fees. General and
      administrative expenses increased 16%, to $3.9 million, in the six months ended June 30, 2007 as
      compared to $3.3 million in the six months ended June 30, 2006. The increase
      in
      2007 expenses is primarily the result of an increase in stock option expense
      of
      $0.6 million in the six months over the prior year. The Company made its annual
      grant of stock options to employees and
      the
      issuance of
      retention grants in February 2007 and 25% of the options granted were vested
      immediately. The impact of the immediate vesting accounted for approximately
      $0.2 million of the increase.





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 decreased 30% to $2.4 million in
      the
      six months ended June 30, 2007 as compared to $3.4 million in the six months
      ended June 30, 2006. The decrease is primarily related to the completion in
      early 2007 of the Company’s Phase III trial for PROCHIEVE 8% for preventing
      recurrent preterm birth.





The
      Company purchased the marketing rights for U.S. sales of CRINONE 8% from Merck
      Serono in December 2006 for $33 million. In the second quarter of 2007, the
      Company recognized a $1 million adjustment to the purchase price to reflect
      contingent liabilities for Merck Serono sales returns. The total $34 million
      non-cash charge is being amortized over 6.75 years. Amortization expense of
      the
      acquisition cost for the CRINONE U.S. marketing rights for the six months ended
      June 30, 2007 was $2.5 million compared to $0.0 for the comparable period in
      2006.





Other
      income/expense for the six months ended June 30, 2007 consisted primarily of
      interest expense of $4.3 million associated with the $40 million convertible
      note financing completed in December 2006 and the financing agreements with
      PharmaBio. Interest expense for the six months ended June 30, 2006, was $1.2
      million.





As
      a
      result, the net loss for the six months ended June 30, 2007, was $7.5 million
      or
      $(0.15) per common share, as compared to the net loss for the six months ended
      June 30, 2006, of $5.2 million, or $(0.11) per common share.





**Results
      of Operations - Three Months Ended June 30, 2007 versus Three Months Ended
      June
      30, 2006**








Net
      revenues increased 32% in the three months ended June 30, 2007, to $7.3 million,
      as compared to $5.5 million in the three months ended June 30, 2006.




Revenues
      from Progesterone Products increased 23%, to $4.3 million, in the three months
      ended June 30, 2007, as compared to $3.5 million in the three months ended
      June
      30, 2006, primarily as a result of the addition of the U.S. CRINONE sales
      generated by the Company under the marketing rights purchased from Merck Serono
      in December 2006, partially offset by the semi-annual batch purchase by Merck
      Serono of $1.6 million in the second quarter of 2006. The Company continues
      to
      reduce trade inventories of PROCHIEVE to achieve true demand status. Revenues
      from other products increased 46%, to $3.0 million, in the three months ended
      June 30, 2007, as compared to $2.1 million in the three months ended June 30,
      2006, primarily as a result of the increase in orders of RepHresh and
      STRIANT.


Page
          17 of
          29





Gross
      profit as a percentage of revenues was 62% in the three months ended June 30,
      2007, and 58% in the three months ended June 30, 2006. The
      four
      percentage point increase in gross profit percentage from 2006 to 2007 was
      the
      result of the change in product mix to the higher margin CRINONE sales including
      the elimination of royalty expense formerly recognized under the license
      agreement with Merck Serono. In 2006, cost of goods sold for PROCHIEVE included
      a 30% royalty on net sales paid to Merck Serono that was terminated
      simultaneously with the December 2006 acquisition of the U.S. rights to CRINONE.
      Other Products have a significantly lower gross margin than the Progesterone
      Products, and therefore the 46% revenue increase had the effect of lowering
      the
      overall gross profit margin.





Selling
      and distribution expenses increased 24% to $2.2 million in the three months
      ended June 30, 2007, as compared to $1.7 million in the three months ended
      June
      30, 2006. The primary reason for the increase was an increase in market research
      expenses to aid the Company in marketing CRINONE 8%. Additional expenses
      included market research on the preterm market, including recurrent preterm
      birth and a new potential indication for PROCHIEVE 8% to reduce the risk of
      preterm birth in women with a short cervix at mid-pregnancy. Selling and
      distribution expenses include payroll, employee benefits, equity compensation
      and other personnel-related costs associated with sales and marketing personnel,
      and advertising, market research, market data capture, promotions, tradeshows,
      seminars, other marketing-related programs and distribution costs. In the three
      months ended June 30, 2007, sales force and management costs were $1.2 million
      compared to $1.1 million in the three months ended June 30, 2006. Market
      research costs for the three months ended June 30, 2007 and 2006 were $0.9
      million and $0.4 million, respectively. Other sales and marketing costs
      approximated $0.2 million in 2007 and $0.1 million in 2006.





General
      and administrative expenses include payroll, employee benefits, equity
      compensation and other personnel-related costs associated with the finance,
      legal, regulatory affairs, information technology, facilities, certain human
      resources and other administrative personnel, as well as legal costs and other
      administrative fees. General and administrative expenses increased 9% to $1.9
      million in the three months ended June 30, 2007, as compared to $1.8 million
      in
      the three months ended June 30, 2006.





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 decreased 39%, to $1.0 million,
      in
      the three months ended June 30, 2007, as compared to $1.6 million in the three
      months ended June 30, 2006. The decrease is primarily related to the completion
      in early 2007 of the Company’s Phase III trial for PROCHIEVE 8% for preventing
      recurrent preterm birth. In 2006, a significant number of patients received
      treatment in the trial.





The
      Company purchased the marketing rights for U.S. sales of CRINONE 8% from Merck
      Serono in December of 2006 for $33 million. In the second quarter of 2007,
      the
      Company recognized a $1 million adjustment to the purchase price to reflect
      contingent liabilities for Merck Serono sales returns. The $34 million total
      non-cash charge is being amortized over 6.75 years. Amortization expense of
      the
      acquisition cost for the CRINONE U.S. marketing rights for the quarter ended
      June 30, 2007 was $1.3 million compared to $0.0 for the comparable period in
      2006.





Other
      income/expense for the quarter ended June 30, 2007, consisted primarily of
      interest expense of $2.2 million associated with the $40 million convertible
      note financing completed in December 2006 and the financing agreements with
      PharmaBio. Interest expense for the quarter ended June 30, 2006 was $0.5
      million.





As
      a
      result, the net loss for the three months ended June 30, 2007, was $3.8 million,
      or $(0.07) per common share, as compared to the net loss for the three months
      ended June 30, 2006 of $2.5 million, or $(0.05) per common share.





Page
          18 of
          29


**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents were $20.0 and $25.3 million at June 30, 2007 and December
      31,
      2006, respectively.







Cash
      provided by (used in) operating, investing and financing activities is
      summarized as follows:





Six
                Months EndedJune
                30, 20072007
            
            2006Cash
                flows:Operating
                activities
            
            (4,887,816)
            
            (2,986,885)Investing
                activities
            
            (1,497)
            
            (9,500)Financing
                activities
            
            (390,045)
            
            17,839,454





Operating
      Activities:





Net
      cash
      used in operating activities for the six months ended June 30, 2007 resulted
      primarily from increases in working capital. The net loss of $7.5 million
      included non-cash items for depreciation, amortization, stock-based
      compensation, provision for sales returns and non-cash interest expense, which
      totals $6.7 million in aggregate, leaving a net cash loss, net of non-cash
      items, of $0.8 million for the six months ended June 30, 2007. Accounts
      receivable increased by $1.9 million as a result of the increased sales during
      the 2007 six month period. Inventories also grew by $0.1 million during the
      period to cover CRINONE and STRIANT demands. Accounts payable and accrued
      expenses decreased by $0.5 million and $1.7 million, respectively. The reduction
      in accrued expenses related to: additional payments for royalty of $0.5 million,
      bonuses in the amount of $0.3 million, sales returns of $0.3 million, and
      miscellaneous expenses, and interest.





Net
      cash
      used in operating activities in the 2006 period resulted primarily from the
      net
      loss ($5.2 million), net of non-cash items amounting to $3.0 million, resulting
      in a $2.2 million net cash loss. Changes in assets and liabilities used $0.8
      million in cash flow, leaving net cash usage of $3.0 million from operations
      for
      the six months of 2006.





Investing
      activities:





Net
      cash
      used in investing activities in the 2006 period was primarily attributable
      to
      the purchase of office equipment.





Financing
      Activities:





Net
      cash
      used in financing activities in 2007 of $0.4 million represents payments under
      financing agreements with PharmaBio during the period and Series C preferred
      share dividends.





Net
      cash
      provided by financing activities in 2006 of $17.8 million was attributable
      to
      the receipt of $28.8 million in net proceeds from the issuance of Common Stock
      and $1.0 million from the exercise of stock options. Payments to PharmaBio
      and
      dividend payments totaled $11.8 million





The
      Company has an effective shelf registration statement pursuant to which we
      may
      offer from time to time shares of our Common Stock up to an aggregate amount
      of
      $75 million. As of June 30, 2007, the Company has sold approximately $56.4
      million 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 product candidates.


Page
          19 of
          29








In
      connection with the 1989 purchase of the assets of Bio-Mimetics, Inc., which
      assets consisted of certain patents underlying the Company’s bioadhesive
      delivery system,”BDS”, other patent applications and related technology, the
      Company pays Bio-Mimetics, Inc. a royalty equal to two percent (2%) of the
      net
      sales of products based on the assets purchased from Bio-Mimetics, Inc., up
      to
      an aggregate of $7.5 million or until the last of the relevant patents expire.
      The Company is required to prepay 25% of the remaining maximum royalty
      obligation, in cash or shares of Common Stock at the option of the Company,
      within 30 days of March 2 or any year in which the closing price on that date
      of
      the Company’s Common Stock on any national securities exchange is $20 or more.
      Through June 30, 2007, the Company has paid approximately $3.9 million in
      royalty payments to Bio-Mimetics. Since certain of the patents purchased from
      Bio-Mimetics, Inc. expired in September 2006, royalties on CRINONE, PROCHIEVE,
      and STRIANT products are no longer due to Bio-Mimetics, Inc.





As
      of
      June 30, 2007, the Company had outstanding exercisable options and warrants
      that, if exercised, would result in approximately $60.5 million of additional
      capital and would cause the number of shares of Common Stock outstanding to
      increase. However, there can be no assurance that any such options or warrants
      will be exercised.





Significant
      expenditures anticipated by the Company in the near future are concentrated
      on
      research and development related to new products and new indications for
      currently approved products.





As
      of
      June 30, 2007, the Company had available net operating loss carryforwards of
      approximately $129 million to offset its 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
      June
      30, 2007 and December 31, 2006, other assets in the accompanying condensed
      consolidated balance sheets include deferred tax assets of approximately $48
      and
      $48.6 million, respectively (comprised primarily of a net operating loss
      carryforward), for which a full valuation allowance has been recorded since
      the
      realizability of the deferred tax assets is not determinable.





**Contractual
      Obligations, Commercial Commitments and Off-Balance Sheet
      Arrangements**





The
      Company’s contractual obligations, commercial commitments and off-balance sheet
      arrangements disclosures in its Annual Report on Form 10-K for the year ended
      December 31, 2006 have not materially changed since that report was
      filed.





**Recent
      Accounting Pronouncements**





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation
      of FASB Statement No. 109.” FIN 48 provides detailed guidance for the financial
      statement recognition, measurement and disclosure of uncertain tax positions
      recognized in the financial statements in accordance with SFAS No. 109. Tax
      positions must meet a “more-likely-than-not” recognition threshold at the
      effective date to be recognized upon the adoption of FIN 48 and in subsequent
      periods. Upon the adoption of FIN 48, the Company had no unrecognized tax
      benefits. During the first six months of 2007, the Company recognized no
      adjustments for uncertain tax benefits.


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Income
      taxes are computed using the asset and liability method of accounting. Under
      the
      asset and liability method, a deferred tax asset or liability is recognized for
      estimated future tax effects attributable to temporary differences and
      carryforwards. The measurement of deferred income tax assets is adjusted by
      a
      valuation allowance, if necessary, to recognize future tax benefits only to
      the
      extent, based on available evidence; it is more likely than not such benefits
      will be realized. The Company’s deferred tax assets were fully reserved at June
      30, 2007 and December 31, 2006.





The
      Company recognizes interest and penalties, if any, related to uncertain tax
      positions in general and administrative expenses. No interest and penalties
      related to uncertain tax positions were accrued at June 30, 2007.





The
      Company has not been audited by the IRS to date. However, the Company expects
      no
      material changes to unrecognized tax positions within the next twelve
      months.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”), which clarifies the definition of fair value, establishes guidelines for
      measuring fair value, and expands disclosures regarding fair value measurements.
      SFAS 157 does not require any new fair value measurements and eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      SFAS No. 157 is effective for fiscal years beginning after November 15, 2007
      and
      interim periods within those fiscal years. The Company is currently evaluating
      the impact of adopting SFAS 157 will have on our financial position, cash flows
      or results of operations.





**Critical
      Accounting Policies and Estimates**





The **** Company
      has identified the policies below as critical to its business operations and
      the
      understanding of its **** results
      of operations. For a detailed discussion on the application of these and other
      accounting policies, see Note 1 of the consolidated financial statements
      included in Item 15 of the Annual Report on Form 10-K for the year ended
      December 31, 2006, beginning on page F-11. Note that the preparation of this
      Quarterly Report on Form 10-Q requires the Company 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.





*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 to the strategic
      alliance partners. License fees are recognized in net sales over the term of
      the
      license.





*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 are in excess of the amount to be received by the Company, the Company
      has recorded the money received as liabilities. The excess of the minimum to
      be
      paid by the Company over the amount received by the Company is being recorded
      as
      interest expense over the terms of the agreements.


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*Stock-Based
      Compensation - Employee Stock-Based Awards.* Commencing
      January 1, 2006 the Company adopted Statement of Financial Accounting Standards
      No. 123R, “Share Based Payment” (“SFAS 123R”), which requires all share based
      payments, including grants of stock options, to be recognized in the income
      statement as an operating expense, based on their fair values. In March 2005,
      the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) providing
      supplemental implementation guidance for SFAS 123(R). The Company has applied
      the provisions of SAB 107 in its adoption of SFAS 123(R).





**Forward-Looking
      Information**





The
      Company and its representatives from time to time make written or verbal
      forward-looking statements, including statements contained in this and other
      filings with the SEC and in the Company’s reports to stockholders, which 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 clinical research programs, sales, earnings or other
      future financial performance and liquidity, product introductions, entry into
      new geographic regions and general views 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.





Although
      the Company believes its expectations are based on reasonable assumptions within
      the bounds of its knowledge of its business and operations, there can be no
      assurance that actual results will not differ materially from its expectations. Factors
      that might cause future results to differ include, but are not limited to,
      the
      following: the successful marketing of CRINONE ® 8%,
      PROCHIEVE ® 8%,
      PROCHIEVE ® 4% and
      STRIANT ® in the
      U.S.; the timing and size of orders for out-licensed products from our marketing
      partners; the timely and successful development of products,  including
      vaginal lidocaine to prevent and treat dysmenorrhea, and new indications for
      current products; the timely and successful completion of clinical studies,
      including the clinical studies for our vaginally-administered lidocaine product
      candidate and the planned Phase III study of PROCHIEVE 8% in short cervix
      patients; success in obtaining acceptance and approval of new products and
      indications for current products by the FDA and international regulatory
      agencies; the impact of competitive products and pricing; competitive economic
      and regulatory factors in the pharmaceutical and health care industry; general
      economic conditions; and other risks and uncertainties that may be detailed,
      from time to time, in the Company’s reports filed with the SEC . 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 Quarterly Report. Readers
      are advised to consult any further disclosures the Company may make on related
      subjects in subsequent Reports on Form 10-Q, 8-K, and 10-K.




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





The
      Company does not believe that it has material exposure to market rate risk.
      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.





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**Item
      4. Controls And Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





We
      maintain “disclosure controls and procedures,” as such term is defined in Rule
      13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), that are designed to ensure that information required to be disclosed by
      us in reports that we file or submit under the Exchange Act is recorded,
      processed, summarized, and reported within the time periods specified in SEC
      rules and forms, and that such information is accumulated and communicated
      to
      our management, including our Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating our disclosure controls and procedures,
      management recognized that disclosure controls and procedures, no matter how
      well conceived and operated, can provide only reasonable, not absolute,
      assurance that the objectives of the disclosure controls and procedures are
      met.
      Additionally, in designing disclosure controls and procedures, our management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible disclosure controls and procedures. The design of
      any
      disclosure controls and procedures also is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions.





Based
      on
      their evaluation as of the end of the period covered by this Quarterly Report
      on
      Form 10-Q, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective.





**Changes
      in Internal Control over Financial Reporting**





There
      was
      no change in our internal control over financial reporting that occurred during
      the period covered by this Quarterly Report on Form 10-Q that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.








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**PART
      II - OTHER INFORMATION**





**Item
      1.**  **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 for any unfavorable outcome resulting
      from these actions.





**Item 1A.
      Risk Factors**





There
      have been no material changes to the factors disclosed in Item 1A. Risk Factors
      in our Annual Report on Form 10-K for the year ended December 31,
      2006.





**Item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**





None.





**Item
      3.**  **Defaults
      upon Senior Securities**





None.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**





None.





**Item
      5.**  **Other
      Information**





None.





**Item
      6.**  **Exhibits**




(a)
              Exhibits31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive Officer of
                  the
                  Company.1/31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial Officer of
                  the
                  Company.1/32.1
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.1/32.2
              Certification
                  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.1/10.71
              Description
                  of the Registrant’s Compensation and Reimbursement Practices for
                  Non-employee Directors.1/10.72
              Columbia
                  Laboratories, Inc., Incentive Plan.1/10.73
              Lease
                  Agreement between Allwood Associates I and Columbia Laboratories,
                  Inc.,
                  dated July 6, 2007.1/1/    Filed
                  herewith.





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          24 of
          29


**SIGNATURES**








Pursuant
      to the requirements 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**/s/
                  JAMES A. MEERJAMES
                  A. MEER, Senior Vice President-Chief
                  Financial Officer and
                  Treasurer


DATE: August
      8, 2007


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