5/21/2014
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
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`CGPI > SEC Filings for CGPI > Form 10-Q on 3-Nov-2005
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`Form 10-Q for COLLAGENEX PHARMACEUTICALS INC
`
`3-Nov-2005
`Quarterly Report
`
`Item 2. Management's Discussion and Analysis of
`Financial Condition and Results of Operations.
`
`Our management's discussion and analysis of our financial condition and results of operations include the identification of certain
`trends and other statements that may predict or anticipate future business or financial results. There are important factors that could
`cause our actual results to differ materially from those indicated. See "Additional Risks That May Affect Results."
`
`Overview
`
`CollaGenex Pharmaceuticals, Inc. and subsidiaries is a specialty pharmaceutical company currently focused on developing and
`marketing innovative proprietary medical therapies to the dermatology market. We currently market three prescription pharmaceutical
`products to the dermatology market through our professional dermatology sales force. Our marketed dermatology products are
`Pandel�, a prescription corticosteroid we licensed from Altana, Inc. in May 2002, Alcortin�, a prescription topical antifungal steroid
`combination, and Novacort�, a prescription topical steroid and anesthetic. We are promoting Alcortin and Novacort to dermatology
`offices pursuant to a Promotion and Cooperation Agreement executed in June 2005 with Primus Pharmaceuticals, Inc. ("Primus").
`
`Prior to the May 2005 introduction of a third party generic version of Periostat�, our dental sales force detailed four prescription
`pharmaceutical products to the dental market. On May 20, 2005, we ceased all sales promotion activities for these products. We
`currently still generate sales from these dental products, which all treat periodontal disease and include our own product Periostat,
`as well as Atridox�, Atrisorb FreeFlow�and Atrisorb-D� (the "Atrix Products") which are licensed from Atrix Laboratories, Inc. (now
`known as QLT USA, Inc.). We had also sold a separately branded version of Periostat to United Research Laboratories, Inc./Mutual
`Pharmaceutical Company, Inc. ("Mutual") pursuant to a License and Supply Agreement executed in April 2004 as part of a settlement
`of our outstanding patent litigation with Mutual. As a result of the launch of a third party generic version of Periostat in May 2005,
`Mutual ceased purchasing product from us during June 2005. Based on data provided by a leading independent prescription tracking
`service, we estimate that Periostat's share of the 20 mg doxycycline market was approximately 19% during the month of September
`2005. We anticipate Periostat's share of the market will continue to decrease as a result of the third party introduction of a generic
`version of Periostat.
`
`In addition to our marketed products, we have a pipeline of products in clinical and pre-clinical development. These products are
`based on our two proprietary platform technologies, IMPACS� and Restoraderm�. IMPACS (Inhibitors of Multiple Proteases And
`CytokineS) are a group of compounds that demonstrate a range of anti-inflammatory activities as well as the ability to inhibit the
`breakdown of connective tissue. Periostat is our first FDA-approved IMPACS product. Periostat-MR� is a once-a-day, controlled
`release formulation of Periostat currently in a Phase III clinical trial for the treatment of adult periodontitis. We do not intend to seek
`regulatory approval or market Periostat-MR in the United States. Alliance Pharma PLC, a U.K. specialty pharmaceutical company that
`acquired our U.K. and European dental assets in
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`5/21/2014
`2004, has an option to acquire the rights to seek regulatory approval and market Periostat-MR in the U.K. and Europe.
`
`We recently completed two Phase III clinical trials for Oracea� for the treatment of rosacea, a dermatological condition. Oracea
`contains the same active ingredient and controlled delivery as Periostat-MR. We submitted our New Drug Application for Oracea to
`the FDA on August 1, 2005. In April 2005, we announced the completion of a Phase II proof-of-concept clinical trial for incyclinide
`(formerly known as COL-3), our second generation IMPACS compound, for the treatment of rosacea. In September 2005, we initiated
`a 300-patient, double-blinded, placebo-controlled, Phase II dose-finding clinical trial to evaluate the safety and efficacy of incyclinide
`for the treatment of acne.
`
`Our Restoraderm technology is a proprietary, foam-based, topical drug delivery technology that originated from a Swedish
`collaborator. We have acquired all rights, title and interest to the Restoraderm technology and have initiated the development of five
`products based on this technology. We are currently developing Restoraderm products for the treatment of acne and psoriasis.
`
`Our strategy is to become a leading developer and marketer of innovative prescription pharmaceutical products to the dermatology
`market. We intend to continue to market our current products and develop and launch new products based on our two proprietary
`platform technologies. Our core focus is on the dermatology market, although we intend to seek additional partnerships with third
`parties to develop potential uses of our technology outside of that focus.
`
`We were founded in 1992 and completed an initial public offering of our common stock in 1996. We recorded our first profit in the
`third quarter of 2002. Although we earned net income of $6.5 million and $6.4 million for the years ended December 31, 2004 and
`2003, respectively, we incurred a net loss allocable to common stockholders of $13.7 million during the nine months ended
`September 30, 2005 and we have an accumulated deficit of $78.2 million as of September 30, 2005. We do not expect to generate
`profits for the year ending December 31, 2005 or 2006.
`
`Significant Recent Developments
`
`On June 6, 2005, we announced the results of our two double-blind, placebo-controlled Phase III clinical studies for Oracea, the first
`orally administered, systemically delivered drug to treat rosacea. The two Phase III clinical trials were identical in design and
`conducted concurrently. Both studies achieved their primary endpoint by demonstrating a greater reduction in inflammatory lesion
`count from baseline for the Oracea-treated patients compared to the patients receiving placebo. In the two trials, patients receiving
`Oracea experienced a 61% and 46% mean reduction in inflammatory lesions compared to 29% and 20% mean reduction in patients
`receiving placebo.
`
`On August 1, 2005, we announced the filing of a New Drug Application with the FDA for Oracea.
`
`On October 3, 2005, we announced that the New Drug Application for Oracea had been accepted for review by the FDA. The
`Prescription Drug User Fee Act (PDUFA) target date for reviewing the submission is May 30, 2006.
`
`On August 2, 2005, the results from a Phase II clinical trial evaluating incyclinide as a treatment for rosacea were presented. The
`Phase II trial was designed to establish proof of principle for incyclinide as a potential treatment for a dermatologic condition. In this
`double-blind, placebo-controlled clinical trial, patients were administered either incyclinide or placebo once a day for 28 days. The
`study achieved its primary endpoint, demonstrating a statistically significant, greater reduction in inflammatory lesion count from
`baseline for the incyclinide treated patients compared to patients on placebo.
`
`On August 3, 2005, we announced that the United States Patent and Trademark Office had published on its website that U.S. Patent
`Application, serial no. 10/117,709, had been allowed. This patent covers the use of sub-antimicrobial tetracyclines, including Oracea,
`and non-antimicrobial tetracyclines, including incyclinide, for the treatment of acne and acne rosacea. This patent application has a
`priority date of April 5, 2002 and an expiration date 20 years from that date.
`
`On September 26, 2005, we announced the initiation of a Phase II, double-blind, placebo-controlled, dose-finding clinical trial to
`evaluate the safety and efficacy of incyclinide. This trial will enroll approximately 300 patients with moderate to severe acne at 20
`investigational centers throughout the United States. The trial will evaluate three dosage strengths of incyclinide and a placebo over a
`12-week period with the objective of determining an optimal dose for Phase III testing. We anticipate that the results of the trial will be
`available in the fourth quarter of 2006.
`
`Results of Operations
`
`Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
`
`Revenues
`
`Revenues
`(dollars in thousands) 2005 Change 2004
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`Net Product Sales $ 4,298 (60.9 )% $ 10,991
`Contract and License Revenues 202 140.5 % 84
`Total $ 4,500 (59.4 )% $ 11,075
`
`The decrease in net product sales during the three months ended September 30, 2005 was primarily due to the launch of a third
`party generic competitor to Periostat in May 2005. During the third quarter of 2005, Periostat accounted for 22% of the total dispensed
`prescriptions for the 20 mg doxycycline market compared to the 100% market share held by Periostat and Mutual's branded version
`of Periostat supplied by us in the third quarter of 2004. Contract and license revenues during the third quarter of 2005 were derived
`from residual contract revenues from our expired agreement with Merck & Co., Inc. for Vioxx�, contract revenues from our Promotion
`
`and Cooperation Agreement with Primus and international licensing revenues for Periostat. During the third quarter of 2004, contract
`and license revenues were derived from residual revenues from our expired agreement with Merck and international licensing fees
`for Periostat. The increase in contract and license revenues in the third quarter of 2005 compared to the third quarter of 2004 was
`due primarily to our Promotion and Cooperation Agreement with Primus, initiated in June 2005.
`
`Cost of Product Sales
`
`Cost of Product Sales
`(dollars in thousands) 2005 Change 2004
`Cost of Product Sales $ 852 (44.6 )% $ 1,537
`Percent of Net Product Sales 19.8 % N/A 14.0 %
`
`Cost of product sales includes product packaging, third party royalties, amortization of product licensing fees, and the costs
`associated with the manufacturing, storage and stability of Periostat, Mutual's branded version of Periostat, Pandel and the Atrix
`Products, as well as charges taken to reflect a decrease in inventory carrying value, if any.
`
`The decrease in cost of products sales was primarily the result of lower net product sales. The increase in cost of product sales as a
`percent of net product sales was due to a higher absorption of fixed overhead costs over a smaller net product sales base as well as
`a change in product mix.
`
`Research and Development
`
`Research and Development
`(dollars in thousands) 2005 Change 2004
`Research and development $ 3,942 81 % $ 2,178
`
`Research and development expenses consist primarily of funds paid to third parties for the provision of services and materials for
`drug development, including milestone fees, manufacturing and formulation enhancements, clinical trials, statistical analysis and
`report writing and regulatory compliance costs.
`
`Significant development projects conducted during the three months ended September 30, 2005 included:
`
`� our continuing clinical and manufacturing development work for Oracea, our once daily, controlled release formulation of
`doxycycline, 40 mg, for the treatment of rosacea, which accounted for total costs of approximately $2.0 million;
`
`� our clinical and manufacturing development work for incyclinide, a second generation IMPACS compound, totaling $820,000;
`
`� stability testing and formulation costs for two potential products utilizing our
`
`Restoraderm technology, which accounted for total costs of approximately $236,000; and
`
`� our continuing clinical and manufacturing development and formulation work for Periostat-MR, our once daily, controlled release
`formulation of doxycycline, 40 mg, for the treatment of adult periodontitis, which accounted for total costs of approximately $313,000.
`
`We estimate that if Oracea, incyclinide and our Restoraderm acne and psoriasis products are developed to the point of
`commercialization, the additional formulation and clinical development expenses and milestones fees expected to be incurred over
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`5/21/2014
`the next five years would be approximately $30.0 to $35.0 million.
`
`Significant development projects conducted during the three months ended September 30, 2004 included:
`
`� our continuing clinical and manufacturing development work for Oracea, our once daily, controlled release formulation of
`doxycycline, 40 mg, for the treatment of rosacea, which accounted for total costs of approximately $443,000; and
`
`� our continuing clinical and manufacturing development and formulation work for Periostat-MR, our once daily, controlled release
`formulation of doxycycline, 40 mg, for the treatment of adult periodontitis, which accounted for total costs of approximately $601,000;
`and
`
`� in-process research and development charges resulting from the purchase of Restoraderm, milestone, formulation and stability
`testing costs for two potential products utilizing our Restoraderm technology, which accounted for total costs of approximately
`$530,000.
`
`Selling, General and Administrative
`
`Selling, General and Administrative
`(dollars in thousands) 2005 Change 2004
`Selling, General and Administrative $ 4,918 (22.4 )% $ 6,341
`
`Selling, general and administrative expenses consist primarily of personnel salaries and benefits, direct marketing costs,
`professional, legal and consulting fees, insurance and general office expenses.
`
`Significant components of selling, general and administrative expenses incurred during the three months ended September 30,
`2005 included approximately $2.1 million in direct selling and sales training expenses, approximately $1.4 million in marketing
`expenses (including advertising and promotion expenditures for the Primus products and Pandel) and approximately $1.5 million in
`general and administrative expenses, which include business development, finance, legal and corporate activities. Significant
`components of selling, general and administrative expenses incurred during the three months ended September 30, 2004 included
`
`approximately $3.2 million in direct selling and sales training expenses, approximately $1.8 million in marketing expenses (including
`advertising and promotion expenditures for Periostat, the Atrix Products, and Pandel) and approximately $1.5 million in general and
`administrative expenses, which include business development, finance, legal and corporate activities. The decrease in selling,
`general and administrative expenses during the three months ended September 30, 2005 compared to the three months ended
`September 30, 2004 is primarily attributable to decreased personnel costs as a result of the May 2005 termination of our dental
`sales and marketing activities and the corresponding reduction of 63 employees, including our dental sales force.
`
`Interest Income
`
`Interest Income
`(dollars in thousands) 2005 Change 2004
`Interest income $ 288 191 % $ 99
`
`The increase in interest income was due to higher average investment yields.
`
`Preferred Stock Dividend
`
`Preferred stock dividends included in net income allocable to common stockholders were $454,000 during the three months ended
`September 30, 2005 and $400,000 during the three months ended September 30, 2004. Such preferred stock dividends were paid in
`cash and are the result of our obligations in connection with the issuance of our Series D preferred stock in May 1999.
`
`Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
`
`Revenues
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`5/21/2014
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`
`Revenues
`(dollars in thousands) 2005 Change 2004
`Net Product Sales $ 23,006 (40.5 )% $ 38,691
`Contract and License Revenues 446 89.8 % 235
`Total $ 23,452 (39.8 )% $ 38,926
`
`Revenues during the nine month period ending September 30, 2005 included approximately $23.0 million in net product sales of
`Periostat, Mutual's branded version of Periostat, Pandel and the Atrix Products. The decrease in 2005 net product sales was primarily
`due to lower Periostat net sales as a result of the launch of a third party generic competitor in May 2005. During the nine month
`period ended September 30, 2005, Periostat and Mutual's branded version of Periostat supplied by us accounted for approximately
`34% of the total dispensed prescriptions for the 20 mg doxycycline market compared to the 100% market share held by Periostat and
`Mutual's branded version of Periostat supplied by us in the nine month period ended September 30, 2004. Contract and license
`revenues during the nine months ended September 30, 2005 were derived from residual contract revenues from our expired
`agreement
`
`with Merck & Co., Inc. for Vioxx, contract revenues from our Promotion and Cooperation Agreement with Primus and international
`licensing revenues for Periostat. During the nine months ended September 30, 2005, $160,000 of contract and license revenue was
`recorded to include the unamortized portion of upfront license revenue received in 2000 from the License and Supply Agreement with
`Showa Yakuhin Kako Co., Ltd., which was terminated in March 2005. During the nine months ended September 30, 2004, contract
`and license revenues were derived from residual contract revenues from our expired agreement with Merck and international license
`fees, including the amortization of the Showa Yakuhin Kako Co., Ltd. license.
`
`Cost of Product Sales
`
`Cost of Product Sales
`(dollars in thousands) 2005 Change 2004
`Cost of Product Sales $ 5,017 (10.3 )% $ 5,590
`Percent of Net Product Sales 21.8 % N/A 14.4 %
`
`Cost of product sales includes product packaging, third party royalties, amortization of product licensing fees, and the costs
`associated with the manufacturing, storage and stability of Periostat, Mutual's branded version of Periostat, Pandel and the Atrix
`Products, as well as charges taken to reflect a decrease in inventory carrying value, if any.
`
`Cost of product sales for the nine months ended September 30, 2005 includes a charge of approximately $979,000 associated with
`the estimated excess inventories of Periostat and Mutual's branded version of Periostat supplied by us as a result of the launch by a
`third party generic competitor. Cost of product sales also increased as a percentage of net product sales as a result of lower average
`selling prices to Mutual, a greater absorption of fixed overhead expense over a smaller net sales base and a change in product mix
`during the nine month period ended September 30, 2005 as compared to the nine month period ended September 30, 2004.
`
`Research and Development
`
`Research and Development
`(dollars in thousands) 2005 Change 2004
`Research and development $ 11,237 86.6 % $ 6,023
`
`Research and development expenses consist primarily of funds paid to third parties for the provision of services and materials for
`drug development, including milestone fees, manufacturing and formulation enhancements, clinical trials, statistical analysis and
`report writing and regulatory compliance costs.
`
`Significant development projects conducted during the nine months ended September 30, 2005 included:
`
`� our continuing clinical and manufacturing development work for Oracea, our once daily, controlled release formulation of
`doxycycline, 40 mg, for the
`
`treatment of rosacea, which accounted for total costs of approximately $5.2 million;
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`5/21/2014
`� our clinical and manufacturing development work for incyclinide, a second generation IMPACS compound, totaling $2.0 million;
`
`� stability testing and formulation costs for two potential products utilizing our Restoraderm technology, which accounted for total
`costs of approximately $740,000; and
`
`� our continuing clinical and manufacturing development and formulation work for Periostat-MR, our once daily, controlled release
`formulation of doxycycline, 40 mg, for the treatment of adult periodontitis, which accounted for total costs of approximately $1.3
`million.
`
`We estimate that if Oracea, incyclinide and our Restoraderm acne and psoriasis products are developed to the point of
`commercialization, the additional formulation and clinical development expenses and milestones fees expected to be incurred over
`the next five years would be approximately $30.0 to $35.0 million.
`
`Significant development projects conducted during the nine months ended September 30, 2004 included:
`
`� our continuing clinical and manufacturing development work for Oracea, our once daily, controlled release formulation of
`doxycycline, 40 mg, for the treatment of rosacea, which accounted for total costs of approximately $1.6 million;
`
`� our continuing clinical and manufacturing development and formulation work for Periostat-MR, our once daily, controlled release
`formulation of doxycycline, 40 mg, for the treatment of adult periodontitis, which accounted for total costs of approximately $1.3
`million;
`
`� in-process research and development charges resulting from the purchase of Restoraderm, milestone, formulation and stability
`testing for two potential products utilizing our Restoraderm technology, which accounted for total costs of approximately $853,000;
`and
`
`� a Phase III clinical trial to evaluate Periostat for the treatment of rosacea, which accounted for total costs of approximately
`$417,000.
`
`Selling, General and Administrative
`
`Selling, General and Administrative
`(dollars in thousands) 2005 Change 2004
`Selling, General and Administrative - other $ 19,175 (13.3 )% $ 22,122
`Selling, General and Administrative - legal settlement - N/A 2,000
`Selling, General and Administrative - restructuring $ 1,184 240.2 % 348
`Total $ 20,359 (16.8 )% $ 24,470
`
`Selling, general and administrative - other expenses consist primarily of personnel salaries and benefits, direct marketing costs,
`professional, legal and consulting fees, insurance and general office expenses.
`
`Significant components of selling, general and administrative - other expenses incurred during the nine months ended September
`30, 2005 included approximately $8.8 million in direct selling and sales training expenses, approximately $5.0 million in marketing
`expenses (including advertising and promotion expenditures for Periostat, the Atrix Products, the Primus products and Pandel) and
`approximately $5.4 million in general and administrative expenses, which include business development, finance, legal and
`corporate activities. Significant components of selling, general and administrative - other expenses incurred during the nine months
`ended September 30, 2004 included approximately $11.4 million in direct selling and sales training expenses, approximately $5.9
`million in marketing expenses (including advertising and promotion expenditures for Periostat, the Atrix Products and Pandel), and
`approximately $4.8 million in general and administrative expenses, which include business development, finance, legal and
`corporate activities. The decrease in selling, general and administrative - other expenses during the nine months ended September
`30, 2005 compared to the nine months ended September 30, 2004 was primarily attributable to decreased personnel costs as a
`result of the April 2004 sales force restructuring and the May 2005 termination of our dental sales and marketing activities and the
`corresponding reduction of 63 employees, including our dental sales force, offset partially by increased legal costs.
`
`Selling, general and administrative - legal settlement consisted of $2.0 million during the three months ended September 30, 2004
`that resulted from the accrual for a one-time payment to Mutual in connection with the settlement of all outstanding litigation between
`us and Mutual.
`
`Selling, general and administrative - restructuring during the nine months ended September 30, 2005 consisted of a $1.2 million
`charge related to a reorganization following the approval of a third party generic version of Periostat in May of 2005. As a result of the
`restructuring, we ceased all sales activities of our dental franchise. Selling, general and administrative - restructuring during the nine
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
`5/21/2014
`months ended September 30, 2004 consisted of $348,000 that resulted from a charge related to the April 2004 reorganization of our
`sales organization into dedicated dental and dermatology sales forces.
`
`Interest Income
`
`Interest Income
`(dollars in thousands) 2005 Change 2004
`Interest income $ 763 219.2 % $ 239
`
`The increase in interest income was due to higher average investment balances in 2005, as well as higher average investment
`yields.
`
`Preferred Stock Dividend
`
`Preferred stock dividends included in net income allocable to common stockholders were $1.3 million during the nine months ended
`September 30, 2005 and $1.2 million during the nine months ended September 30, 2004. Such preferred stock dividends were paid
`in cash and are the result of our obligations in connection with the issuance of our Series D preferred stock in May 1999.
`
`Liquidity and Capital Resources
`
`Cash Requirements/Sources and Uses of Cash
`
`We require cash to fund our operating expenses, capital expenditures and dividend payments on our outstanding Series D preferred
`stock. We have historically funded our cash requirements primarily through the following:
`
`� Public offerings and private placements of our preferred and common stock;
`
`� Cash from operations; and
`
`� Exercise of stock options and warrants.
`
`We believe that other key factors that could affect our ability to maintain and draw on internal and external sources of cash are:
`
`� The success of our dermatology franchise;
`
`� The success of our pre-clinical, clinical and development
`programs;
`
`. . .
`
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`Summary of COLLAGENEX PHARMACEUTICALS INC - Yahoo! Finance
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