10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from _____________ to

Commission File number 1-10352

COLUMBIA LABORATORIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of  incorporation or organization)	59-2758596 (I.R.S. Employer Identification No.)
354 Eisenhower Parkway Livingston, New Jersey (Address of principal executive offices)	07039 (Zip Code)
Registrant's telephone number, including area code: (973) 994-3999 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value (Title of each class)  NASDAQ Global Market (Name of exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x.

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 Noo.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is 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 o Accelerated filer x Non-accelerated filer o

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

o Yes x No

The aggregate market value of Common Stock held by non-affiliates of the registrant on June 30, 2006, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $3.50, was $123.8 million.

Number of shares of Common Stock of Columbia Laboratories, Inc. issued and outstanding as of March 5, 2007 are 50,140,810.

Documents Incorporated By Reference

Portions of the Columbia Laboratories, Inc. (“Columbia” or the “Company”) Proxy Statement for the 2007 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K. We expect to file our Proxy Statement with the Unites States Securities and Exchange Commission (“SEC”) and mail it to shareholders on or before April 9, 2007.

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Index to Annual Report on Form 10-K

Fiscal Year Ended December 31, 2006

Part I		Page
Item 1	Business	4
Item 1A	Risk Factors	18
Item 1B	Unresolved Staff Comments	26
Item 2	Properties	26
Item 3	Legal Proceedings	26
Item 4	Submission of Matters to a Vote of Security Holders	26
Part II
Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6	Selected Financial Data	33
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A	Quantitative and Qualitative Disclosures about Market Risks	46
Item 8	Financial Statements and Supplementary Data	46
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	46
Item 9A	Controls and Procedures	47
Item 9B	Other Information	50
Part III
Item 10	Directors and Executive Officers of the Registrant*	51
Item 11	Executive Compensation*	51
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*	51
Item 13	Certain Relationships and Related Transactions*	51
Item 14	Principal Accountant Fees and Services	51
Part IV
Item 15	Exhibits and Financial Statement Schedules	52

* Items 11, 12, 13, 14 and portions of Item 10 are incorporated by reference to the Company’s 2007 Proxy Statement.

The “Company,” “Columbia,” “we,” “our” and “us” as used in this Annual Report on Form 10-K refer to Columbia Laboratories, Inc, a Delaware corporation, and its subsidiaries.

“CRINONE^®,” “PROCHIEVE^®” and “STRIANT^®” are registered trademarks of Columbia Pharmaceuticals Inc. RepHresh^®, Replens^® and Advantage-S^® are registered trademarks of Lil’ Drug Store Products, Inc. Other brands, names and trademarks contained in this Annual Report are the property of their respective owners.

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PART I

Item 1. Business

General

We are in the business of developing, manufacturing and marketing drugs that treat women’s healthcare and endocrine-related disorders. The Company has developed and is developing products for vaginal delivery of hormones, analgesics and other drugs, and for buccal delivery of hormones and peptides. The vaginal products adhere to the vaginal epithelium and the buccal products adhere to the mucosal membrane of the gum and cheek. Both forms provide sustained and controlled delivery of active drug ingredients. This delivery system is particularly useful for active drug ingredients that cannot be ingested.

All of our products and product candidates utilize our Bioadhesive Delivery System (“BDS”), which consists principally of a polymer (polycarbophil) and an active ingredient. The BDS is based upon the principle of bioadhesion, a process by which the polymer adheres to epithelial surfaces or mucosa. The polymer remains attached to epithelial surfaces or mucosa and is discharged upon normal cell turnover, a physiological process that, depending upon the area of the body, occurs every 12 to 72 hours, or longer. This extended period of attachment permits the BDS to be utilized in products when extended duration of effectiveness is desirable or required.

We have focused on women's healthcare because of the significant number of women whose health and hygiene needs have not been met by available products, and because the Company has found vaginal delivery to be a particularly effective way to deliver active ingredients to the female reproductive organs. We have found buccal delivery to be advantageous for products for both men and women. The Company intends to continue to develop products that improve the delivery of previously approved and marketed drugs with low oral bioavailability, or where systemic levels of the active ingredient must be curtailed.

OUR STRATEGY

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

Focus on building revenues from our infertility business. Our CRINONE^® and PROCHIEVE^® 8% progesterone gels form the core of a meaningful infertility business. We aim to build progesterone gel prescriptions by building relationships with reproductive endocrinologists; leveraging those relationships to influence prescribing habits of obstetricians and gynecologists who prescribe clomiphene citrate to treat infertility; proactively addressing obstetricians and gynecologists who regularly prescribed CRINONE before 2001; using an interim analysis of a pregnancy study being conducted by the Brigham and Women’s Hospital to support the use of CRINONE to assist the infertility cycle and for pregnancy support; and utilizing, direct to consumer marketing.

Continue existing and establish new collaborations to commercialize selected drugs.  Collaborations with pharmaceutical companies have played an important role in helping us commercialize our products. These collaborations enable us to address markets, and commercialize products, that fall outside our core focus. We plan to continue to rely on collaborators to commercialize certain of our drugs and drug candidates, either outside the U.S. or in U.S. markets in which we are not currently concentrating our resources.

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

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Focus research and development resources on vaginally-administered lidocaine.  We are investing in the clinical development of vaginally-administered lidocaine to prevent and treat dysmenorrhea, a common gynecologic condition that is currently underserved. We have designed and are executing a comprehensive clinical development program designed to bring a bioadhesive, vaginally-administered lidocaine product to market quickly and cost-effectively.

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

Appropriately manage our capital resources in order to execute our strategy.   We are focused on maintaining a financial profile that will enable us to execute our business strategy. In 2006, we increased our cash and cash equivalents and acquired the US rights to CRINONE^® to more efficiently drive market penetration in the franchise. Our objective is to build a business and opportunistically leverage operations through pipeline and business development.

Segments

The Company is currently engaged solely in one business segment -- the development, licensing and sale of pharmaceutical products. In certain foreign countries these products may be classified as medical devices or cosmetics by those countries’ regulatory agencies. See footnote 9 to the consolidated financial statements for information on foreign operations.

Operations

We develop products for sale throughout the world. Wecontract our manufacturing activities to third parties in the United Kingdom, Switzerland and Italy. Our own sales and marketing organization operates solely in the United States, and is specifically focused on a select group of obstetricians, gynecologists, reproductive endocrinologists, general endocrinologists, urologists and primary care physicians. We have entered into partnerships to commercialize our products outside of the United States and within certain markets in the United States, and seek to enter into additional partnerships to commercialize our products in new countries and with additional audiences in the United States that we do not currently address.

Products

CRINONE/PROCHIEVE^® (progesterone gel). CRINONE and PROCHIEVE are two brand names of the same sustained release, vaginally-delivered, natural progesterone product. Progesterone is a hormone manufactured by a woman’s ovaries in the second half of the menstrual cycle. Progesterone is responsible for preparing the uterus for pregnancy and, if pregnancy occurs, maintaining it until birth, or, if pregnancy does not occur, inducing menstruation. The Company sells CRINONE and PROCHIEVE brand progesterone gels in the United States. The Company promotes these products to reproductive endocrinologists, obstetricians, gynecologists and primary care physicians. CRINONE brand progesterone gel is sold outside the U. S. by Merck Serono S.A. (“Merck Serono”) under a worldwide (excluding the U.S.) license from the Company.

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

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

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Outside the U.S., CRINONE has been approved for marketing for one or more medical indications in 56 countries. The medical indications include: progesterone supplementation or replacement as part of an ART treatment for infertile women; the treatment of secondary amenorrhea; the prevention of hyperplasia in post-menopausal women receiving hormone replacement therapy (“HRT”); the reduction of symptoms of premenstrual syndrome (“PMS”); menstrual irregularities; dysmenorrhea; and, dysfunctional uterine bleeding. PROCHIEVE is not marketed outside the U.S.

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

STRIANT^® (testosterone buccal system). STRIANT is approved in the U.S., the U.K., Germany, and other European countries for hypogonadism. Hypogonadism is characterized by a deficiency or absence of endogenous testosterone production. Hypogonadism can be caused by conditions associated with the testes, pituitary gland or hypothalamus gland, or by a genetic disorder. Signs and symptoms of hypogonadism can include decreased libido (sexual desire), erectile dysfunction (ED), fatigue, depression, reduced muscle mass, and osteoporosis. Testosterone replacement therapy helps to provide and maintain normal levels of testosterone. It is estimated that hypogonadism affects 38.7% of men aged 45 years or older in the United States, approximately one million of whom currently receive treatment. Historically, patients have been treated with transdermal patches, topical gels or injectable formulations of testosterone.

In October 2002, the Company and Ardana plc (then Ardana Biosciences, Ltd., “Ardana”) entered into a license and supply agreement under which Ardana has licensed and, after obtaining necessary governmental product and pricing approvals, will sell STRIANT in 18 European countries (excluding Italy). See “Licensing and Development Agreements”.

In May 2003, the Company and Mipharm S.p.A. (“Mipharm”) entered into a license and supply agreement under which Mipharm will market, distribute and sell STRIANT in Italy. See “Licensing and Development Agreements”.

STRIANT utilizes the BDS to achieve controlled and sustained delivery of testosterone via the buccal cavity. The product, which has the appearance of a small monoconvex tablet, rapidly adheres to the buccal mucosa, the small depression in the mouth where the gum meets the upper lip above the incisor teeth. As it is exposed to saliva, the product softens into a gel-like form which remains comfortably in place over each 12-hour dosing period. STRIANT delivers testosterone through the buccal mucosa, where it is absorbed into the bloodstream and delivered directly into the superior vena cava (major blood vessel), bypassing the gastrointestinal system and liver. STRIANT is able to produce circulating testosterone concentrations in hypogonadal males that approximate physiologic levels seen in healthy young men. One dose twice a day, in the morning and in the evening, maintains consistent physiologic levels of testosterone. STRIANT is available in a single strength, and no dose titration is required.

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

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

Replens^® Vaginal Moisturizer. Replensreplenishes vaginal moisture on a sustained basis and relieves the discomfort associated with vaginal dryness. Replens was the first product developed utilizing the BDS. In May 2000, the Company sold the U.S. rights for Replens to Lil’ Drug Store Products, Inc. (“Lil’ Drug Store”), pursuant to an agreement under which the Company received royalties of 10% of sales of Replens in the U.S until October 2005. On June 29, 2004, the Company sold the remaining worldwide marketing rights for Replens to Lil’ Drug Store and executed two related agreements with Lil’ Drug Store: a five year supply agreement, with minimum purchase requirements for three years, and a 2½ year professional promotion agreement. See “Licensing and Development Agreements.”

RepHresh^® Vaginal Gel. RepHresh Vaginal Gel is a feminine hygiene product that can eliminate vaginal odor. RepHresh works by maintaining vaginal pH in the normal physiologic range of 4.5 or below. Using the BDS, RepHresh adheres to the epithelial cells of the vaginal lining for three or more days. It is available in convenient, pre-filled, disposable applicators. On June 29, 2004, the Company sold the worldwide marketing rights to the product to Lil’ Drug Store and executed two related agreements with Lil’ Drug Store: a five year supply agreement, with minimum purchase requirements for three years, and a 2½ year professional promotion agreement. See “Licensing and Development Agreements.”

Other Products. The Company marketed four additional products until April 2000: Advanced Formula Legatrin PM^®for the relief of occasional pain and sleeplessness associated with minor muscle aches such as night leg cramps; Legatrin^â GCM Formula’, a nutritional supplement to support healthy joint function; Vaporizer in a Bottle^®, a portable cough suppressant for the temporary relief of a cough due to the common cold; and Diasorb^®, a pediatric antidiarrheal product. These products do not utilize the BDS. In May 2000, the Company licensed these products to Lil’ Drug Store. Under the terms of these agreements, the Company receives license fees equal to 20% of the licensee’s net sales. These agreements each have five-year terms with provisions for automatic renewal and contain options that allow for the acquisition of the products by the licensee. On December 29, 2000, Lil’ Drug Store purchased Vaporizer in a Bottle for $0.2 million. The production and sale of Legatrin GCM Formula and Diasorb were discontinued during the first half of 2003. The license for Advanced Formula Legatrin PM renewed automatically to May 2010. The Company marketed one additional product, Advantage-S^â female contraceptive gel, until June 2004. On June 29, 2004, the Company sold worldwide marketing rights to Advantage-Sto Lil’ Drug Store. The production and sale of Advantage-S was discontinued during 2006.

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Research and Development

The Company spent $6.6 million in 2006, $5.8 million in 2005 and $5.4 million in 2004 on research and development activities. The expenditures in 2006, 2005 and 2004 were primarily costs associated with the Company’s clinical study of PROCHIEVE^® 8% (progesterone gel) for the prevention of recurrent preterm birth, discussed below. The expenditures in 2006 also included costs associated with the development of its vaginally-administered lidocaine candidate to prevent and relieve dysmenorrhea. The Company cannot predict whether it will be successful in the development of the products listed below or any other product candidates.

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

Clinical studies are divided into three phases.Phase I studies typically involve small numbers of normal, healthy volunteers. Phase I studies are intended to assess a drug’s safety profile, including the safe dosage range. Phase I studies also determine how the drug is absorbed, distributed, metabolized, and excreted, as well as the duration of its action.Phase II studies involve volunteer patients (people with the disease intended to be treated) to assess the drug’s effectiveness.Phase III studies usually involve larger numbers of patients in clinics and hospitals to confirm the product’s efficacy and identify possible adverse events.

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

PROCHIEVE 8% in Preventing Preterm Birth. In November 2003, the Company announced the Phase III multi-center, randomized, double-blind, placebo-controlled, clinical trial designed to assess the efficacy, safety and tolerability of PROCHIEVE 8% in preventing preterm birth in pregnant women with a previous preterm birth before 35 weeks gestation, or who have a cervical length of 2.5 cm or less, as measured by transvaginal ultrasound, with the current pregnancy. The Company completed enrollment in July 2006 and completed the treatment phase of this study in December 2006. On February 5, 2007, the Company reported that the study did not achieve a statistically significant reduction in the incidence of preterm birth at week 32, the primary endpoint, or at weeks 28, 35 and 37, secondary endpoints of the study.

Of the 611 evaluable patients, 302 received placebo and 309 received PROCHIEVE 8%.  The mean gestational age at delivery was approximately 37 weeks in both the active and placebo groups following treatment, an improvement from a mean of 30 weeks in the previous preterm birth for both groups.  Over 60% of evaluable patients had a previous preterm birth at or below 32 weeks gestation; prior studies of progestins to prevent preterm birth were comprised mainly of patients with prior preterm births at 34 weeks or greater.

The incidence and profile of adverse events in patients receiving PROCHIEVE 8% was similar to placebo, which was as expected given the product’s documented safety history.

Based on the study results, the Company has discontinued the development of PROCHIEVE 8% for the prevention of preterm birth in pregnant women with a previous preterm birth before 35 weeks gestation. PROCHIEVE^® 8% remains, however, a key product in the Company’s core infertility business and for pregnancy support in the first trimester.

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PROCHIEVE 4% for the Prevention of Endometrial Hyperplasia. In 2004 a third party, five year study was initiated to evaluate the long-term effects of Hormone Replacement Therapy in menopausal women. The study investigators selected PROCHIEVE 4% as the active progesterone to be administered to all menopausal women with an intact uterus who receive estrogen to prevent their developing endometrial hyperplasia.

Vaginally administered lidocaine. The Company is developing a vaginally-administered lidocaine to prevent and treat dysmenorrhea, a common gynecologic disordercharacterized by recurrent uterine cramping and pain before and during menses. Dysmenorrhea affects approximately 50% of menstruating women, 10% of whom have cramps severe enough to incapacitate them from one to three days each month. Current treatments address the pain but not the underlying problem. Our hypothesis is that by administering lidocaine vaginally using our BDS technology we can minimize or prevent the severe cramping that results in the debilitating pain of dysmenorrhea. Results from a European clinical trial, which the Company announced on February 5, 2004, showed that vaginally-administered lidocaine reduced the frequency of uterine contractions, as well as the intensity and frequency of uterine pain. Subjects were evaluated following vasopressin-induced cramping in the late luteal phase of the menstrual cycle, near menses. On September 8, 2005, we announced the successful completion of a pharmacokinetics study for our vaginally administered lidocaine. The study evaluated both the blood levels obtained by, as well as the relative safety from, three doses of lidocaine formulated with the Company’s patented bioadhesive vaginal gel. Based on those results, the Company initiated a multi-dose pharmacokinetic study in December 2006 and plans to initiate a Phase II cross-over study in the second quarter of 2007. The Company believes this product may offer a novel approach to treating women who suffer from these common and painful conditions.

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

Testosterone Vaginal Gel and Testosterone Progressive Hydration Vaginal Tablet. In October 2000, the Company completed a Phase I trial of its testosterone progressive hydration vaginal tablet for women. The study demonstrated that testosterone could be delivered vaginally over a period of days. Vaginal gel and vaginal tablet forms have been developed. A preliminary clinical plan, with a focus on reducing the size of systemic uterine fibroids is under review.

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

Licensing and Development Agreements

Merck Serono S.A.

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

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

Mipharm S.p.A.

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

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

Ardana plc

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

In December 2002, the Company and Ardana executed a development and license agreement (described above) to develop the Company’s terbutaline vaginal gel product.

Lil’ Drug Store Products, Inc.

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

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Financing Agreements

On July 31, 2002, PharmaBio Development (“PharmaBio”), an affiliate of Quintiles Transnational Corp. (“Quintiles”), agreed to pay $4.5 million in four equal quarterly installments commencing third quarter 2002 for the right to receive a 5% royalty on net sales of the Company’s women’s healthcare products in the United States for five years, beginning in the first quarter of 2003. The royalty payments are subject to aggregate minimum ($8 million) and maximum ($12 million) amounts. 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%. As of December 31^st 2006, the Company has paid $3.6 million in royalties to PharmaBio under this agreement.

On March 5, 2003, the Company and PharmaBio entered into a second agreement under which PharmaBio paid $15 million to the Company over a 15-month period that commenced with the signing of the agreement. In return, PharmaBio will receive a 9% royalty on net sales of STRIANT^® in the United States up to agreed annual sales levels, and a 4.5% royalty of net sales above those levels. The royalty term is seven years. Royalty payments commenced in the third quarter of 2004 and are subject to the aggregate minimum ($30 million) and maximum ($55 million) amounts. A true-up payment under the STRIANT agreement due in November of 2006 was prepaid by the Company in April 2006 in the amount of $11.6 million, representing the present value of the true up payment at a discount value of 6%. Although the Company paid and will record 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.Because the minimum amount exceeds the $15 million, the Company has recorded the amounts received as liabilities. The excess of the minimum ($30 million) to be paid by the Company over the $15 million to be received by the Company is being recognized as interest expense over the seven-year term of the agreement, assuming an interest rate of 10.67%. To date, the Company has paid $13 million in royalties (including the true-up payment) to PharmaBio under this agreement.

Patents, Trademarks and Proprietary Information

We actively seek protection for our products and technology by means of United States and foreign patents, trademarks, and copyrights, as appropriate.The following table sets forth United States patents granted to the Company since 2002.

Year Granted	Nature of Patent
2006	Bioadhesive progressive hydration tablets using desmopressin or prostaglandin E2 as the active
2004	Compositions and methods for safely preventing or treating premature labor using a beta-adrenergic agonist, such as terbutaline.
2004	Methods of safely treating endometriosis or infertility, and for improving fertility, using a beta-adrenergic agonist.
2003	Use of progestin therapy for maintaining amenorrhea.
2003	Bioadhesive progressive hydration tablet.
2002	Use of certain polycarboxylic acid polymers for vaginal pH buffering to prevent miscarriage and premature labor associated with bacterial vaginosis.

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

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

Subject of patent	Year of Expiration	Product or Project
Progressive hydration tablets	2019	STRIANT® -- testosterone progressive hydration vaginal tablet -- peptide delivery system
First Uterine Pass Effect™	2018	vaginally administered lidocaine -- terbutaline vaginal gel -- testosterone vaginal gel
Progesterone delivery	2013	CRINONE®/PROCHIEVE®

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

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

Sales of Products

From 1997 until 2002, we out-licensed almost all marketing rights to our products. In June 2002, we obtained a sublicense from Merck Serono to market our 8% and 4% progesterone gel products in the United States under the brand name PROCHIEVE. In July 2002, we entered into an agreement with Innovex LP (“Innovex”), an affiliate of Quintiles, thereby establishing our first sales force in the United States. Under the terms of this agreement, Innovex provided a dedicated team of 55 sales representatives on a three-year, fee-for-service basis to commercialize the Company’s women’s healthcare products, PROCHIEVE 8%, PROCHIEVE 4%, Advantage-S, and RepHresh, in the U.S. The sales force was recruited and trained in August and September 2002, and began in October 2002 to call on a targeted list of approximately 8,000 obstetricians and gynecologists to encourage prescriptions and product recommendations for PROCHIEVE 8%, Advantage-S, and RepHresh. The sales force began sales efforts for PROCHIEVE 4% in April 2003.

In March 2003, we entered into a second agreement with Innovex to commercialize STRIANTin the United States. Under the terms of the agreement, Innovex provided a dedicated team of 67 additional sales representatives for a two-and-a-half year term. The new sales representatives were recruited in June 2003 and were trained on our women’s healthcare products and began calling on obstetricians and gynecologists in July 2003. The entire sales force of 122 sales representatives and 13 managers was trained on STRIANT^® in September 2003 and subsequently added endocrinologists, urologists and certain primary healthcare doctors to their call lists.

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In January 2004, the Company and Innovex restructured the sales force. The restructured sales force was comprised of ten district managers employed by the Company and 80 sales representatives, divided evenly between the Company and Innovex. Under the terms of the restructuring, Innovex transferred responsibility for management of the sales force to the Company, but continued to provide half of the sales representatives.

On February 2, 2005, in order to better align expenses with projected revenues, we further reduced the size of the sales force to five managers and 23 sales representatives, of whom 12 were Innovex employees and 11 were Company employees. Columbia hired the remaining Innovex sales representatives as Columbia employees on November 1, 2005.

On December 22, 2006, the Company acquired the U.S. marketing rights to CRINONE^® and added reproductive endocrinologists to its infertility physician targets. In addition to these specialists, who typically handle the more sophisticated infertility treatments, the Company’s 28-person sales force calls on obstetricians and gynecologists, general endocrinologists, urologists and certain primary healthcare physicians. The sales force is predominantly focused on women’s reproductive healthcare providers with the aim of building the Company’s existing infertility business.

We receive revenues both from selling our products to licensees, which we refer to as our “Partnered Products”, and selling our products that we promote through our own sales force to wholesalers and other distributors, which we refer to as our “Promoted Products.” As of December 31, 2006:

Promoted Products in the U.S. are:

·   CRINONE8% progesterone gel

·   PROCHIEVE^® 8% progesterone gel

·   PROCHIEVE 4% progesterone gel

·   STRIANT testosterone buccal system

Partnered Products are:

·   CRINONE 8% sold to Merck Serono for sale ex-U.S. ;

·   STRIANT sold to our ex-U.S. marketing partners;

·   Replens^® Vaginal Moisturizer sold to Lil’ Drug Store ex-U.S.;

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

·   Royalty and licensing revenues.

Success of Marketing Efforts

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

§   Perceived efficacy of our products;

§   Convenience and ease of administration;

§   Prevalence and severity of adverse side effects in both clinical trials and commercial use;

§   Availability of alternative treatments;

§   Cost effectiveness;

§   The pricing of our products; and

§   Our ability to obtain third-party coverage or reimbursement for our products.

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

§   The effectiveness of our production, distribution and marketing capabilities;

§   The successful marketing of our products by our distribution and marketing partners;

§   The success of competing products; and,

§   The availability and extent of reimbursement from third-party payors.

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

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

Competition

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

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

CRINONE/PROCHIEVE, a natural progesterone product, competes in markets with other progestins, both synthetic and natural, that may be delivered by pharmacy-compounded injections or by pharmacy-compounded vaginal suppositories, and with Prometrium^® (oral micronized progesterone) marketed by Solvay S.A. CRINONE/PROCHIEVE is the only progestin product approved by FDA for use in infertility or for use in pregnant women.

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

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Customers

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

Revenue by Product

The following table sets forth the percentage of the Company's consolidated revenues, consisting of sales, licensing fees, sales force promotional fees, and royalty revenues, by revenue source for each product accounting for 3% or more of consolidated revenues in any of the three years ended December 31:

	2006		2005		2004
CRINONE	39	%	37	%	40	%
PROCHIEVE	16	%	15	%	10	%
Replens®	16	%	11	%	15	%
Royalty income	12	%	11	%	6	%
STRIANT	5	%	6	%	18	%
RepHresh®	4	%	12	%	4	%
Sales force promotional fees	4	%	3	%	3	%
Licensing fees	4	%	3	%	3	%
Other products	0	%	2	%	1	%
	100	%	100	%	100	%

The following table presents information about Columbia’s revenues, including royalty and license revenue, by customer for each of the three years ended December 31:

	2006		2005		2004
Merck-Serono (formerly Serono)	$	8,234,198	$	9,765,387	$	8,512,147
Lil' Drug Store Products, Inc.		4,637,928		6,906,358		3,565,760
Cardinal Healthcare		2,060,152		1,773,811		1,419,962
McKesson		1,892,728		1,620,188		1,218,438
All others (none over 5%)		568,075		1,975,098		3,144,097
	$	17,393,081	$	22,040,842	$	17,860,404

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Sales by Geographic Area

The following table sets forth the percentage of the Company's consolidated revenue, based on sales by geographic area, for each area accounting for 5% or more of consolidated revenues in any of the three years ended December 31:

	2006		2005		2004
Europe	$	9,442,346	$	11,070,796	$	6,624,074
United States	$	7,950,735	$	10,970,046	$	11,236,330
	$	17,393,081	$	22,040,842	$	17,860,404

Recent Developments

On February 5, 2007, the Company reported that a Phase III study of PROCHIEVE^® 8% (progesterone gel) for the prevention of preterm birth in women with a previous preterm birth earlier than 35 weeks gestation did not achieve statistical significance for the reduction of the incidence of preterm birth at week 32, the primary endpoint, or at weeks 28, 35 and 37, secondary endpoints of the study. Of the 611 evaluable patients, 302 received placebo and 309 received PROCHIEVE 8%.  The mean gestational age at delivery was approximately 37 weeks in both the active and placebo groups following treatment, an improvement from a mean of 30 weeks in the previous preterm birth for both groups.  Over 60% of evaluable patients had a previous preterm birth at or below 32 weeks gestation; prior studies of progestins to prevent preterm birth were comprised mainly of patients with prior preterm births at 34 weeks or greater. The incidence and profile of adverse events in patients receiving PROCHIEVE 8% was similar to placebo, which was as expected given the product’s documented safety history. Based on the study results, the Company has discontinued the development of PROCHIEVE 8% for the prevention of preterm birth in pregnant women with a previous preterm birth before 35 weeks gestation. Prochieve 8% remains, however, a key product in the Company’s core infertility business and for pregnancy support in the first trimester. 

The Company continues to explore a range of strategic options to enhance shareholder value, including a variety of strategic partnership relationships ranging from development projects for third parties, the out-license or sale of one or more of the Company’s products, or the acquisition of complimentary women’s healthcare products. No formal decisions have been made, and no agreements have been reached. There can be no assurance given that any particular alternative will be pursued or that any transaction will occur or on what terms.

Employees

As of March 5, 2007, the Company had 47 employees: 3 in management, 5 in production, 27 in sales and marketing, and 12 in support functions. Our success is highly dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the pharmaceutical industry. We believe we have been successful in our efforts to recruit qualified employees, but we cannot guarantee that we will continue to be as successful in the future. None of the Company's employees are represented by a labor union or are subject to collective bargaining agreements. We believe that our relationship with our employees is good.

The Company has employment agreements with three employees, Mr. Mills, president and chief executive officer, Mr. McGrane, senior vice president, general counsel and secretary, and Mr. Meer, senior vice president, chief financial officer and treasurer. The Board of Directors of the Company has adopted an Indemnification Agreement for Officers and Directors and an Executive Change of Control Severance Agreement for Officers.

Available Information

The Company's Internet address is www.columbialabs.com. Through a link on the “Investor” section of this website, which is also accessible at www.cbrxir.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. In addition, we will provide electronic or paper copies of our filings free of charge upon request. Information contained on our corporate website or any other website is not incorporated into this Annual Report and does not constitute a part of this Annual Report.

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In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Reference Room, which is located at 100 F Street NE, Washington, D.C., 20549. Interested parties may call (800) SEC-0330 for further information on the Reference Room. The SEC also maintains a website containing reports, proxy materials and information statements, among other information, at http://www.sec.gov.

Corporate Information

Columbia was incorporated as a Delaware corporation in 1986. Our principal executive offices are located at 354 Eisenhower Parkway, Livingston, New Jersey 07039, and our telephone number is (973) 994-3999. The Company's wholly-owned subsidiaries are Columbia Laboratories (Bermuda) Ltd. ("Columbia Bermuda"), Columbia Laboratories (France) SA ("Columbia France") and Columbia Laboratories (UK) Limited ("Columbia UK”).

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Item 1A. Risk Factors

We have a history of losses and we may continue to incur losses.

We have had a history of losses since our founding. For the fiscal year ended December 31, 2006, we had a net loss of $12.6 million. If we and our partners are unable to successfully market our products, and otherwise increase sales of our products, and contain our operating expenses, we may not have sufficient funds to continue operations unless we are able to raise additional funds from sales of securities or otherwise. Additional financing may not be available to us on acceptable terms, if at all.

Our business is heavily dependent on the continued sale of CRINONE^®,Replens^®, RepHresh^® and STRIANT^® by our marketing partners. If revenues from these partnered products fail to increase as anticipated, or materially decline, our financial condition and results of operations will be materially harmed.

Our operating results are heavily dependent on the revenues and royalties derived from the sale of CRINONE to Merck Serono for sale outside the U.S., the sale of STRIANT to Ardana and Mipharm for sale in Europe, and the sale of Replensand RepHresh to Lil’ Drug Store. Revenues from sales of these partnered products in 2006, which included sales of CRINONE to Merck Serono for the U.S. market, comprised approximately 65% of our total revenues. We do not control the amount and timing of marketing resources that our partners devote to our products. If Merck Serono fails to effectively market CRINONEin its ex-U.S. territories,Ardana and Mipharm fail to effectively market STRIANT in their respective territories, or Lil’ Drug Store fails to effectively market Replensand RepHresh, this could have a material adverse effect on our business, financial condition and results of operations.

We acquired marketing rights to CRINONE in the United States in December 2006, and we may never realize the anticipated benefits of the acquisition.

On December 22, 2006, we purchased the marketing rights in the United States to CRINONE from Merck Serono. Merck Serono marketed CRINONE in the United States principally to reproductive endocrinologists, a medical specialty in infertility that we have not previously called upon. Merck Serono is one of the leading companies in that market, having offered, in addition to CRINONE, all three gonadotropin hormones generally used for the treatment of infertility. Key reproductive endocrinology opinion leaders are generally not aware of, and are unfamiliar with, Columbia. Our initial goal is to maintain the current prescribing practices for CRINONE while building relationships with these specialists. We believe the reproductive endocrinologists are particularly important because of their influence on prescribing practices of obstetricians and gynecologists who also treat infertility. Our efforts to maintain and grow the CRINONE business may not be successful and we may fail to realize the anticipated benefits of the acquisition.

Healthcare insurers and other payors may not pay for our products or may impose limits on reimbursement.

Our ability to commercialize our prescription products will depend, in part, on the extent to which reimbursement for our products is available from third-party payors, such as health maintenance organizations, health insurers and other public and private payors. If we succeed in bringing new prescription products to market, we cannot be assured that third-party payors will pay for such products, or establish and maintain price levels sufficient for realization of an appropriate return on our investment in product development.

Many health maintenance organizations and other third-party payors use formularies, or lists of drugs for which coverage is provided under a healthcare benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and, in some cases, the cost of the drug in comparison to alternative products. Our current or our future products may not be added to payors’ formularies, our products may not have preferred status to alternative therapies, and formulary decisions may not be conducted in a timely manner. Once reimbursement at an agreed level is approved by a third-party payor, we may lose that reimbursement entirely or we may lose the similar or better reimbursement we receive compared to competitive products. As reimbursement is often approved for a period of time, this risk is greater at the end of the time period, if any, for which the reimbursement was approved. We may also decide to enter into discount or formulary fee arrangements with payors, which could result in us receiving lower or discounted prices for CRINONE^®, PROCHIEVE^® and STRIANT^® or future products.

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We face significant competition from pharmaceutical and consumer product companies, which may adversely impact our market share.

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

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

CRINONE/PROCHIEVE, a natural progesterone product, competes in markets with other progestins, both synthetic and natural, that may be delivered by pharmacy-compounded injections or by pharmacy-compounded vaginal suppositories, and with Prometrium^® (oral micronized progesterone) marketed by Solvay S.A.

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

Our products could demonstrate hormone replacement risks.

In the past, certain studies of female hormone replacement therapy products, such as estrogen, have reported an increase in health risks. Progesterone is a natural female hormone, present at normal levels in most women through their lifetimes. However, some women require progesterone supplementation due to a natural or chemical-related progesterone deficiency. It is possible that data suggesting risks or problems may come to light in the future which could demonstrate a health risk associated with progesterone or progestin supplementation or our 8% and 4% progesterone gels. It is also possible that future study results for hormone replacement therapy could be negative and could result in negative publicity about the risks and benefits of hormone replacement therapy. As a result, physicians and patients may not wish to prescribe or use progestins, including our progesterone gels.

Similarly, while testosterone is a natural male hormone, present at normal levels in most men through their lifetimes, some men require testosterone replacement therapy, or TRT, to normalize their testosterone levels. It is possible that data suggesting risks or problems may come to light in the future which could demonstrate a health risk associated with TRT or STRIANT. It is also possible that future study results for hormone replacement therapy could be negative and could result in negative publicity about the risks and benefits of TRT. As a result, physicians and patients may not wish to prescribe or use TRT products, including STRIANT^®.

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In addition investors may become concerned about these issues and decide to sell our Common Stock. These factors could adversely affect our business and the price of our Common Stock.

We may be exposed to product liability claims.

We could be exposed to future product liability claims by consumers. Although we presently maintain product liability insurance coverage at what we believe is a commercially reasonable level, such insurance may not be sufficient to cover all possible liabilities. An award against us in an amount greater than our insurance coverage could have a material adverse effect on our operations. Some customers require us to have a minimum level of product liability insurance coverage before they will purchase or accept our products for distribution. If we fail to satisfy insurance requirements, our ability to achieve broad distribution of our products could be limited. This could have a material adverse effect upon our business and financial condition.

Steps taken by us to protect our proprietary rights might not be adequate, in which case competitors may infringe on our rights or develop similar products. The United States and foreign patents upon which our original Bioadhesive Delivery System was based have expired.

Our success and competitive position are partially dependent on our ability to protect our proprietary position for our technology, products and product candidates. We rely primarily on a combination of patents, trademarks, copyrights, trade secret laws, third-party confidentiality and nondisclosure agreements, and other methods to protect our proprietary rights. The steps we take to protect our proprietary rights, however, may not be adequate. Third parties may infringe or misappropriate our patents, copyrights, trademarks, and similar proprietary rights. Moreover, we may not be able or willing, for financial, legal or other reasons, to enforce our rights. To date, we have never been a party to a proprietary rights action.

Bio-Mimetics, Inc. held the patent upon which our original Bioadhesive Delivery System, or BDS, was based and granted us a license under that patent. Bio-Mimetics’ patent contained broad claims covering controlled release products that include a bioadhesive. However, this United States patent and its corresponding foreign patents expired in November 2003. Based upon the expiration of the original Bio-Mimetics patent, other parties will be permitted to make, use or sell products covered by the claims of the Bio-Mimetics patent, subject to other patents, including those which we hold. We have obtained numerous patents with claims covering improved methods of formulating and delivering therapeutic compounds using the BDS. We cannot assure you that any of these patents will enable us to prevent infringement, or that our competitors will not develop alternative methods of delivering compounds, potentially resulting in competitive products outside the protection that may be afforded by our patents. Other companies may independently develop or obtain patent or similar rights to equivalent or superior technologies or processes. Additionally, although we believe that our patented technology has been independently developed and does not infringe on the proprietary rights of others, we cannot assure you that our products do not and will not infringe on the proprietary rights of others. In the event of infringement, we may be required to modify our technology or products, obtain licenses or pay license fees. We may not be able to do so in a timely manner or upon acceptable terms and conditions. This may have a material adverse effect on our operations.

The standards that the U.S. Patent and Trademark Office and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. Limitations on patent protection in some countries outside the U.S., and the differences in what constitutes patentable subject matter in these countries, may limit the protection we seek outside of the U.S. For example, methods of treating humans are not patentable subject matter in many countries outside of the U.S. In addition, laws of foreign countries may not protect our intellectual property to the same extent as would laws of the U.S. In determining whether or not to seek a patent or to license any patent in a particular foreign country, we weigh the relevant costs and benefits, and consider, among other things, the market potential of our product candidates in the jurisdiction and the scope and enforceability of patent protection afforded by the law of the jurisdiction.

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We own or are seeking registration of the following as trademarks in countries throughout the world: CRINONE^®, PROCHIEVE^®, STRIANT^®, and STRIANT SR^®. These trademarks, however, may not afford us adequate protection or we may not have the financial resources to enforce our rights under these trademarks.

We are subject to government regulation, which could affect our ability to sell products.

Nearly every aspect of the development, manufacture and commercialization of our approved pharmaceutical products is subject to time-consuming and costly regulation by various governmental entities, including the Food and Drug Administration, or FDA, the Drug Enforcement Administration and state agencies, as well as regulatory agencies in those foreign countries in which our products are manufactured or distributed. The FDA has the power to seize adulterated or misbranded products and unapproved new drugs, to require their recall from the market, to enjoin further manufacture or sale, and to publicize certain facts concerning a product.

We employ various quality control measures in our efforts to ensure that our products conform to their intended specifications and meet the standards proscribed by applicable governmental regulations, including FDA’s current Good Manufacturing Practices regulations. Notwithstanding our efforts, our products or the ingredients we purchase from our suppliers for inclusion in our products may contain undetected defects or non-conformities with specifications. Such defects or non-conformities could compel us to recall the affected product, make changes to or restrict distribution of the product, or take other remedial actions. The occurrence of such events may harm our relations with or result in the loss of customers, injure our reputation, impair market acceptance of our products, harm our financial results, and, in certain circumstances, expose us to product liability or other claims.

The development of our pharmaceutical products is uncertain and subject to a number of significant risks.

Some of our pharmaceutical products are in various stages of development. In the United States and most foreign countries, we must complete extensive human clinical trials that demonstrate the safety and efficacy of a product in order to apply for regulatory approval to market the product.

The process of developing product candidates involves a degree of risk and may take several years. Product candidates that appear promising in the early phases of development may fail to reach the market for several reasons, including:

·   Clinical trials may show our product candidates to be ineffective for the indications studied or to have harmful side effects;

·   Product candidates may fail to receive regulatory approvals required to bring the products to market;

·   Manufacturing costs or other factors may make our product candidates uneconomical; and

·   The proprietary rights of others and their competing products and technologies may prevent our product candidates from being effectively commercialized.

Success in early clinical trials does not ensure that large-scale clinical trials will be successful. Clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals.

The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly and may be difficult to predict. The speed with which we can complete clinical trials and applications for marketing approval will depend on several factors, including the following:

·   The rate of patient enrollment, which is a function of factors including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, and the nature of the study protocol;

·   Institutional review board, or IRB, approval of the study protocol and the informed consent form;

·   Prior regulatory agency review and approval;

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·   Analysis of data obtained from clinical activities, which are susceptible to varying interpretations and which interpretations could delay, limit or prevent regulatory approval;

·   Changes in the policies of regulatory authorities for drug approval during the period of product development; and

·   The availability of skilled and experienced staff to conduct and monitor clinical studies and to prepare the appropriate regulatory applications.

In addition, developing product candidates is very expensive and will continue to have a significant impact on our ability to generate profits. Factors affecting our product development expenses include:

·   Our ability to raise any additional funds that we need to complete our trials;

·   The number and outcome of clinical trials conducted by us and/or our collaborators;

·   The number of products we may have in clinical development;

·   In-licensing or other partnership activities, including the timing and amount of related development funding, license fees or milestone payments; and

·   Future levels of our revenue.

Clinical trials are expensive and can take years to complete, and there is no guarantee that the clinical trials will demonstrate sufficient safety and/or efficacy of the products to meet FDA requirements, or those of foreign regulatory authorities.

We may experience adverse events in clinical trials, which could delay or halt our product development.

Our product candidates may produce serious adverse events. These adverse events could interrupt, delay or halt clinical trials of our product candidates and could result in FDA or other regulatory authorities denying approval of our product candidates for any or all targeted indications. An IRB or independent data safety monitoring board, the FDA, other regulatory authorities, or we ourselves may suspend or terminate clinical trials at any time. Our product candidates may prove not to be safe for human use.

Delays or failures in obtaining regulatory approvals may delay or prevent marketing of the products that we are developing.

Other than PROCHIEVE^® 4% (progesterone gel), which is being evaluated for the prevention of endometrial hyperplasia in women with an intact uterus undergoing estrogen replacement therapy, all of our product candidates are in clinical development and have not received regulatory approval from the FDA or any foreign regulatory authority. The regulatory approval process typically is extremely expensive, takes many years, and the timing or likelihood of any approval cannot be accurately predicted. Delays in obtaining regulatory approval can be extremely costly in terms of lost sales opportunities and increased clinical trial costs. If we fail to obtain regulatory approval for our current or future product candidates or expanded indications for currently marketed products, we will be unable to market and sell such products and indications and therefore may never be profitable.

As part of the regulatory approval process, we must conduct clinical trials for each product candidate to demonstrate safety and efficacy. The number of clinical trials that will be required varies depending on the product candidate, the indication being evaluated, the trial results, and the regulations applicable to any particular product candidate.

The results of initial clinical trials of our product candidates do not necessarily predict the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials. The data collected from the clinical trials of our product candidates may not be sufficient to support FDA or other regulatory approval. In addition, the continuation of a particular study after review by an IRB or independent data safety monitoring board does not necessarily indicate that our product candidate will achieve the clinical endpoint.

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The FDA and other regulatory agencies can delay, limit or deny approval for many reasons, including:

·   A product candidate may not be deemed to be safe or effective;

·   The manufacturing processes or facilities we have selected may not meet the applicable requirements; and

·   Changes in their approval policies or adoption of new regulations may require additional clinical trials or other data.

Any delay in, or failure to receive, approval for any of our product candidates could prevent us from growing our revenues or achieving profitability.

We are dependent on a principal supplier, the loss of which could impair our ability to manufacture and sell our products.

Medical grade, cross-linked polycarbophil, the polymer used in our BDS-based products is currently available from only one supplier, Noveon, Inc., or Noveon. We believe that Noveon will supply as much of the material as we require because our products rank among the highest value-added uses of the polymer. In the event that Noveon cannot or will not supply enough of the product to satisfy our needs, we will be required to seek alternative sources of polycarbophil. An alternative source of polycarbophil may not be available on satisfactory terms or at all, which would impair our ability to manufacture and sell our products.

We are dependent upon third-party developers and manufacturers, the loss of which could result in a loss of revenues.

We rely on third parties to develop and manufacture our products. These third parties may not be able to satisfy our needs in the future, and we may not be able to find or obtain FDA approval of alternate developers and manufacturers. Delays in the development and manufacture of our products could have a material adverse effect on our business. This reliance on third parties could have an adverse effect on our profit margins. Any interruption in the manufacture of our products would impair our ability to deliver our products to customers on a timely and competitive basis, and could result in the loss of revenues.

The loss of our key executives could have a significant impact on our company.

Our success depends in large part upon the abilities and continued service of our executive officers and other key employees. Our employment agreements with our executive officers are terminable by them on short notice. The loss of key employees may result in a significant loss in the knowledge and experience that we, as an organization, possess, and could cause significant delays in, or outright failure of, the development and commercialization of our products and product candidates. If we are unable to attract and retain qualified and talented senior management personnel, our business may suffer.

We may be limited in our use of our net operating loss carryforwards.

As of December 31, 2006, we had certain net operating loss carryforwards of approximately $131 million that may be used to reduce our future U.S. federal income tax liabilities. Our ability to use these loss carryforwards to reduce our future U.S. federal income tax liabilities could be lost if we were to experience more than a 50% change in ownership within the meaning of Section 382(g) of the Internal Revenue Code. If we were to lose the benefits of these loss carryforwards, our future earnings and cash resources would be materially and adversely affected.  

The price of our Common Stock has been and may continue to be volatile.

Historically, the market price of our Common Stock has fluctuated over a wide range. In fiscal year 2005, our Common Stock traded in a range from $1.52 to $4.91 per share. In fiscal year 2006, our Common Stock traded in a range from $2.53 to $5.98 per share. It is likely that the price of our Common Stock will fluctuate in the future. The market prices of securities of small specialty pharmaceutical companies, including ours, from time to time experience significant price and volume fluctuations unrelated to the operating performance of these companies. In particular, the market price of our Common Stock may fluctuate significantly due to a variety of factors, including: the results of clinical trials for our product candidates; FDA’s determination with respect to new drug applications for new products and new indications; and our ability to develop additional products. In addition, the occurrence of any of the risks described in these “Risk Factors” could have a material and adverse impact on the market price of our Common Stock.

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Sales of large amounts of Common Stock may adversely affect our market price. The issuance of preferred stock and convertible subordinated notes may adversely affect rights of common stockholders.

As of March 5, 2007, we had 50,140,810 shares of Common Stock outstanding, of which 43,340,877 shares were freely tradable. As of that date, approximately 6,799,933 shares of our Common Stock were restricted securities, but 6,640,458 of those shares may be sold pursuant to an effective registration statement under the Securities Act. We also have the following securities outstanding: series B convertible preferred stock, series C convertible preferred stock, series E convertible preferred stock, convertible subordinated notes, warrants, and options. If all of these securities are exercised or converted, an additional 22,768,031 shares of Common Stock will be outstanding, all of which will have been registered for resale under the Securities Act. When issued, these registered shares will be freely tradable by persons who are not our affiliates and restricted shares will be saleable under Rule 144 in the future. The exercise and conversion of these securities is likely to dilute the book value per share of our Common Stock. In addition, the existence of these securities may adversely affect the terms on which we can obtain additional equity financing.

In March 2002, our Board of Directors authorized shares of series D junior participating preferred stock in connection with its adoption of a stockholder rights plan, under which we issued rights to purchase series D convertible preferred stock to holders of our Common Stock. Upon certain triggering events, such rights become exercisable to purchase shares of Common Stock (or, in the discretion of our Board of Directors, series D convertible preferred stock) at a price substantially discounted from the then current market price of our Common Stock.

Under our certificate of incorporation, our Board of Directors has the authority to issue up to 1.0 million shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. The rights of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock that may be issued in the future. While we have no present intention to authorize any additional series of preferred stock, such preferred stock, if authorized, may have other rights, including economic rights senior to the Common Stock, and, as a result, their issuance could have a material adverse effect on the market value of our Common Stock.

We have a substantial amount of debt.

As of December 31, 2006, we had outstanding approximately $40 million principal amount of our convertible debt. In addition, as of December 31, 2006 we had remaining future minimum payments due to PharmaBio pursuant to certain financing agreements of approximately $21.5 million. Our annual interest expense is more than $8 million of which approximately $3 million is a cash payment to be made in 2007, and for the following four years. Unless we generate substantial additional sales from our products or raise substantial additional capital, we may not be able to pay the interest on our debt or repay our debt at maturity.

Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable regulations.

We are a relatively small company and we rely heavily on third parties to conduct many important functions. As a pharmaceutical company, we are subject to a large body of legal and regulatory requirements. In addition, as a publicly traded company we are subject to significant regulations, including the Sarbanes-Oxley Act of 2002, some of which have either only recently been adopted or are currently proposals subject to change. We cannot assure you that we are or will be in compliance with all potentially applicable laws and regulations. Failure to comply with all potentially applicable laws and regulations could lead to the imposition of fines, cause the value of our common stock to decline, impede our ability to raise capital or lead to the de-listing of our stock.

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We could be negatively impacted by future interpretation or implementation of federal and state fraud and abuse laws, including anti-kickback laws, false claims laws and federal and state anti-referral laws.

We are subject to various federal and state laws pertaining to health care fraud and abuse, including anti-kickback laws, false claims laws and physician self-referral laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs, including Medicare, Medicaid, and veterans’ health programs. We have not been challenged by a governmental authority under any of these laws and believe that our operations are in compliance with such laws.

However, because of the far-reaching nature of these laws, we may be required to alter one or more of our practices to be in compliance with these laws. Health care fraud and abuse regulations are complex, and even minor, inadvertent irregularities can potentially give rise to claims that the law has been violated. Any violations of these laws could result in a material adverse effect on our business, financial condition and results of operations. If there is a change in law, regulation or administrative or judicial interpretations, we may have to change our business practices or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition and results of operations.

We could become subject to false claims litigation under federal or state statutes, which can lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in federal health care programs. These false claims statutes include the federal False Claims Act, which allows any person to bring suit alleging the false or fraudulent submission of claims for payment under federal programs or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. Such suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that companies like us may have to defend a false claim action. We could also become subject to similar false claims litigation under state statutes. If we are unsuccessful in defending any such action, such action may have a material adverse effect on our business, financial condition and results of operations.

Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges.

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP). These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on our reported results and may even retroactively affect previously reported transactions. Our accounting principles that recently have been or may be affected by changes in the accounting principles are as follows:

·   Revenue recognition;

·   Accounting for share-based payments;

·   Accounting for income taxes; and

·   Accounting for business combinations and related goodwill.

We do not intend to pay cash dividends on our Common Stock. As a result, you will not receive any periodic income from an investment in our Common Stock.

We have never paid a cash dividend on our Common Stock and we do not anticipate paying cash dividends in the foreseeable future. We intend to retain any earnings for use in the development and expansion of our business. In addition, applicable provisions of Delaware law and our debt instruments may affect our ability to declare and pay dividends on our Common Stock and our preferred stock. Accordingly, you should not expect to receive any periodic income from owning our Common Stock. Any economic gain on your investment will be solely from an appreciation, if any, in the price of the stock.

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Anti-takeover provisions could impede or discourage a third-party acquisition of our company. This could prevent stockholders from receiving a premium over market price for their stock.

We are a Delaware corporation. Anti-takeover provisions of Delaware law impose various obstacles to the ability of a third party to acquire control of our company, even if a change in control would be beneficial to our existing stockholders. In addition, our Board of Directors has adopted a stockholder rights plan and has designated a series of preferred stock that could be used defensively if a takeover is threatened. Our incorporation under Delaware law, our stockholder rights plan, and our ability to issue additional series of preferred stock, could impede a merger, takeover or other business combination involving our company or discourage a potential acquiror from making a tender offer for our Common Stock. This could reduce the market value of our Common Stock if investors view these factors as preventing stockholders from receiving a premium for their shares.

We are exposed to market risk from foreign currency exchange rates.

With two operating subsidiaries and third party manufacturers in Europe, economic and political developments in the European Union can have a significant impact on our business. All of our products are currently manufactured in Europe. We are exposed to currency fluctuations related to payment for the manufacture of our products in Euros and other currencies and selling them in U.S. dollars and other currencies.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of December 31, 2006, the Company leased the following properties:

Location	Use	Square feet	Expiration	Annual Rent
Livingston, NJ	Corporate office	12,780	July 2007	$192,000
Paris, France	European logistics office	150	3 months notice

Item 3. Legal Proceedings

Claims and lawsuits have been filed against the Company and its subsidiaries from time to time. Although the results of pending claims are always uncertain, the Company does not believe the results of any such actions, individually or in the aggregate, will have a material adverse effect on our financial position or results of operation. Additionally, the Company believes that it has reserves or insurance coverage in respect of these claims, but no assurance can be given as to the sufficiency of such reserves or insurance in the event of any unfavorable outcome resulting from these actions.

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2006.

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Executive Officers and Directors of the Registrant

Our executive officers and Directors as of March 5, 2007, were as follows:

Name	Age		Position with the Company
Robert S. Mills		54		President and Chief Executive Officer, Director
Michael McGrane		57		Senior Vice President, General Counsel and Secretary
James A. Meer		60		Senior Vice President, Chief Financial Officer and Treasurer
Stephen G. Kasnet		60		Chairman of the Board
Edward A. Blechschmidt		54		Vice Chairman of the Board
Valerie L. Andrews		47		Director
James S. Crofton		54		Director
Denis M. O’Donnell, M.D.		53		Director
Selwyn P. Oskowitz, M.D.		61		Director

Officers serve at the discretion of the Board of Directors. There is no family relationship between any of the executive officers or between any of the executive officers and the Company’s directors. There is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected, except with respect to Messrs. Mills’, McGrane’s and Meer’s employment agreements. See “Executive Compensation--Employment Agreements.”

Mr. Mills was promoted to President and Chief Executive Officer on March 6, 2006. On January 5, 2006, Mr. Mills was elected President and Chief Operating Officer and was elected to the Company’s Board of Directors. Mr. Mills joined Columbia in May 2001 as Senior Vice President, Operations and was named Chief Operating Officer in September 2003. Prior to joining the Company, Mr. Mills served five years as Senior Vice President, Manufacturing Operations, at Watson Pharmaceuticals, Inc. from 1996 to 2001. During his 30-year career in the pharmaceutical industry he also served as Vice President, Operations, at Alpharma, Inc. from 1993 to 1996 and held various positions with Aventis SA, including Director-Plant Operations. Mr. Mills holds a B.S. degree from Grove City College.

Mr. McGrane has served as Senior Vice President, since January 2006, and our General Counsel and Secretary since January 2002. He joined the Company from The Liposome Company, Inc., a biotechnology company, where he served as Vice President, General Counsel and Secretary from 1999 to 2001, prior to which he was Vice President, General Counsel and Secretary to Novartis Consumer Health, Inc. from 1997 to 1998. Previously, Mr. McGrane held various positions, including Associate General Counsel, with Novartis Pharmaceuticals Corporation from 1984 to 1996, and was Regulatory Counsel to the U.S. Food and Drug Administration from 1975 to 1984. Mr. McGrane received his J.D. degree from Georgetown University and his B.A. degree from Cornell College. He is a member of the New Jersey bar.

Mr. Meer has served as Senior Vice President, Chief Financial Officer and Treasurer since December 2006. He has over 35 years of financial experience in both privately-held and publicly-traded companies, of which 15 years are in the life sciences industry. He most recently served as Senior Vice President, Chief Financial Officer, Secretary and Treasurer of Pharmos Corporation, a biotechnology company, prior to which he was a consultant to pharmaceutical and biotech companies providing strategic and financial advice. Mr. Meer previously served eight years as Vice President and Treasurer of Schein Pharmaceutical, Inc., where he was responsible for capital formation, including a successful IPO, strategic planning and investor relations. He also held senior financial positions with public companies including EnviroSource, Inc., John Labatt Ltd. and General Host Corporation. Mr. Meer holds an M.B.A. degree from Pace University and a B.A. degree on economics from Rutgers College.

Mr. Kasnet has been a director of the Company since August 2004 and Chairman of the Board since November 2004. He was President and Chief Executive Officer of Harbor Global Company, Ltd., from June 2000 through 2006. He previously held senior management positions with various financial organizations, including Pioneer Group, Inc.; First Winthrop Corporation and Winthrop Financial Associates; and Cabot and Forbes. He serves as Chairman of the Board of Rubicon Ltd. (forestry) and is a director of Tenon Ltd. (wood products). He was Chairman of Warren Bank from 1990 to 2003. He is also a trustee and vice president of the board of The Governor’s Academy, Byfield, MA.

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Mr. Blechschmidt has been a director of Columbia since August 2004 and Vice Chairman of the Board since November 2004. He was Chairman, Chief Executive Officer and President of Gentiva Health Services from March 2000 until his retirement in July 2002. He previously served as Chief Executive Officer of Olsten Corporation (“Olsten”), the conglomerate from which Gentiva Health Services was split off and taken public. Before joining Olsten, Mr. Blechschmidt was President and Chief Executive Officer of both Siemens' Nixdorf Americas and Siemens' Pyramid Technology, prior to which he served more than 20 years with Unisys Corporation, ultimately as Chief Financial Officer. He is currently a director of HEALTHSOUTH Corp., Lionbridge Technologies, Inc. (business services), Novelis, and Option Care, Inc. (health care).

Ms. Andrews has been a director of Columbia since October 2005 and is Vice President and Deputy General Counsel of Vertex Pharmaceuticals Inc. Before joining Vertex in 2002, Ms. Andrews was Executive Director of Licensing for Massachusetts General and The Brigham and Women’s Hospitals, and prior to that a partner in the law firm of Hill & Barlow. She served as a law clerk to Chief Judge Levin H. Campbell of the United States Court of Appeals for the First Circuit from 1988 to 1989, and earlier rose to the rank of Captain in the United States Air Force.

Mr. Crofton has been a director of Columbia since October 2005. He has been Senior Vice President and Chief Financial Officer of Sarnoff Corporation (technology) since 1999. Previously, Mr. Crofton was Chief Financial Officer of EA Industries, Inc. (electronics manufacturing), and prior to that served in various positions, including Vice President of Finance, with Unisys Corporation (IT). He is currently a Director of American Mold Guard, Inc.

Dr. O’Donnell has been a director of the Company since January 1999, and is Managing Director of Seaside Capital, LLC. From 2004 to 2005, he also served as Chief Executive Officer of Molecular Diagnostics, Inc. (medical diagnostics and screening). Dr. O’Donnell served as Chairman of the Board of Directors of Novavax, Inc. (pharmaceuticals) from 2000 to 2005, President from 1995 to 1997, and Vice President from 1991 to 1995. He remains a Directors of Novavax, Inc. and serves on both the Board of Directors and audit committee of ELXSI, Inc. (restaurant and water inspection services).

Dr. Oskowitz has been a director of the Company since January 1999. An assistant professor of obstetrics, gynecology and reproductive biology at Harvard Medical School since 1993, Dr. Oskowitz is a reproductive endocrinologist at, and Director of, Boston IVF, a fertility clinic with which he has been associated since 1986. Dr. Oskowitz is a past President of the Boston Fertility Society.

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Code of Ethics

The Board of Directors of the Company has adopted a Code of Business Conduct and Ethics applicable to all Board members, executive officers and all employees. The Code of Business Conduct and Ethics is available on the Company’s website, under the investor relations tab. We will provide an electronic or paper copy of this document free of charge upon request. If substantial amendments to the Code of Business Conduct and Ethics are executed, or if waivers are granted, the Company will post and disclose the nature of such amendments or waivers on the Company’s website or in a report on Form 8-K.

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PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters and

Issuer Purchases of Equity Securities

The Company's Common Stock, par value $.01 per share ("Common Stock"), is traded on the NASDAQ Global Market under the symbol CBRX. The following table sets forth for the periods indicated the high and low sales prices of the Common Stock on the NASDAQ Common Stock.

	High		Low
Fiscal Year Ended December 31, 2005
First Quarter	$	3.08	$	1.52
Second Quarter		3.18		1.70
Third Quarter		3.82		2.42
Fourth Quarter		4.91		3.19
Fiscal Year Ended December 31, 2006
First Quarter	$	5.20	$	4.01
Second Quarter		5.26		2.90
Third Quarter		4.03		2.53
Fourth Quarter		5.98		3.21

At March 5, 2007, there were approximately 300 shareholders of record of the Company's Common Stock, one shareholder of record of the Company's Series B convertible preferred stock (“Series B Preferred Stock”), 10 shareholders of record of the Company’s Series C convertible preferred stock (“Series C Preferred Stock”) and 12 shareholders of record of the Company’s Series E convertible preferred stock (“Series E Preferred Stock”). The Company estimates that there were approximately 7,500 beneficial owners of its Common Stock on such date.

The Series C Preferred Stock was issued and sold by the Company in January 1999 to 24 accredited investors, through which the Company raised approximately $6.4 million, net of expenses. The Series C Preferred Stock has a stated value of $1,000 per share, and is convertible into Common Stock at the lower of: (i) $3.50 per share of Common Stock, and (ii) 100% of the average of the closing prices during the three trading days immediately preceding the conversion notice. The Series C Preferred Stock pays a 5% dividend, payable quarterly in arrears on the last day of the quarter.

Effective as of February 6, 2001, the Company entered into the Amended and Restated Common Stock Purchase Agreement (the “Purchase Agreement”) with Acqua Wellington North American Equities Fund, Ltd., (“Acqua Wellington”) to sell up to $16.5 million of Common Stock under the Registration Statement, the Prospectus, and the related Prospectus Supplement dated February 6, 2001 and amended on April 13, 2001. Pursuant to the Purchase Agreement, the Company was able to issue and sell to Acqua Wellington up to $16.5 million of Common Stock and grant Acqua Wellington a call option to purchase additional shares of Common Stock, subject to the overall limit of $16.5 million.The Company and Acqua Wellington agreed to extend the term of the Purchase Agreement until February 6, 2005, at which time it expired. The Company sold Acqua Wellington $9.84 million of Common Stock during the term of the Purchase Agreement.

During 2004, the Company issued 2,000,000 shares of its Common Stock to SJ Strategic Investments LLC, a family investment vehicle owned and managed by John M. Gregory, the founder and former Chairman and CEO of King Pharmaceuticals, which resulted in the Company receiving $6,380,000 after expenses. Proceeds were used for general corporate purposes.

During 2005, the Company raised $6.9 million from the issuance and sale of 69,000 shares of Series E Preferred Stock. The Series E Preferred Stock has a stated value of $100 per share. Each share of the Series E Preferred Stock may be converted by the holder into 50 shares of Common Stock, subject to adjustment, and will automatically be converted into Common Stock at that rate upon the date that the average of the daily market prices of the Company’s Common Stock for the 20 consecutive trading days preceding such date exceeds $6.00 per share. The Series E Preferred Stock pays no dividends and contains voting rights equal to the number of shares of Common Stock into which each share of Series E Preferred Stock is convertible. Upon liquidation of the Company, the holders of the Series E Preferred Stock are entitled to $100 per share.

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On March 10, 2006, the Company raised $30 million in gross proceeds to the Company from the issuance and sale of 7,428,220 shares of its Common Stock at a price of $4.04 per share and warrants to purchase 1,857,041 shares of Common Stock with an exercise price of $5.39 per share. The warrants became exercisable on September 9, 2006, and expire on March 13, 2011, unless earlier exercised or terminated. Proceeds were used for general corporate purposes.

On December 22, 2006, the Company raised approximately $40 million in gross proceeds to the Company from the issuance and sale of convertible subordinated notes. The notes bear interest at a rate of 8% per annum and mature on December 31, 2011. They are convertible into shares of 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 become exercisable on June 20, 2007, and expire on December 22, 2011, unless earlier exercised or terminated. The Company used the proceeds of this offering to acquire from Merck Serono the U.S. marketing rights to CRINONE^® for $33 million, purchase Serono’s current inventory of that product, and pay other costs related to the transaction. The balance of approximately $4.7 Million will be used for general corporate purposes.

During 2006, outstanding options were exercised resulting in the issuance of 335,049 shares of Common Stock and the receipt of $1 million by the Company. Proceeds were used for general corporate purposes. In addition, 50 shares of Series C Preferred Stock were converted into 14,825 shares of Common Stock.

Equity Compensation Plan Information

The following table sets forth aggregate information for the fiscal year ended December 31, 2006, regarding the Company's compensation plans, including individual compensation agreements, under which equity securities of the Company are authorized for issuance:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance
	(a)	(b)	(c)
Equity compensation plans approved by security holders	4,686,552	$8.25	2,310,549
Equity compensation plans not approved by security holders	725,000	$6.94	0
Total	5,411,552	$8.07	2,310,549

The Company has two shareholder-approved equity compensation plans, under which securities may be issued upon exercise. The first is the Columbia Laboratories, Inc. 1988 Stock Option Plan, as amended (the "1988 Plan"). All employees, officers, directors, and consultants of the Company or any subsidiary were eligible to participate in the 1988 Plan. Under the 1988 Plan, a total of 5,000,000 shares of Common Stock were authorized for issuance upon exercise of the options. As of October 1996, no further options were granted pursuant to the 1988 Plan and the remaining options expired in October of 2006. The second shareholder-approved equity compensation plan is the 1996 Long-term Performance Plan (the “1996 Plan”), adopted in October 1996, which provides for the grant of stock options, stock appreciation rights and restricted stock to certain designated employees of the Company, non-employee directors of the Company and certain other persons performing significant services for the Company as designated by the Compensation Committee of the Board of Directors. Pursuant to the 1996 Plan, an aggregate of 8,000,000 shares of Common Stock have been reserved for issuance.

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On March 12, 2002, the Company adopted a Stockholder Rights Plan (the “Rights Plan”) designed to protect company stockholders in the event of takeover activity that would deny them the full value of their investment. The Rights Plan was not adopted in response to any specific takeover threat. In adopting the Rights Plan, the Board declared a dividend distribution of one preferred stock purchase right for each outstanding share of Common Stock of the Company, payable to stockholders of record at the close of business on March 22, 2002. The rights will become exercisable only in the event, with certain exceptions, a person or group of affiliated or associated persons acquires 15% or more of the Company’s voting stock, or a person or group of affiliated or associated persons commences a tender or exchange offer which, if successfully consummated, would result in such person or group owning 15% or more of the Company’s voting stock. The rights will expire on March 12, 2012. Each right, once exercisable, will entitle the holder (other than rights owned by an acquiring person or group) to buy one one-thousandth of a share of a series of the Company’s Series D Junior Participating Preferred Stock at a price of $30 per one-thousandth of a share, subject to adjustments. In addition, upon the occurrence of certain events, holders of the rights (other than rights owned by an acquiring person or group) would be entitled to purchase either the Company’s preferred stock or shares in an “acquiring entity” at approximately half of market value. Further, at any time after a person or group acquires 15% or more (but less than 50%) of the Company’s outstanding voting stock, subject to certain exceptions, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by an acquiring person or group) for shares of the Company's Common Stock having a fair market value on the date of such acquisition equal to the excess of (i) the fair market value of preferred stock issuable upon exercise of the rights over (ii) the exercise price of the rights. The Company generally will be entitled to redeem the rights at $0.01 per right at any time prior to the close of business on the tenth day after there has been a public announcement of the beneficial ownership by any person or group of 15% or more of the Company’s voting stock, subject to certain exceptions.

On March 12, 2001, the Company granted to James Apostolakis, a director and former executive officer of the Company, warrants to purchase up to an aggregate of 100,000 shares of Common Stock at an exercise price of $5.85 per share. On March 12, 2001, the Company granted to Fred Wilkinson, pursuant to an employment agreement, warrants to purchase up to an aggregate of 350,000 shares of Common Stock at an exercise price of $8.35 per share.

Dividend Policy

The Company has never paid a cash dividend on its Common Stock and does not anticipate the payment of cash dividends in the foreseeable future. The Company intends to retain any earnings for use in the development and expansion of its business. The Company is required to pay a 5% dividend on its Series C Preferred Stock on the last day of each quarter.

Applicable provisions of the Delaware General Corporation Law may affect the ability of the Company to declare and pay dividends on its Common Stock as well as on its Series C Preferred Stock. In particular, pursuant to the Delaware General Corporation Law, a company may pay dividends out of its surplus, as defined, or out of its net profits, for the fiscal year in which the dividend is declared and/or the preceding year. Surplus is defined in the Delaware General Corporation Law to be the excess of net assets of the company over capital. Capital is defined to be the aggregate par value of shares issued unless otherwise established by the Board of Directors.

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Item 6. Selected Financial Data

The following selected financial data (not covered by the auditor’s report) are derived from the Company’s audited financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. The historical results are not necessarily indicative of the results we expect for future periods.

Financial Highlights

	2006			2005			2004			2003			2002
Statement of Operations Data: (000's except per share data)
Revenues	$	17,393		$	22,041		$	17,860		$	22,415		$	9,419
Gross Profit		9,573			13,929			10,072			12,632			4,190
Operating Expenses		20,733			21,160			32,044			32,214			20,050
Interest Expense		2,516			2,694			2,991			1,846			853
Net Loss		(12,612	)		(9,307	)		(25,130	)		(21,151	)		(16,850	)
Loss per common share		(0.27	)		(0.23	)		(0.62	)		(0.57	)		(0.50	)
Weighted average number of common shares outstanding-diluted		48,089			41,752			40,984			37,440			34,392

Balance Sheet Data at December 31 (000's)
Working capital (deficiency)	$	23,410	$	(3,471	)	$	9,303		$	33,690	$	4,717
Total Assets		65,839		14,732			29,268			42,755		12,902
Note payable		25,299		-			-			10,000		10,000
Long-term portion of financing agreements		11,230		8,748			18,923			15,747		1,350
Stockholders' equity (deficiency)		17,863		(15,150	)		(12,531	)		6,087		(8,395	)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes (“Notes”).

We are in the business of developing, manufacturing and selling pharmaceuticals 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, and can now address the full range of reproductive endocrinologists, obstetricians and gynecologists who treat infertility in 2007. We also promote STRIANT^® testosterone buccal tablet for the treatment of hypogonadism in men, however, our focus in fiscal 2007 is to increase prescriptions of our infertility products.

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

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

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 because of the significant non-cash items related to the CRINONE^® acquisition that our future financial statements will reflect. We expect to have positive cash flow from operations in 2008. Our sales and distribution expenses will be higher in 2007 to fund market research and medical education programs critical to our growth strategy. In 2007, we expect that our research and development expenses will be lower than those in 2006 as we focus on the streamlined clinical development of vaginally-administered lidocaine for dysmenorrhea and look to potentially advance another drug candidate into the clinic.

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Results of Operations

Summary

(In thousands, except percentages)	2006	Percentage inc./ (dec.) from prior year	2005	Percentage inc./ (dec.) from prior year	2004
Revenues	$17,393	(21.1)%	$22,041	23.4%	$17,860

Revenues decreased 21% in 2006 to 17.4 million as compared to $22.0 million in 2005 and $17.9 million in 2004. We receive revenues both from selling our products to licensees, which we refer to as our “Partnered Products”, and selling our products that we promote through our own sales force to wholesalers and other distributors, which we refer to as our “Promoted Products.”

The table below illustrates the components of these two categories before and after December 2006.

	Fiscal 2006 and prior	Fiscal 2007 and forward
Partnered Products	CRINONE® sold to Merck Serono (worldwide) 1	CRINONE sold to Merck Serono (ex-U.S.) 2
	STRIANT® sold to Ardana (14 European countries)	STRIANTsold to Ardana (14 European countries)
		STRIANT sold to Mipharm (Italy)
	Replens® Vaginal Moisturizer sold to Lil’ Drug Store (ex-U.S.)	Replens Vaginal Moisturizer sold to Lil’ Drug Store (ex-U.S.)
	RepHresh® Vaginal Gel sold to Lil’ Drug Store (worldwide)	RepHresh Vaginal Gel sold to Lil’ Drug Store (worldwide)
	Advantage-S® Bioadhesive Contraceptive Gel sold to Lil’ Drug Store (worldwide)3	---
	Royalty and licensing revenues	Royalty and licensing revenues
Promoted Products	PROCHIEVE® 8% (U.S.)	PROCHIEVE 8% (U.S.)
	PROCHIEVE 4% (U.S.)	PROCHIEVE 4% (U.S.)
	40% royalty on CRINONE prescriptions in the U.S. from our OB/GYN audience, paid by Serono	CRINONE (U.S.)
	STRIANT (U.S.)	STRIANT (U.S.)
	Professional promotion fees for presenting Replens Vaginal Moisturizer, RepHresh Vaginal Gel, and Advantage-S Bioadhesive Contraceptive Gel to OB/GYNs, paid by Lil’ Drug Store4	---

¹ Prior to the acquisition of U.S. marketing rights to CRINONE on December 22, 2006.

² Subsequent to the acquisition of U.S. marketing rights to CRINONE on December 22, 2006.

³ The production and sale of Advantage-S^â was discontinued during the second half of 2006.

⁴The professional promotion agreement expired on December 31, 2006 pursuant to its terms.

Revenues from sales of CRINONE to Merck Serono were $6.7 million in 2006, compared to $8.1 million in 2005 and $7.2 million in 2004. Revenues from the PROCHIEVE^® line of products were $3.0 million in 2006, compared to $3.2 million in 2005 and $1.7 million in 2004. 2004 revenues reflect a provision for product returns of $3.0 million. In the 2004 fourth quarter, primarily two customers returned $1.4 million of PROCHIEVE that was to expire in 2005. The Company re-evaluated its estimate for product returns, taking into consideration such factors as historical trends, distributor inventory levels and product prescription data and booked additional provisions of $1.0 million in 2004 and $0.5 million in 2005.

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Revenues from STRIANT^® were $0.8 million in 2006, compared to $1.5 million in 2005 and $3.3 million in 2004. In 2006, the Company reduced inventory in the trade by approximately $0.8 million which impacted sales. 2005 results reflect a provision for product returns of $1.8 million of which $1.3 million occurred when we re-evaluated our estimate for product returns to take into consideration additional factors related to inventory and return practices of our primary trade customers. 2005 and 2004 results include the sale of approximately $0.2 million of STRIANT to Ardana our licensee in 18 countries in Europe.

Revenues from the sales of RepHresh^® were $0.7 million in 2006, compared to $2.8 million in 2005 and $0.6 million in 2004. In 2004, we sold the worldwide marketing rights to Lil’ Drug Store, who placed orders in 2005 with us for their launch of the product in the United States.

Revenues from sales of Replens^® were $2.7 million in 2006, compared to approximately $2.5 million in 2005 and $2.7 million in 2004. After the first quarter of 2004, Lil’ Drug Store no longer purchased batches of Replens for sale in the U.S. under our 2000 agreement selling U.S. rights to the product. That resulted in decreased revenues in 2005 and 2004. In June 2004, we sold the foreign marketing rights for Replens to Lil’ Drug Store.

Gross profit as a percentage of sales was 55% in 2006 compared to 63% in 2005 and 56% in 2004. The decrease in the 2006 gross profit percentage was caused by reduced sales of CRINONE^® in the U.S. due to the Company’s acquisition of U.S. marketing rights to this product in December 2006, which caused a shift in the mix of product sales between lower margin OTC products versus higher margin prescription products, and the purchase of CRINONE inventory from Merck Serono. The increase in the 2005 gross profit percentage was caused by an overall reduction in the provision in product returns and a reduction in the royalty paid to Merck Serono caused by product returned in 2005. Cost of goods sold for PROCHIEVE^® through December 22, 2006 includes a 30% royalty on net sales paid to Merck Serono.

The net loss for 2006 was $12.6 million, or $0.27 per share, as compared to a net loss of $9.3 million, or $0.23 per share, in 2005 and a net loss of $25.1 million, or $0.62 per share, in 2004 as a result of the following components:

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Selling and Distribution

(In thousands, except percentages)	2006	Percentage inc./ (dec.) from prior year	2005	Percentage inc./ (dec.) from prior year	2004
Selling and distribution	$6,600	(23.1)%	$8,578	(54.9)%	$19,007
As a percentage of revenue	37.9%	(1.0)pp	38.9%	(67.5) pp	106.4%

 

Note: PP - percentage points

Selling and distribution expenses include payroll, employee benefits, equity compensation and other personnel-related costs associated with sales and marketing personnel, and advertising, promotions, tradeshows, seminars, and other marketing-related programs.Selling and distribution expenses were approximately $6.6 million, $8.6 million and $19.0 million in 2006, 2005 and 2004, respectively. Selling and distribution expenses decreased by approximately 23% in 2006 compared to 2005 and by approximately 55% in 2005 compared to 2004. The decrease in 2006 from 2005 reflects the full year effect of the restructured sales force as well as reduced overall expenses. The decrease in 2005 from 2004 reflects the restructuring of the sales force in February 2005, as previously discussed.

Included in the 2006 expenses were sales force costs of approximately $2.6 million, product marketing expenses of approximately $1.3 million and salary and travel costs of approximately $1.2 million. Expenses in 2005 included approximately $4.8 million in sales force costs, approximately $1.5 million in product marketing expenses and approximately $1.3 million in salary costs. Expenses in 2004 included approximately $10.9 million in sales force costs, approximately $4.8 million in product marketing expenses and approximately $1.2 million in salary costs.

General and Administrative

(In thousands, except percentages)	2006	Percentage inc./ (dec.) from prior year	2005	Percentage inc./ (dec.) from prior year	2004
General and administrative	$7,402	8.5%	$6,825	(10.1)%	$7,588
As a percentage of revenue	42.6%	11.6 pp	31.0%	(11.5) pp	42.5%

General and administrative costs include payroll, employee benefits, equity compensation, and other personnel-related costs associated with finance, legal, regulatory affairs, information technology, facilities and certain human resources, and other administrative personnel, as well as legal costs and other administrative fees. General and Administrative expenses increased by approximately $0.6 million, or 8.5%, to approximately $7.4 million in 2006 from approximately $6.8 million in 2005. The increase resulted primarily from the impact of 123R stock compensation recognition of $0.7 million and severance expenses. General and administrative expenses decreased by approximately $0.8 million, or 10%, to approximately $6.8 million in 2005 from approximately $7.6 million in 2004. The decrease resulted primarily from lower insurance costs ($0.7 million).

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Research and Development

(In thousands, except percentages)	2006	Percentage inc./ (dec.) from prior year	2005	Percentage inc./ (dec.) from prior year	2004
Research and development	$6,596	14.6%	$5,757	5.7%	$5,449
As a percentage of revenue	37.9%	11.8 pp	26.1%	(4.4) pp	30.5%

Research and development expenses include payroll, employee benefits, equity compensation and other personnel-related costs associated with product development, as well as the cost of conducting and administering clinical studies and the cost of regulatory filings for our products.Research and development expenses increased to approximately $6.6 million in 2006 from approximately $5.8 million in 2005 and approximately $5.4 million in 2004. These increases primarily reflect costs associated with the Company’s Phase III clinical trial of PROCHIEVE^® 8% in preventing preterm birth. Study-related costs increased by approximately $1.2 million in 2006 and approximately $1.8 million in 2005 over prior year levels. 2006 costs also included development costs related to the Company’s vaginally-administered lidocaine drug candidate. The 2005 increase was partially offset by the reduction in payments related to the Mutual Recognition Process (“MRP”) for obtaining regulatory approval of STRIANT^® in European countries, a one-time event which culminated in October 2004 with the approval of STRIANT in 14 European countries ($0.4 million) and a reduction of costs associated with the continuation studies associated with STRIANT ($0.4 million).

Other Income (Expense)

Interest expense was $2.5 million, $2.7 million and $3.0 million in 2006, 2005 and 2004, respectively. On April 14, 2006, the Company paid a scheduled true-up payment to PharmaBio of $11.6 million early and saved approximately $0.4 million in interest expense. For accounting purposes, the payment resulted in a non-cash charge of approximately $0.3 million as an early extinguishment of debt penalty for a net savings of $0.1 million. This saving was mostly offset as the Company took a charge $0.1 million of interest expense related to the $40 million convertible subordinated notes issued in December.

2006, 2005 and 2004 interest expense included approximately $2.4 million, $2.5 million and $2.2 million, respectively, as the result of amortizing, as interest expense over the term of the agreements, the difference between the minimum amounts to be paid to PharmaBio and the amounts received. Additionally, interest expense related to a $10 million convertible subordinated note totaled $0.2 million in 2005 and $0.7 million in 2004. This note was paid in full on March 15, 2005.

Other income in 2006 reflects interest income of $0.9 million, and the receipt of approximately $0.5 million from the sale of New Jersey state net operating losses. In 2004, the Company recorded a loss of $0.6 million on sale of intangible assets associated with sale of the over-the-counter products to Lil’ Drug Store. See “Business - Licensing and Development Agreements”.

Contractual Obligations

As previously disclosed, in July 2002 and March 2003, the Company entered into agreements with PharmaBio, under which we received upfront money in exchange for royalty payments on our women’s healthcare products and STRIANT, respectively. We owe royalty payments to PharmaBio for a fixed period of time. These royalty payments are subject to minimum and maximum amounts. In addition, the Company enters into operating leases for many of our facility and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for the use of, rather than purchasing, facilities and equipment. At the end of the lease, we have no further obligation to the lessor.

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On December 22, 2006, the Company issued (i) subordinated convertible notes in aggregate principal amount of $40 million (the “Notes”) and (ii) warrants to purchase 2,285,714 shares of Common Stock (the “Warrants”) with an exercise price of $5.50 per share. A portion of the proceeds were used to acquire the U.S. marketing rights to CRINONE^® and the balance was used to pay related expenses and for working capital. The Notes bear interest at the rate of 8% per annum, payable quarterly in arrears commencing April 1, 2007. The Notes are convertible into shares of Common Stock at a conversion price of $5.25 per share. The conversion price is subject to adjustment if the Company subdivides or combines the outstanding Common Stock and under certain other circumstances. The maturity date of the Notes is December 31, 2011. The holders will have the right to require the Company to redeem all or any portion of their Notes for cash upon a Change of Control (as defined in the Notes), and, under certain circumstances, the right to a Make-Whole Premium (as defined in the Notes). The Notes contain customary events of default. The Notes are subordinated to the Company’s obligations to PharmaBio. The Warrants are exercisable beginning on June 20, 2007, and ending on December 22, 2011, at an exercise price of $5.50 per share, subject to adjustment in certain circumstances. The Company will be required to make certain cash payments to the holders of the Notes and Warrants if it does not meet its registration obligations under the agreement relating to the transaction.

Our future contractual obligations include the following:

	For the Fiscal Years Ended December 31,
	Total		2007		2008		2009		2010		Beyond
	(in thousands)
$40 Million Convertible Notes	$	40,000									$	40,000
PharmaBio women's healthcare
finance agreement		4,367		394		3,973		-				-
PharmaBio Striant®
finance agreement		17,000		160		166		166		16,508		-
Operating lease obligations		179		142		13		13		10		1
Total	$	61,546	$	696	$	4,152	$	179	$	16,518	$	40,001

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We do not expect FIN 48 will have a material effect on our consolidated financial condition or results of operations.

In September 2006, the Securities and Exchange Commission (‘SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires registrants to use both a balance sheet approach and an income statement approach when evaluating and quantifying the materiality of a misstatement. SAB 108 provides guidance on correcting errors under the dual approach as well as providing transition guidance for correcting errors. The Company adopted the provisions of SAB 108 as of December 31, 2006. The adoption of SAB 108 will have an effect on our results of financial operations or financial position - see Note 5 to the Consolidated financial statements regarding the effect of the adoption of the SAB on our financial position.

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In December 2006, FASB issued a FASB Staff Position (“FSP”) EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP 00-19-2”). This FSP addresses an issuer’s accounting for registration payment arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5 “Accounting for Contingencies.” The guidance in this FSP amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” as well as FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to include scope exceptions for registration payment arrangements. This FSP is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of this FSP. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this FSP, this is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. We are currently evaluating the impact that the implementation of FSP EITF 00-19-2 may have in our consolidated results of operations and financial position.

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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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of Inflation

Sales revenues, manufacturing costs, selling and distribution expenses, general and administrative expenses, and research and development costs tend to reflect the general inflationary trends.

Liquidity and Capital Resources

Cash and cash equivalents were $25 million, $7 million, and $20 million, at December 31, 2006, December 31, 2005, and December 31, 2004, respectively.

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

	2006			2005			2004
Cash flows:
Operating activities	$	(6,025,376	)	$	(6,615,042	)	$	(19,864,759	)
Investing activities		(33,015,757	)		(83,367	)		(282,367	)
Financing activities		57,152,754			(5,881,730	)		8,912,774

Operating Activities:

The Net loss in 2006 of $12.6 million is reduced by non cash items totaling $6.9 million leaving cash operating losses of $5.7 million. Working capital decreased by $1.0 million less the increase in other assets of $1.4 million for deferred financing charges plus deferred revenues of $0.1 million leaving cash flow from operating activities as a use of funds at $6.0 million. Working capital changes reflect a reduction in the sales return levels from 2005 levels by both a reduction in receivables $1.5 million and heavy sales returns in the fourth quarters. Inventories increased $0.9 million. Other assets, ($1.4 million) represent the capitalization of the $40 million subordinated debt issue expenses. Similarly, the increase in account payable of $1.7 million represents the sum of the issue expenses ($1.3 million) and clinical trial expenses ($0.3 million). Accrued expenses grew by $1.0 million half of which is due to the increase in sales returns by $0.5 million and professional fees for $0.3 million.

The Net loss in 2005 was $9.3 million which included $6.5 million in non cash charges leaving cash operating losses of $2.8 million. Working capital grew by $3.6 million, a decrease in accrued expenses of approximately $3.2 million (principally related to customer usage of sales return credits), and a decrease in accounts payable $0.9 million during the year amounting to most of the increase in working capital. These were partially offset by a reduction in prepaid expenses and other current assets of approximately $0.5 million, as a result of paying insurance payments in installments instead of in one up-front payment.

The Net loss in 2004 of $25.1 million included $7.6 million of non cash charges leaving net cash operating losses of $17.5 million. Working capital decreased by $3.7 million. Accrued expenses decreased by approximately $3.2 million (principally related to customer usage of approximately $1.5 million in sales return credits, and approximately $1.4 million decrease in the accrual for costs associated with the sales and marketing of STRIANT^®). Inventory increased approximately $1.3 million (primarily related to STRIANT). These were partially offset by a decrease in prepaid expenses and other current assets of approximately $1.1 (primarily as a result of a significant reduction in insurance premiums), a decrease in the 2004 year-end balance in accounts receivable of approximately $0.7 million caused by a difference in the timing of sales within the fourth quarters of 2004 and 2003, and the receipt of $0.8 million in milestone fees from one of the Company’s licensees in 2004.

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Investing Activities:

In December of 2006, the Company purchased the US licensing rights to CRINONE^® for the US market at a cost of $33 million.

Net cash used in investing activities in 2005 was primarily attributable to the purchase of office equipment.

Net cash used in investing activities in 2004 was primarily attributable to the purchase of manufacturing equipment associated with STRIANT^® and to the purchase of office equipment. Additionally, in 2004, the Company received $0.3 million from the sale of intangible assets associated with the sale of our over-the-counter products to Lil’ Drug Store Products, Inc

Financing Activities:

Financing activities in 2006 produced net funds to the Company of $57.2 million. The Company had two major fund raises, one in March and the other in December. The March capital raise of $28.8 million was through the sale of 7,428,220 shares of common stock and the issue of 1,857,041 warrants. In December, the Company raised $40 million through the sale of subordinated convertible notes discussed below. Stock option exercises generated $1.0 million of proceeds. Offsetting these receipts were the payment of $12.4 million to PharmaBio and $0.2 million dividends to the holders of the Preferred C shareholders.

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 existing institutional investors. The notes bear interest at a rate of 8% per annum and mature on December 31, 2011. They are convertible into shares of 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 become exercisable on June 20, 2007, and expire on December 22, 2011, unless earlier exercised or terminated. The Company used the proceeds of this offering to acquire from Merck Serono S.A. the U.S. marketing rights to CRINONE($33 million), purchase Serono’s current inventory of that product, and pay other costs related to the transaction. The balance of the proceeds will be used for general corporate purposes.

We recorded original issue discounts of $6.3 million to the notes based upon the fair value of warrants granted. In addition, a beneficial conversion features totaling $8.5 million have been recorded as a discount to the notes. These discounts are being amortized over the five year term of the related notes. For the year ended December 31, 2006, $53,793 of amortization related to these discounts is classified as interest expense in our consolidated statements of operations. Unamortized discounts of $14.7 million have been reflected as a reduction to the face value of convertible notes in our consolidated balance sheet as of December 31, 2006.

Net cash used in 2005 was attributable to the payoff of a $10 million subordinated convertible note on March 15, 2005, $2,627,483 paid to PharmaBio Development under the Company’s two product financing agreements (including a $1,891,944 true-up payment under the women’s healthcare products financing agreement), and $162,500 in dividends paid to the owners of the Company’s Series C Convertible Preferred Stock. Offsetting these payments was the receipt of $6,900,000 by the Company from the issuance of Series E Convertible Preferred Stock and $8,253 received from the exercise of options and warrants.

Net cash provided by financing activities in 2004 resulted from the receipt of $6,380,000 from the issuance of Common Stock, $3,000,000 pursuant to the Striant financing agreement, and $229,686 from the exercise of options and warrants. Offsetting these receipts were $534,412 paid to PharmaBio Development under the Company’s two product financing agreements, and $162,500 in dividends paid to the owners of the Company’s Series C Convertible Preferred Stock.

As previously discussed, on July 31, 2002, we entered into an investment and royalty agreement with PharmaBio under which we received $4.5 million in return for a 5% royalty to PharmaBio on net sales of the Company’s women’s healthcare products in the United States for five years, beginning in the first quarter of 2003. The royalty payments are subject to aggregate minimum ($8 million) and maximum ($12 million) amounts, including a true-up payment due February 28, 2005 for the difference between royalties paid to that date and $2.75 million. We made the required true-up payment of approximately $1.9 million on February 28, 2005, and have paid $3.63 million to date.

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Also, as previously discussed, on March 5, 2003, we entered into a second investment and royalty agreement with PharmaBio under which we received $15 million in return for a 9% royalty to PharmaBio on net sales of STRIANT^® in the United States up to agreed annual sales revenues, and a 4.5% royalty of net sales above those levels. The royalty term is seven years. Royalty payments commenced in the 2003 third quarter and are subject to aggregate minimum ($30 million) and maximum ($55 million) amounts, including a true-up payment due on November 14, 2006 for the difference between royalties paid to that period and $13 million. On April 14, 2006, the Company made an advance payment of $11.6 million on a contractually required true-up payment to PharmaBio Development.  This amount represented the present value of a $12 million true-up payment due November 14, 2006, calculated using a six percent annual discount factor. Additionally, the Company made a follow-up $.2 Million true-up payment at the end of the year. The Company has paid $13.0 million to date.

The Company has an effective registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using a shelf registration process. Under the shelf registration process, we may offer from time to time shares of our Common Stock up to an aggregate amount of $75 million. To date 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 of our product candidates.

In connection with the 1989 purchase of the assets of Bio-Mimetics, which assets consisted of the patents underlying the Company's BDS, other patent applications and related technology, the Company pays Bio-Mimetics a royalty equal to two percent of the net sales of products based on the BDS up to an aggregate of $7.5 million or until the last of the relevant patents expires. The Company is required to prepay 25% of the remaining royalty obligation, in cash or stock at the option of the Company, if the closing price of the Company’s Common Stock is $20 or more on March 2, or within 30 days after that date, of any year. To date, the Company has paid approximately $3.3 million in royalty payments. Royalty payments on STRIANT, PROCHIEVE^®, and CRINONE^® expired in September of 2006, but continue on Replens^® and RepHresh^®.

The Company anticipates it will spend approximately $150,000 on equipment in 2007.

As of December 31, 2006, the Company had available net operating loss carryforwards of approximately $131 million to offset its potential future U.S. taxable income. There can be no assurance that the Company will have sufficient income to utilize the net operating loss carryforwards or that the net operating loss carryforwards will be available at that time.

In accordance with Statement of Financial Accounting Standards No. 109, as of December 31, 2006 and 2005, other assets in the accompanying consolidated balance sheet include deferred tax assets of approximately $48 million and $45 million respectively, (comprised primarily of a net operating loss carryforward) for which a valuation allowance has been recorded since the probability of realizing the deferred tax assets are not determinable.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition, impairment of intangible assets, and accounting for the agreements with PharmaBio. For a detailed discussion on the application of these and other accounting policies, see Note 1 of the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.

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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 on sales of products by Columbia are discussed in detail below. Royalties and additional monies owed to the Company based on sales by our licensees are recorded as revenue as those sales are made by the licensees. License fees not based on sales are recognized as revenues over the term of the license.

Sales returns. 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 increase such reserve if deemed appropriate. The greatest potential for uncertainty in estimating returns is the estimation of future prescriptions. Prescriptions are wholly dependent on the Company’s ability to sell and market the products. If prescriptions are lower in future periods then the current reserve will be inadequate. The Company purchases prescription data on all its products from IMS Health, a leading provider of market intelligence 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’ 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 salable product is used first. The Company also assumes that our customers will not ship product that has an expiration date 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-salability exists.

Accounting For PharmaBio Agreements. In July 2002 and March 2003, the Company entered into agreements with PharmaBio under which the Company received upfront money paid in quarterly installments in exchange for royalty payments on certain of the Company’s products to be paid to PharmaBio for a fixed period of time. The royalty payments are subject to minimum and maximum amounts. Because the minimum amounts exceed the amount received by the Company, the Company has recorded the monies received as liabilities. We are recording the excess of the minimum to be paid by the Company over the amount received by the Company as interest expense over the terms of the agreements.

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Adjustments for Stock-Based Compensation on Prior Year Financial Statements. As of January 1, 2006, the Company adopted FAS 123R, using the modified prospective transition method. FAS 123R requires the measurement and recognition of compensation expense for all stock-based awards made to the Company’s employees and directors including stock options and other stock-based awards based on estimated fair values. Prior to January 1, 2006, the Company accounted for share-based compensation granted under its stock option plans using the recognition and measurement provisions of APB 25. Under APB 25, a company was not required to recognize compensation expense for stock options issued to employees if the exercise price of the stock options was at least equal to the quoted market price of the Company’s common stock on the “measurement date.” APB 25 defined the measurement date as the first date on which both the number of shares that an individual employee was entitled to receive and the option price, if any, were known.

As disclosed in the Company’s September 30, 2006 10-Q filing, the Company’s Audit Committee initiated a review in the second half of 2006 of the Company’s stock option granting practices from October 1996 to the present. The review was initiated independently by the Committee in light of the recent heightened scrutiny regarding this topic. The review did not reveal any pattern or practice of inappropriately identifying grant dates with hindsight in order to provide “discounted” or “in-the-money” options. However, with respect to fiscal years 1996-2001, the review identified certain instances where the granting of options was not consistent with the Company’s practice of establishing the exercise price at the closing price on the day before the date of grant. Instead, in some cases the exercise price was established as the closing price on the date of grant. The review also identified that, during this period, certain grants of stock options were approved by the Compensation Committee by means of unanimous written consents in lieu of a meeting, in which the date the unanimous written consent was finalized (which becomes the measurement date for accounting purposes) is subject to uncertainties. In such cases, the Company has determined, where possible, the measurement date for the unanimous consent options as the date on which the Company’s records best indicate the unanimous consent to be executed. If such date cannot be determined, then the Company used the date of mailing of an executed option contract, if the option contract was dated “as of” the option grant date, or the date upon which the option contract was actually executed.

In January 2002 the Company changed its practice for determining the exercise price of options to the average of the high and low reported sales prices of the Company’s common stock on the date of grant and consistently applied that practice from that time to the present.We have concluded that, since January 2002, all option grants have been in accordance with the terms of the Company’s 1996 Long-term Performance Plan and have been appropriately accounted for in the Company’s financial statements.

Upon completion of its review, the Company concluded that an additional stock-based compensation in the aggregate of $998,000 should be recorded to reflect additional stock-based compensation expense under APB 25, the accounting method in effect at the time, relating to the company’s historical stock option practices. The majority of such amount is attributable to options granted in 1997, with related compensation expense allocable to the years ended December 31, 1997 and 1998.

In determining the appropriate method to account for the understatement of compensation expense, the Company had considered SEC Staff Accounting Bulletin (SAB) No. 99, Materiality and does not believe the understatement of compensation expense meets the quantitative or qualitative considerations of materiality under SAB No. 99 for the following reasons:

(1)   The compensation expense principally affected the financial statements for the years 1997 through 2001, which are not presented. Because the Company had significant cumulative operating losses during that period, the understatement of compensation expense did not mask a change in earnings or other trends.

(2)   The understatement of compensation expense during the period did not have a material effect on earnings per share, affecting solely 1997, by $0.02, and 1998, by $0.01.

(3)   The understatement of compensation expense did not affect whether the Company would have reported income or loss during any period.

45

(4)   The understatement of compensation expense did not affect a segment or other portion of the Company’s business that has been identified as playing a significant role in the Company’s operations.

(5)   The understatement of compensation expense did not affect compliance with loan covenants or other contractual requirements during the period.

(6)   The understatement of compensation expense had the affect of increasing management’s compensation under the Company’s Incentive Compensation Plan by an estimate of $19,000 in 1997, which the Company considers insignificant.

(7)   The understatement of compensation expense was inadvertent and did not involve a concealment of an unlawful transaction.

The Company has, in accordance with the transition provisions of Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, recorded a reclassification within the equity section of the consolidated balance sheet as an increase in additional paid-in capital and an increase in accumulated deficit for the year ended December 31, 2006, of $998,000, excluding any related tax effect.  Since the Company substantially reported losses during this period, the impact to income taxes was not considered material. This reclassification represents the effect of the adjustment resulting from the non-cash charges discussed above, all of which relate to prior fiscal years. 

Forward-Looking Statements

This Annual Report on Form 10-K contains statements that are forward-looking. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, the Company’s expectations regarding sales, earnings or other future financial performance and liquidity, completion of clinical studies, product introductions, entry into new geographic regions, and general optimism about future operations or operating results. Some of these statements can be identified by the use of forward-looking terminology such as "prospects," "outlook," "believes," "estimates," "intends," "may," "will," "should," "anticipates," "expects, or "plans," or the negative or other variation of these or similar words, or by discussion of trends and conditions, strategy or risks and uncertainties.

These forward looking expectations are based on current assumptions within the bounds of management’s knowledge of our business and operations and which management believes are reasonable. These assumptions are subject to risks and uncertainties, and actual results could differ materially from expectations because of issues and uncertainties such as those listed in “Risk Factors” and elsewhere in this Annual Report, which, among others, should be considered in evaluating our future financial performance.All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the cautionary statements in this Annual Report. Readers are advised to consult any further disclosures the Company may make on related subjects in subsequent reports filed with the SEC.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

The Company does not believe that it has material exposure to market rate risk. The Company may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose the Company to material market risk.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data required by this item are set forth at the pages indicated in Item 15, set forth in this annual report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

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Item 9 A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the SEC is recorded, processed, summarized and reported on a timely basis. The Company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2006. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2006, the Company’s disclosure controls and procedures were effective.

47

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.

Management of the Company conducted an evaluation of the effectiveness, as of December 31, 2006, of the Company’s internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on its evaluation under the COSO Framework, management has concluded that the Company’s internal control over financial reportingwas effective as of December 31, 2006.

Goldstein Golub Kessler LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting (see Report of Independent Registered Public Accounting Firm).

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Columbia Laboratories, Inc.:

We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Columbia Laboratories, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Columbia Laboratories, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Columbia Laboratories, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Columbia Laboratories, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the December 31, 2006 consolidated financial statements of Columbia Laboratories, Inc. and our report dated March 15, 2007, expressed an unqualified opinion on those financial statements.

GOLDSTEIN GOLUB KESSLER LLP

New York, New York

March 15, 2007

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Item 9 B. Other Information

In the fourth quarter of 2006 the Company reported all required disclosures on Form 8-K.

On February 5, 2007, the Company reported that its Phase III clinical trial of PROCHIEVE^® 8% for the prevention of preterm birth did not achieve a statistically significant reduction in the incidence of preterm birth at week 32, the primary endpoint, or at weeks 28, 35 and 37, secondary endpoints of the study.

Of the 611 evaluable patients, 302 received placebo and 309 received PROCHIEVE 8%.  The mean gestational age at delivery was approximately 37 weeks in both the active and placebo groups following treatment, an improvement from a mean of 30 weeks in the previous preterm birth for both groups.  Over 60% of evaluable patients had a previous preterm birth at or below 32 weeks gestation; prior studies of progestins to prevent preterm birth were comprised mainly of patients with prior preterm births at 34 weeks or greater.

The incidence and profile of adverse events in patients receiving PROCHIEVE 8% was similar to placebo, which was as expected given the product’s documented safety history.

The Company is conducting detailed analyses of the study data, and intends to report the results of this trial in more detail at appropriate scientific venues. Based on the study results, the Company has discontinued the development of PROCHIEVE 8% for the prevention of preterm birth in pregnant women with a previous preterm birth before 35 weeks gestation. Prochieve 8% remains, however, a key product in the Company’s core infertility business and for pregnancy support in the first trimester.

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PART III

Item 10. Directors and Executive Officers of the Company

The information concerning directors and all audit committee financial experts required by Item 10 is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders. The information concerning compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders. The information concerning executive officers required by Item 10 is contained in the discussion entitled Executive Officers of the Registrant in Part I hereof.

Item 11. Executive Compensation

The information required by Item 11 is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the heading “Executive Compensation”.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the heading “Ownership of the Company”.

Item 13. Certain Relationships and Related Transactions

The information required by Item 13 is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the heading “Certain Relationships and Related Transactions”.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is incorporated herein by reference to Columbia’s Proxy Statement for its 2007 Annual Meeting of Shareholders under the heading “Relationship with Independent Auditors”.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)(2) Financial Statements and Financial Statement Schedules

Indexes to financial statements and financial statement schedules appear on F-1 and F-26, respectively.

(b) Exhibits

3.1	--	Restated Certificate of Incorporation of the Company, as amended33/
3.2	--	Amended and Restated By-laws of Company10/
4.1	--	Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company, dated as of January 7, 199910/
4.2	--	Securities Purchase Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
4.3	--	Securities Purchase Agreement, dated as of January 19, 1999, among the Company, David M. Knott and Knott Partners, L.P.10/
4.4	--	Securities Purchase Agreement, dated as of February 1, 1999, between the Company and Windsor Partners, L.P.10/
4.5	--	Registration Rights Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
4.6	--	Form of Warrant to Purchase Common Stock10/
4.7	--	Warrant to Purchase Common Stock granted to James J. Apostolakis on September 23, 1999
4.8	--	Certificate of Designations of Series E Convertible Preferred Stock, filed May 10, 2005 with the Delaware Secretary of State30/
10.1	--	Employment Agreement dated as of January 1, 1996, between the Company and Norman M. Meier6/*
10.2	--	Employment Agreement dated as of January 1, 1996, between the Company and William J. Bologna6/*
10.3	--	1988 Stock Option Plan, as amended, of the Company4/
10.4	--	1996 Long-term Performance Plan, as amended, of the Company7/
10.5	--	License and Supply Agreement between Warner-Lambert Company and the Company dated December 5, 19913/
10.6	--	Asset Purchase, License and Option Agreement, dated November 22, 19891/
10.7	--	Employment Agreement dated as of April 15, 1997, between the Company and Nicholas A. Buoniconti8/*
10.8	--	License and Supply Agreement for CRINONE® between Columbia Laboratories, Inc. (Bermuda) Ltd. and American Home Products dated as of May 21, 19955/
10.9	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Norman M. Meier8/*
10.10	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and William J. Bologna8/*
10.11	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Nicholas A. Buoniconti8/*
10.12	--	Convertible Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due March 15, 2005 and Registration Rights Agreement all dated as of March 16, 1998 between the Company and SBC Warburg Dillon Read Inc.9/
10.13	--	Termination Agreement dated as of April 1, 1998 between the Company and the Warner-Lambert Company9/
10.14	--	Addendum to Employment Agreement dated as of October 8, 1998, between the Company and Nicholas A. Buoniconti.10/*

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10.15 -- Agreement dated as of December 14, 1998, by and among Columbia Laboratories, Inc., William J. Bologna, Norman M. Meier, James J. Apostolakis, David Ray, Bernard Marden, Anthony R. Campbell, David M. Knott and Knott Partners, L.P.^10/

10.16A -- License and Supply Agreement by an between the Company and Mipharm S.p.A. dated March 5, 1999^11/

10.16B -- License and Supply Agreement for CRINONE^® between Columbia Laboratories (Bermuda) Limited and Ares Trading S.A. dated as of May 20, 1999 ^12/

10.17 -- Addendum to Employment Agreement dated as of January 1, 2000 between the Company and Norman M. Meier ¹²/*

10.18 -- Addendum to Employment Agreement dated as of January 1, 2000 between the Company and William J. Bologna ^12/*

10.19 -- Employment Agreement dated as of January 1, 2000 between the Company and James J. Apostolakis ^12/*

10.20 -- Employment Agreement dated December 30, 1999 between the Company and Dominique de Ziegler ^12/*

10.21 -- Settlement Agreement and Release dated as of March 16, 2000 between Columbia Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc. ^12/

10.22 -- Replens^® Purchase and License Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. ^13/

10.23 -- License Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. ^13/

10.24 -- Distribution Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. ^13/

10.25 -- Stock Purchase Agreement, dated January 31, 2001, between the Company and Ridgeway Investment Limited ^14/

10.26 -- Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of February 6, 2001. ^15/

10.27 -- Employment Agreement dated March 16, 2001 between the Company and G. Frederick Wilkinson^16/*

10.28 -- Stock Purchase Agreement, dated May 10, 2001, between the Company and Ridgeway Investment Limited ^17/

10.29 -- Stock Purchase Agreement, dated July 23, 2001, between the Company and Ridgeway Investment Limited ^18/

10.30 -- Rights Agreement dated as of March 13, 2002, by and between Columbia Laboratories, Inc. and First Union National Bank, as Rights Agent^19/

10.31† --  Semi-Exclusive Supply Agreement dated May 7, 2002 between the Company and Mipharm S.p.A.^20/

10.32† --  Amended and Restated License and Supply Agreement dated June 4, 2002 between the Company and Ares Trading S.A.^20/

10.33† --  Marketing License Agreement dated June 4, 2002 between the Company and Ares Trading S.A. and Serono, Inc.^20/

10.34† -- Master Services Agreement dated July 31, 2002 between the Company and Innovex LP^20/

10.35† -- Stock Purchase Agreement dated July 31, 2002 By and Between Columbia Laboratories, Inc. and PharmaBio Development Inc.^20/

10.36† -- Investment and Royalty Agreement dated July 31, 2002 between the Company and PharmaBio Development Inc.^20/

10.37† -- License and Supply Agreement dated October 16, 2002 between the Company and Ardana Bioscience Limited^21/

10.38† -- Development and License Agreement dated December 26, 2002 between the Company and Ardana Bioscience Limited^21/

10.39 --  Amendment No. 1 to the Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of January 31, 2003^21/

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10.40†	--	Investment and Royalty Agreement dated March 5, 2003 between the Company and PharmaBio Development Inc.21/
10.41†	--	Sales Force Work Order #8872 pursuant to the Master Services Agreement having an Effective Date of July 31, 2002, between the Company and Innovex LP21/
10.42	--	Separation and Consulting Agreement dated April 15, 2003 between the Company and William J. Bologna22/
10.43†	--	License and Supply Agreement Dated May 27, 2003 between the Company and Mipharm S.p.A.23/
10.44	--	Standstill Agreement dated December 1, 2003 between the Company and Perry Corp.24/
10.45†	--	Amended and Restated Sales Force Work Order #8795 And Termination of Work Order #8872 pursuant to the Master Services Agreement having an effective date of January 26, 2004 between the Company and Innovex25/
10.46	--	Form of Indemnification Agreement for Officers and Directors25/
10.47	--	Form of Executive Change of Control Severance Agreement25/
10.48	--	Employment Agreement dated as of March 16, 2004 between the Company and G. Frederick Wilkinson 26/*
10.49†	--	Asset Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.50†	--	Supply Agreement dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.51†	--	Professional Promotion Agreement dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.52	--	Letter Agreement and General Release of Claims, effective as of December 31, 2004, between Columbia Laboratories, Inc. and James J. Apostolakis 28/
10.53	--	Employment Agreement dated as of February 25, 2005 between the Company and Robert S. Mills 29/*
10.54	--	Columbia Laboratories Inc. Incentive Plan, 200429/*
10.55	--	Description of the Registrant’s compensation and reimbursement practices for non-employee directors31/
10.56	--	Preferred Stock Purchase Agreement, dated as of May 10, 2005, among Columbia Laboratories, Inc., Perry Partners L.P. and Perry Partners International, Inc.30/
10.57	--	Columbia Laboratories Inc. Incentive Plan32/*
10.58	--	2005 base salaries and incentive bonus targets for the Registrant’s executive officers32/*
10.59	--	Securities Purchase Agreement,dated March 10, 2006, by and between Columbia Laboratories, Inc. and thePurchasers listed on Exhibit A thereto34/
10.60	--	Employment Agreement by and between Columbia Laboratories, Inc. and Robert S. Mills dated March 30, 200635/*
10.61	--	Employment Agreement by and between Columbia Laboratories, Inc. and Michael McGrane dated March 30, 200635/*
10.62A	--	Letter Agreement Supplement to STRIANT® Investment and Royalty Agreement dated April 14, 200636/
10.62B	--	Form of Restricted Stock Agreement37/
10.63	--	Form of Option Agreement37/
10.64	--	Description of the registrant’s compensation and reimbursement practices for non-employee directors37/
10.65	--	None
10.66	--	Employment Agreement by and between Columbia Laboratories, Inc. and James Meer dated December 6, 200638/*
10.67	--	Separation Agreement by and between Columbia Laboratories, Inc. and David L. Weinberg effective as of December 12, 200639/
10.68†	--	Agreement, dated December 21, 2006, by and among Ares Trading S.A., Serono, Inc., the Company and its wholly-owned subsidiary, Columbia Laboratories (Bermuda), Ltd40/

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10.69 -- Amendment No. 1 to the Amended and Restated License and Supply Agreement, entered into December 21, 2006, by and between Ares Trading S.A and Columbia Laboratories (Bermuda), Ltd. ^40/

10.70 -- Securities Purchase Agreement, dated December 21, 2006, by and between Columbia Laboratories, Inc. and the Purchasers listed on Exhibit A thereto ^40/

14 -- Code of Ethics of the Company^25/

21 -- Subsidiaries of the Company^41/

23 -- Consent of Goldstein Golub Kessler LLP^41/

31(i).1 --  Certification of Chief Executive Officer of the Company^41/ 

31(i).2 -- Certification of Chief Financial Officer of the Company^41/ 

32.1 --  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.^41/ 

32.2 -- Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.^41/ 

 

* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 601 of Regulation S-K.

†Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

^1/ Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-31962) declared effective on May 14, 1990.

^2/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.

^3/ Incorporated by reference to the Registrant's Current Report on Form 8-K, filed on January 2, 1992.

^4/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.

^5/ Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-60123) declared effective August 28, 1995.

^6/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.

^7/ Incorporated by reference to the Registrant's Proxy Statement dated May 10, 2000.

^8/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.

^9/ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

^10/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998.

^11/ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

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^12/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999

^13/ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

^14/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated January 31, 2001.

^15/ Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-38230) declared effective May 7, 2001.

^16/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 16, 2001.

^17/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 10, 2001.

^18/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated July 23, 2001.

^19/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 12, 2002.

^20/ Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated August 14, 2002.

^21/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002

^22/ Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated May 14, 2003.

^23/ Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated August 14, 2003.

^24/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 1, 2003.

^25/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003

^26/ Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated May 10, 2004.

^27/  Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated August 4, 2004.

^28/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated January 3, 2005.

^29/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 1, 2005.

^30/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 12, 2005.

^31/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 11, 2005.

^32/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 20, 2005.

^33/ Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005.

56

^34/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 16, 2006.

^35/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 3, 2006.

^36/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 17, 2006.

^37/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 17, 2006.

^38/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 7, 2006.

^39/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 15, 2006.

^40/ Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 26, 2006.

^41/ Filed herewith

57

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COLUMBIA LABORATORIES, INC.
Date: March 16, 2007	By:	/s/ James A. Meer
		James A. Meer, Senior Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Robert Mills	President and Chief Executive Officer	March 16, 2007
Robert Mills	(Principal Executive Officer)
/s/ James A. Meer	Senior Vice President, Chief	March 16, 2007
James A. Meer	Financial Officer and Treasurer (Principal Financial and Accounting Officer)
/s/ Valerie Andrews	Director	March 16, 2007
Valerie Andrews
/s/ Edward A. Blechschmidt	Vice Chairman of the Board of Directors	March 16, 2007
Edward A. Blechschmidt
/s/ Stephen G. Kasnet	Chairman of the Board of Directors	March 16, 2007
Stephen G. Kasnet
/s/ Selwyn P. Oskowitz	Director	March 16, 2007
Selwyn P. Oskowitz

58

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-3
Consolidated Statements of Operations for the Three Years Ended December 31, 2006	F-5
Consolidated Statements of Comprehensive Operations for the Three Years Ended December 31, 2006	F-6
Consolidated Statements of Stockholders' Equity (Deficiency) for the Three Years Ended December 31, 2006	F-7
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2006	F-9
Notes to Consolidated Financial Statements	F-11

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Columbia Laboratories, Inc.:

We have audited the accompanying consolidated balance sheets of Columbia Laboratories, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, comprehensive operations, stockholders' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Columbia Laboratories, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with United States generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As disclosed in Note 5, the Company changed its method of accounting for stock-based compensation effective January 1, 2006.

GOLDSTEIN GOLUB KESSLER LLP

New York, New York

March 15, 2007

F-2

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2005

ASSETS

	2006			2005
CURRENT ASSETS:
Cash and cash equivalents of which $25,147,244 is	$	25,270,377		$	7,136,854
interest bearing as of December 31, 2006
Accounts receivable, net of allowances for		2,445,318			4,020,019
doubtful accounts of $100,000 and $50,000 in 2006 and 2005 respectively
Inventories		2,105,038			1,821,433
Prepaid expenses and other current assets		853,504			625,908
Total current assets	$	30,674,237		$	13,604,214
PROPERTY AND EQUIPMENT
Machinery and equipment		2,653,285			2,680,099
Computer software		444,332			442,785
Office Equipment and furniture and fixtures		645,039			660,437
		3,742,656			3,783,321
Less-accumulated depreciation and amortization		(2,978,820	)		(2,780,741	)
		763,836			1,002,580
INTANGIBLE ASSETS- NET		32,865,556			-
OTHER ASSETS		1,535,115			124,756
TOTAL ASSETS	$	65,838,744		$	14,731,550

(Continued)

F-3

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2005

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)

	2006			2005
CURRENT LIABILITIES:
Current portion of financing agreements		553,947			12,840,161
Accounts payable		3,586,770			1,905,381
Accrued expenses		3,123,092			2,329,475
Total Current Liabilities		7,263,809			17,075,017
NOTES PAYABLE - (Note 3)		25,299,135			-
DEFERRED REVENUE		4,182,648			4,058,327
LONG-TERM PORTION OF FINANCING AGREEMENTS		11,229,777			8,747,743
TOTAL LIABILITIES		47,975,369			29,881,087
COMMITMENTS AND CONTIGENCIES (Note 6)
SHAREHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value; 1,000,000 shares authorized
Series B Convertible Preferred Stock, 130 shares issued
and outstanding in 2006 and 2005
(liquidation preference of $13,000 at December 31, 2006)		1			1
Series C Convertible Preferred Stock, 3,200 and 3,250 shares
issued and outstanding in 2006 and 2005 (liquidation preference of $3,200,000 and $3,250,000 in 2006 and 2005 respectively)		32			32
Series E Convertible Preferred Stock 69,000 shares
issued and outstanding in 2006 and 2005		690			690
(liquidation preference of $6,900,000)
Common Stock $.01 par value; 100,000,000 shares
authorized; 49,694,213 and 41,754,784 shares issued
in 2006 and 2005 respectively		496,942			417,548
Capital in excess of par value		221,887,945			175,340,023
Less cost of 6,000 treasury shares		(26,880	)		-
Accumulated deficit		(204,694,399	)		(191,084,974	)
Accumulated other comprehensive income		199,044			177,143
Stockholders' equity (deficiency)		17,863,375			(15,149,537	)
TOTAL LIABILITIES AND EQUITY	$	65,838,744		$	14,731,550

The accompanying notes to consolidated financial statements

are an integral part of these statements

F-4

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

	2006			2005			2004
REVENUES	$	17,393,081		$	22,040,842		$	17,860,404
COST OF GOODS SOLD		7,819,843			8,111,497			7,788,601
Gross profit		9,573,238			13,929,345			10,071,803
OPERATING EXPENSES:
Selling and distribution		6,600,371			8,578,022			19,006,585
General and administrative		7,402,188			6,825,148			7,588,437
Research and development		6,596,339			5,756,856			5,448,685
Amortization of licensing right		134,444			-			-
Total operating expenses		20,733,342			21,160,026			32,043,707
Loss from operations		(11,160,104	)		(7,230,681	)		(21,971,904	)
OTHER INCOME (EXPENSE):
Interest income		862,068			165,886			241,342
Interest expense		(2,516,113	)		(2,694,041	)		(2,991,136	)
Loss on sale of intangible assets		-			-			(577,917	)
Loss on early debt extinguishment		(280,000	)		-			-
Other, net		482,428			451,700			169,991
		(1,451,617	)		(2,076,455	)		(3,157,720	)
Net loss	$	(12,611,721	)	$	(9,307,136	)	$	(25,129,624	)
LOSS PER COMMON SHARE - BASIC AND DILUTED	$	(0.27	)	$	(0.23	)	$	(0.62	)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED		48,088,516			41,752,422			40,984,083

The accompanying notes to consolidated financial statements

are an integral part of these statements.

F-5

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

	2006			2005			2004
NET LOSS	$	(12,611,721	)	$	(9,307,136	)	$	(25,129,624	)
Other comprehensive income (loss): Foreign curency translation, net of tax		21,901			(64,684	)		50,458
Comprehensive loss	$	(12,589,820	)	$	(9,371,820	)	$	(25,079,166	)

The accompanying notes to consolidated financial statements

are an integral part of these statements.

F-6

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

	Series B Convertible				Series C Convertible				Series E Convertible																Accumulated
	Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Capital in								Other
	Number of				Number of				Number of				Number of				Excess of			Treasury		Accumulated			Comprehensive
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Par Value			Stock		Deficit			Income (Loss)			Total
Balance, January 1, 2004		130	$	1		3,250	$	32						39,679,381	$	396,794	$	162,146,561		$	-	$	(156,648,214	)	$	191,369		$	6,086,543
Issuance of common stock		-		-		-		-						2,000,000		20,000		6,360,000					-			-			6,380,000
Warrants exercised		-		-		-		-						72,553		725		228,961											229,686
Fair market value of options
granted to non-employees		-		-		-		-						-		-		14,514					-			-			14,514
Dividends on preferred stock		-		-		-		-						-		-		(162,500	)				-			-			(162,500	)
Translation adjustment		-		-		-		-						-		-		-					-			50,458			50,458
Net loss		-		-		-		-						-		-		-					(25,129,624	)		-			(25,129,624	)
Balance, December 31, 2004		130		1		3,250		32						41,751,934		417,519		168,587,536			0		(181,777,838	)		241,827			(12,530,923	)
Issuance of preferred stock		-		-		-		-		69,000	$	690		-		-		6,899,310					-			-			6,900,000
Options exercised		-		-		-		-						2,850		29		8,224					-			-			8,253
Fair market value of options																													-
granted to non-employees		-		-		-		-						-		-		7,453					-			-			7,453
Dividends on preferred stock		-		-		-		-						-		-		(162,500	)				-			-			(162,500	)
Translation adjustment		-		-		-		-						-		-		-					-			(64,684	)		(64,684	)
Net loss		-		-		-		-						-		-		-					(9,307,136	)		-			(9,307,136	)
Balance, December 31, 2005		130	$	1		3,250	$	32		69,000	$	690		41,754,784	$	417,548	$	175,340,023		$	-	$	(191,084,974	)	$	177,143		$	(15,149,537	)

(Continued)

F-7

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

	Series B Convertible				Series C Convertible					Series E Convertible																	Accumulated
	Preferred Stock				Preferred Stock					Preferred Stock				Common Stock				Capital in									Other
	Number of				Number of					Number of				Number of				Excess of			Treasury			Accumulated			Comprehensive
	Shares		Amount		Shares			Amount		Shares		Amount		Shares		Amount		Par Value			Stock			Deficit			Income (Loss)		Total
Balance, December 31, 2005		130	$	1		3,250		$	32		69,000	$	690		41,754,784	$	417,548	$	175,340,023		$	-		$	(191,084,974	)	$	177,143	$	(15,149,537	)
Cumulative effect adjustment on stock options																			997,705						(997,705	)		-		-
Issuance of common stock															7,428,220		74,282		28,691,844											28,766,126
Options exercised															335,049		3,350		1,018,409											1,021,759
Share based compensation expense															161,875		1,619		1,246,830											1,248,449
Beneficial conversion & warrant value for
convertible notes																			14,754,656											14,754,656
Conversion of Series C Preferred						(50	)								14,285		143		(143	)										-
Purchase of treasury stock																						(26,880	)							(26,880	)
Dividends on preferred stock																			(161,379	)										(161,379	)
Translation adjustment																												21,901		21,901
Net loss																									(12,611,720	)				(12,611,720	)
Balance, December 31, 2006		130	$	1		3,200		$	32		69,000	$	690		49,694,213	$	496,942	$	221,887,945		$	(26,880	)	$	(204,694,399	)	$	199,044	$	17,863,375

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-8

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(12,611,721	)	$	(9,307,136	)	$	(25,129,624	)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization		395,003			287,741			379,855
Amortization of beneficial conversion features		30,344			-			-
Amortization of warrants		23,449			-			-
Provision for doubtful accounts		105,855			187,962			48,917
Provision for sales returns		1,802,868			2,431,823			3,336,339
Write-down of inventories		612,094			1,036,136			1,018,677
Share based compensation		1,248,447			-			-
Interest expense on financing agreements		2,362,691			2,538,461			2,235,777
Loss on sale of intangible assets		-			-			577,917
Loss on early extinguishment of financing agreement		280,000			-			-
Issuance of options for services		-			7,453			14,514
Changes in assets and liabilities - (Increase) decrease in: Accounts receivable		1,468,846			52,398			746,625
Inventories		(895,699	)		(115,025	)		(1,291,997	)
Prepaid expenses and other current assets		(227,596	)		529,765			1,085,247
Other assets		(1,416,416	)		(3,615	)		19,514
Increase (decrease) in:
Accounts payable		1,681,389			(866,726	)		(34,129	)
Accrued expenses		(1,009,251	)		(3,213,546	)		(3,231,833	)
Deferred revenue		124,321			(180,733	)		359,442
Net cash used in operating activities		(6,025,376	)		(6,615,042	)		(19,864,759	)

(Continued)

F-9

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

	2006			2005			2004
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	$	(15,757	)	$	(83,367	)	$	(582,367	)
Acquisition of intangibles		(33,000,000	)		-			300,000
Net cash used in investing activities		(33,015,757	)		(83,367	)		(282,367	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock		-			6,900,000			-
Net proceeds from issuance of common stock		28,766,126			-			6,380,000
Proceeds from issuance of subordinated convertible notes		39,999,998			-			-
Payment of note payable		-			(10,000,000	)		-
Proceeds from exercise of options		1,021,759			8,253			229,686
Proceeds from financing agreements		-			-			3,000,000
Payment for purchase of treasury stock		(26,880	)		-			-
Payment pursuant to financing agreements		(12,446,870	)		(2,627,483	)		(534,412	)
Dividends paid		(161,379	)		(162,500	)		(162,500	)
Net cash provided by financing activities		57,152,754			(5,881,730	)		8,912,774
EFFECT OF EXCHANGE RATE CHANGES ON CASH		21,901			(64,598	)		50,426
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,133,532			(12,644,737	)		(11,183,926	)
CASH AND CASH EQUIVALENTS, Beginning of year		7,136,854			19,781,591			30,965,517
CASH AND CASH EQUIVALENTS, End of year	$	25,270,377		$	7,136,854		$	19,781,591
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid	$	-		$	356,250		$	712,500
Taxes paid	$	49,492		$	6,800		$	110,700
Accrual of financing costs	$	1,275,000		$	-		$	-

The accompanying notes to consolidated financial statements

are an integral part of these statements.

F-10

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization-

Columbia Laboratories, Inc. (the "Company") was incorporated as a Delaware corporation in December 1986. The Company is primarily dedicated to research, development, and commercialization of women’s healthcare and endocrinology products, including those that treat and are intended to treat infertility, endometriosis, dysmenorrhea and hormonal deficiencies. The Company has also developed a buccal delivery system for peptides. The Company’s products primarily utilize its patented Bioadhesive Delivery System technology.

Principles of Consolidation-

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification of Prior year Amounts:

Prior year financial statements have been reclassified to conform to the 2006 presentation. In 2004, sales credits totaling $1,619,329 are now reflected as decreases to both accounts receivable and accrued expenses. In particular, the 2004 Statement of Cash Flow reflects the following changes. The previously reported increase in accounts receivable of $872,704 has been changed to a decrease of $746,625 (a net decrease of $1,619,329) and the previously reported decrease in accrued expenses of $1,612,504 has been changed to a decrease of $3,231,833 (also a net decrease of $1,619,329). Net cash used in operating activities remains unchanged from the previously reported amount.

Liquidity-

As shown in the financial statements, the Company has had recurring losses from operations. Management believes the approximately $25.3 million of cash on hand at December 31, 2006 will allow the company to sustain its operations.

Accounting Estimates-

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are used for, but are not limited to sales return allowances. Actual results could differ from those estimates in the near term.

Foreign Currency-

The assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at current exchange rates and revenue and expense items are translated at average rates of exchange prevailing during the period. Resulting translation adjustments are accumulated as a separate component of stockholders' equity. Transaction gains and losses are reflected in the Statements of Operations.

Accounts Receivable-

Accounts receivable are reported at their outstanding unpaid principal balances reduced by allowances for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.

F-11

Fair Value of Financial Instruments-

The estimated fair value of the convertible subordinated notes payable, beneficial conversion feature, and detachable warrants amounted to approximately $54,754,656. This value is the aggregate of the estimated future cash flows associated with the settlement of the notes payable, the application of the Black Scholes method to the warrants and the intrinsic value of the beneficial conversion feature.

Inventories-

Inventories are stated at the lower of cost (first-in, first-out) or market. Components of inventory cost include materials, labor and manufacturing overhead. Inventories consist of the following:

	December 31,
	2006		2005
Finished goods	$	1,305,872	$	1,165,413
Raw materials		799,166		656,020
	$	2,105,038	$	1,821,433

Shipping costs are included in selling and distribution expenses and amounted to approximately $39,000, $39,000 and $67,000 in 2006, 2005, and 2004, respectively.

Property and Equipment-

Property and equipment is stated at cost less accumulated depreciation. Leasehold improvements are amortized over the lesser of the useful life or the term of the respective leases. Depreciation is computed on the straight-line basis over the estimated useful lives of the respective assets, as follows:

	Years
Software	3
Machinery and equipment	5-10
Furniture and fixtures	5

Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs that do not extend the term of the assets are expensed. Upon sale or disposition of property and equipment, the cost and related accumulated depreciation are eliminated from the accounts and any resultant gain or loss is credited or charged to operations.

Depreciation expense amounted to approximately $250,000, $288,000 and $337,000 in 2006, 2005, and 2004, respectively.

Concentration of Risk-

The Company sells its products to customers worldwide. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. See Note 9 for customer concentrations.

The Company depends on one supplier for a key ingredient used in its products.

F-12

Intangible Assets-

On March 16, 2000, the Company acquired the U.S. rights for the product Advantage-S^®. These U.S. rights were sold on June 29, 2004 at a loss of $577,917 on the sale. On December 22, 2006, the Company acquired the US rights of CRINONE^®. The cost of the acquisition was $33,000,000 in cash and is being amortized over a 6.75-year period.

Amortization expense amounted to $134,444, $0 and $42,500 in 2006, 2005 and 2004, respectively.

Long-lived Assets-

Following the acquisition of any long-lived assets, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of the long-lived asset may warrant revision or that the remaining balance of the long-lived asset may not be recoverable. When factors indicate that a long-lived asset may be impaired, the Company uses an estimate of the underlying product's future cash flows, including amounts to be received over the remaining life of the long-lived asset from license fees, royalty income, and related revenue, in measuring whether the long-lived asset is recoverable. Unrecoverable amounts are charged to operations.

Accrued Expenses-

Accrued expenses consist of the following:

	2006		2005
Sales returns	$	1,240,234	$	745,882
Salaries		752,022		684,286
Royalties		216,411		369,303
Interest		88,889		-
Professional fees		594,166		284,914
Other		231,370		245,090
	$	3,123,092	$	2,329,475

Income Taxes-

The reconciliation of the effective income tax rate to the federal statutory rate is as follows:

	2006			2005			2004
Federal income tax rate		(34.0	)%		(34.0	)%		(34.0	)%
Increase in valuation allowance		34.0			34.0			34.0
Effective income tax rate		0.0	%		0.0	%		0.0	%

As of December 31, 2006, the Company has U.S. tax net operating loss carryforwards of approximately $131 million which expire through 2025. The Company also has unused tax credits of approximately $1.9 million which expire at various dates through 2025. Utilization of net operating loss carry forward may be limited in any year due to limitations in the Internal Revenue Code. As of December 31, 2006 and 2005, other assets in the accompanying consolidated balance sheets include deferred tax assets of approximately $48 million and $45 million, respectively (comprised primarily of a net operating loss carryforward), for which a 100% valuation allowance has been recorded since the realizability of the deferred tax assets is not determinable.

F-13

Revenue Recognition-

Revenue 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 on sales of products by Columbia are discussed in detail below. Royalties and additional monies owed to the Company based on sales by our licensees are recorded as revenue as those sales are made by the licensees. License fees not based on sales are recognized as revenues over the term of the license.

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 increase such reserve if deemed appropriate. The greatest potential for uncertainty in estimating returns is the estimation of future prescriptions. Prescriptions are wholly dependent on the Company’s ability to sell and market the products. If prescriptions are lower in future periods then the current reserve will be inadequate. The Company purchases prescription data on all its products from IMS Health, a leading provider of market intelligence 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’ 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 an expiration date 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.

F-14

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

	2006			2005			2004
Balance at beginning of year	$	745,882		$	1,992,010		$	275,000
Provision:
Related to current year sales		210,276			272,913			216,195
Related to prior years’ sales		1,592,592			2,158,910			3,120,144
		1,802,868			2,431,823			3,336,339
Returns:
Related to current year sales		(46,825	)		(67,928	)		-
Related to prior years’ sales		(1,261,690	)		(3,610,023	)		(1,619,329	)
		(1,308,515	)		(3,677,951	)		(1,619,329	)
Balance at end of year	$	1,240,235		$	745,882		$	1,992,010

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 sell and market the products. If prescriptions are lower in future periods, then the current reserve will be inadequate.

In the 2006 fourth quarter, Columbia Laboratories purchased the US rights to CRINONE^® for $33 million. As part of the transaction, the Company repurchased inventory and reversed sales of $0.6 Million in the fourth quarter.

Sales returns provisions for the year 2006 was $1.8 million including $1.1 million in the fourth quarter. One customer returned approximately $0.5 million of product due to short dating. In addition, the Company increased its reserve by $0.4 million. The $1.8 million charge for 2006 is lower than 2005 and 2004 which were significantly affected by the launch activities and the uncertainty in estimating the returns with a launch. The Company carried out a plan in 2006 to bring inventory levels in distribution channels to demand levels and expects overall return experience to drop.

The second quarter 2005 change in estimate, amounting to approximately $1.6 million, occurred as a result of the adoption by a wholesale customer of a policy to stop selling our products to retail establishments six months prior to the expiration date on the packaging. This policy was adopted notwithstanding the fact that retail pharmacies tend not to maintain large supplies of our products in their inventory, order on an ‘as needed’ basis, and turn their inventory over rapidly. Also the Company’s products are normally used up by the patient within a 30-day period after a prescription is presented. As discussed above, we have revised our estimating procedure to include this shortened period of saleability.

The fourth quarter 2004 change in estimate of approximately $3.0 million was principally related to the failure of a major customer to sell product on a first-in, first-out (“FIFO”) basis by lot expiration date. The Company’s estimate for its reserve for sales returns always assumed that our customers maintained their inventory on a FIFO basis. Based on discussions with this customer, we discovered that it had ordered product in 2004 and was selling product from these recent purchases rather than product it had purchased in prior years which was still salable. The older inventory had been taken out of current inventory and ‘morgued’ to be shipped back at customer expense when the product approached expiration. We now have ongoing conversations with this customer, as well as other customers, and receive assurances that they fill orders on a FIFO basis. The Company now also purchases information about inventory levels from this same customer.

F-15

License Fees-

License revenue consists of up-front, milestone and similar payments under license agreements and is recognized when earned under the terms of the applicable agreements. Milestone payments represent payments for the occurrence of contract-specified events and coincide with the achievement of a substantive element in a multi-element arrangement (See Note 2). License revenue, including milestone payments, is deferred and recognized in revenues over the estimated product life cycle or the length of relevant patents, whichever is shorter.

Advertising Expense-

All costs associated with advertising and promoting products are expensed in the year incurred. Advertising and promotion expense was approximately $1,313,000 in 2006, $1,491,000 in 2005 and $4,576,000 in 2004, and is included in selling and distribution expense.

Research and Development Costs-

Company-sponsored research and development costs related to future products are expensed as incurred.

Loss per Share-

Basic loss per share is computed by dividing the net loss plus preferred dividends by the weighted-average number of shares of Common Stock outstanding during the period. Diluted earnings per share gives effect to dilutive options, warrants and other potential Common Stock outstanding during the year. Shares to be issued upon the exercise of the outstanding options and warrants or the conversion of the preferred stock are not included in the computation of diluted loss per share as their effect is anti-dilutive. Outstanding options and warrants excluded from the calculation amounted to 9,554,307, 6,678,725 and 6,204,400 at December 31, 2006, 2005 and 2004, respectively.

Statements of Cash Flows-

For purposes of the statements of cash flows, the Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

Share-based Compensation-

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”) which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors including employee stock options based on estimated fair values. SFAS 123(R) supersedes previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal year 2006. 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 at the same time it adopted SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of stock-based awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Operations. The Company adopted SFAS 123(R) using the modified prospective transition method which requires the recognition of expense relative to existing, unvested awards from January 1, 2006. The Company’s Consolidated Financial Statements, as of and for the year ended December 31, 2006, reflect the impact of SFAS 123(R). Employee stock-based compensation expense for the year ended December 31, 2006, was $1,065,383 which consisted primarily of stock-based compensation expense related to employee stock options recognized under SFAS 123(R).

F-16

Prior to the adoption of SFAS 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 (except as disclosed in Note 5) as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense for employee stock options had been recognized in the Company’s Consolidated Statements of Operations, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant. In accordance with the modified prospective transition method the Company used in adopting SFAS 123(R), the Company’s results of operations prior to fiscal year 2006 have not been restated to reflect, and do not include, the possible impact of SFAS 123(R).

Share-based compensation expense recognized during a period is based on the value of the portion of share-based awards that is ultimately expected to vest. Stock-based compensation expense recognized in the year ended December 31, 2006 included compensation expense for share-based awards granted prior to, but not yet vested as of December 31, 2005, based on the fair value on the grant date estimated in accordance with the pro forma provisions of SFAS 123, and compensation expense for the stock-based awards granted or modified subsequent to December 31, 2005, based on the fair value on the grant date estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company is continuing to use the straight line single-option method of attributing the value of stock-based compensation expense. Compensation expense for all stock-based awards granted prior to January 1, 2006 will be recognized using the straight line single-option approach, and compensation expense for all stock-based awards granted subsequent to December 31, 2005, will also be recognized using the straight line single-option method. Because stock-based compensation expense to be recognized in the results for periods beginning after December 31, 2005, is based on awards ultimately expected to vest, the amounts will be reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to 2006, the Company accounted for forfeitures as they occurred for the purposes of pro forma information under SFAS 123, as disclosed in the Notes to Consolidated Financial Statements for the related periods.

RECENT ACCOUNTING PRONOUNCEMENTS:

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We do not expect FIN 48 will have a material effect on our consolidated financial condition or results of operations.

In September 2006, the Securities and Exchange Commission (‘SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 requires registrants to use both a balance sheet approach and an income statement approach when evaluating and quantifying the materiality of a misstatement. SAB 108 provides guidance on correcting errors under the dual approach as well as providing transition guidance for correcting errors. The Company adopted the provisions of SAB 108 as of December 31, 2006 (see Note 5 for further disclosure).

In December 2006, FASB issued a FASB Staff Position (“FSP”) EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP 00-19-2”). This FSP addresses an issuer’s accounting for registration payment arrangements. This FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5 “Accounting for Contingencies.” The guidance in this FSP amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” as well as FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” to include scope exceptions for registration payment arrangements. This FSP is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of this FSP. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this FSP, this is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. We are currently evaluating the impact that the implementation of FSP EITF 00-19-2 may have in our consolidated results of operations and financial position.

F-17

(2) STRATEGIC ALLIANCE AGREEMENTS:

In May 1995, the Company entered into a worldwide license and supply agreement, except for South Africa, with American Home Products Corporation (“Wyeth”) under which its Wyeth-Ayerst Laboratories division marketed CRINONE^®. The Company supplied CRINONE to Wyeth at a price equal to 30% of Wyeth’s net selling price. On July 2, 1999, Wyeth assigned the license and supply agreement to Ares-Serono (now “Merck Serono”). The Company supplies CRINONE to Merck Serono under the same terms as in the agreement with Wyeth. In June 2002 the Company acquired the right to market a second brand of its 8% and 4% progesterone gel products under the trade name “PROCHIEVE^®” to obstetricians, gynecologists and all other physicians in the United States that were not on Merck Serono’s target list of fertility specialists. Under this agreement the Company paid a 30% royalty to Merck Serono based on net sales of the product and an additional royalty of 40% of PROCHIEVE’s net sales to the infertility specialist market. The Company paid approximately $1,365,000, $699,000 and $864,000 to Merck Serono in accordance with this agreement for the years 2006, 2005 and 2004, respectively. In December 2006, the Company acquired the U.S. marketing rights to CRINONE from Merck Serono. The Company continues to supply CRINONE to Merck Serono for all ex-U.S. requirements.

In March 1999, the Company entered into a license and supply agreement with Mipharm SpA under which Mipharm SpA will be the exclusive marketer of the Company’s previously unlicensed women’s healthcare products in Italy, Portugal, Greece and Ireland with a right of first refusal for Spain. Under the terms of the agreement, the Company has received $540,000, net of expenses, and expects to receive future milestone payments as products are made available by the Company.

Effective May 5, 2000, the Company sold various tangible and intangible assets related to the U.S. rights for Replens^®, to Lil’ Drug Store for a total of $4.5 million cash. The purchaser agreed to pay future royalties of up to $2 million equal to 10% of future U.S. sales of Replens. The royalties were fully paid in October 2005. Additionally, effective May 5, 2000, the Company licensed its Legatrin^® PM brand to the aforementioned purchaser. Under the terms of this agreement, the Company receives license fees equal to 20% of the licensee’s net sales of Legatrin PM. This agreement had a five-year term with provisions for renewal and contains an option that allows the licensee to acquire this brand from the Company; the license for Advanced Formula Legatrin PM renewed automatically to May 2010.

On July 31, 2002, the Company and Quintiles Transnational Corp. (“Quintiles”) entered into an agreement to commercialize the Company’s portfolio of women’s healthcare products in the United States. Under the terms of this agreement, Quintiles’ commercialization unit, Innovex, provided a dedicated team of 55 sales representatives on a three-year, fee-for-service basis, to commercialize the Company’s women’s healthcare products. On March 5, 2003, the Company and Quintiles announced an agreement to commercialize STRIANT^® in the United States. Under the terms of this agreement, Innovex, provided a dedicated team of approximately 75 sales representatives for two-and-a-half years. In January 2004, the Company and Innovex restructured the sales force. The restructured sales force was comprised of nine Company district managers as well as 80 sales representatives divided evenly between the Company and Innovex. In February 2005, the Company and Innovex reduced the sales force to 28 individuals, which included 23 sales representatives divided evenly between the Company and Innovex. The Company took responsibility for all sales force support. Columbia hired the remaining Innovex sales representatives as Columbia employees on November 1, 2005.

On October 16, 2002, the Company and Ardana Bioscience, Ltd. (“Ardana”) entered into a license and supply agreement for STRIANT in 18 European countries (excluding Italy). Under the terms of the agreement, Ardana markets, distributes and sells STRIANT. In exchange for the license, the Company will receive total payments of approximately $8 million, including $4 million in signature and milestone fees received in the fourth quarter of 2002. Initial regulatory approval of the U.K. application, received in the first quarter of 2004, was the basis for mutual recognition applications filed in the rest of Europe. Additional milestone payments totaling $2 million (of which $800,000, $400,000 and $800,000 was received in 2006, 2005 and 2004, respectively) are due upon marketing approvals in major European countries included in the agreement. Additionally, a performance payment of $2 million is due upon achievement of a certain level of sales. Ardana is obligated to purchase its requirements of product from the Company during the term of the agreement. The agreement shall continue for a period of the later of 10 years from the first commercial sale of the finished product by Ardana or the date of expiration or lapse of the last to expire or lapse Company’s patent rights in the territory, determined on a country by country basis. The Company is recognizing the license revenue on this agreement over a 132 month period and accordingly has recognized revenue of $636,285, $541,307 and $478,603 in 2006, 2005 and 2004, respectively. The remaining $3,891,984 is shown as deferred revenue in the accompanying consolidated balance sheets.

F-18

In May 2003, the Company and Mipharm entered into an agreement under which Mipharm will market, distribute and sell STRIANT^® in Italy. In exchange for these rights, Mipharm is obligated to pay the Company an aggregate of $1.4 million upon achievement of certain milestone events, including $350,000 that was paid in 2003. We received a payment of $100,000, less VAT withholding, in 2004 on account of the UK approval of STRIANT and a payment of $150,000, less VAT withholding, in 2007 on marketing authorization in Italy in late 2006. Mipharm will provide additional performance payments upon the achievement of certain levels of sales in Italy, and the Company will receive a percentage markup on the cost of goods for each unit sold. Mipharm is a manufacturer of STRIANT under a May 2002 agreement. The Company is recognizing the license revenue on this agreement over a 132 month period and accordingly has recognized revenue of $41,574, $41,573 and $38,003 in 2006, 2005 and 2004, respectively. The remaining 290,664 is shown as deferred revenue in the accompanying consolidated balance sheets.

In June 2004, the Company sold the worldwide rights to its over-the-counter products Advantage-S^® Contraceptive Gel and RepHresh^® Vaginal Gel and the foreign rights to Replens^® Vaginal Moisturizer to Lil’ Drug Store. The Company also sold its existing finished goods inventory of these products to Lil’ Drug Store. Additionally, the companies executed a five year supply agreement and a two and one-half year agreement for the Company’s sales force to promote these products to obstetricians and gynecologists in the United States. Upon closing, the Company received payments amounting to $832,000, which were paid in 2004, from the sale of the rights and inventory. In June 2004, the Company recorded a loss of $577,917 on the loss of the sale of the intangibles assets associated with the products. The professional services agreement expired in December 2006. The production and sale of Advantage-S was discontinued during 2006. The Company continues to receive revenues from the manufacture and sale of RepHresh and Replens to Lil’ Drug Store and royalties on sales of these products manufactured by third parties.

(3) NOTE 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 existing institutional investors. The notes bear interest at a rate of 8% per annum and are subordinated to the PharmaBio financing agreements (see Note 4) and mature on December 31, 2011. They are convertible into a total of approximately 7.6 million shares of 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 become exercisable on June 20, 2007, and expire on December 22, 2011, unless earlier exercised or terminated.The Company used the proceeds of this offering to acquire from Merck Serono the U.S. marketing rights to CRINONE^® for $33,000,000 and purchased Merck Serono’s existing inventory of that product. The balance of the proceeds will be used to pay other costs related to the transaction and for general corporate purposes.

We recorded original issue discounts of $6,272,566 million to the notes based upon the fair value of warrants granted. In addition, beneficial conversion features totaling $8,482,090 million have been recorded as a discount to the notes. These discounts are being amortized at an imputed rate over the five year term of the related notes. For the year ended December 31, 2006, $53,793 of amortization related to these discounts is classified as interest expense in our consolidated statements of operations. Unamortized discounts of $14,700,863 have been reflected as a reduction to the face value of the convertible notes in our consolidated balance sheet as of December 31, 2006.

On March 16, 1998, the Company issued to an institutional investor a $10 million convertible subordinated note due March 15, 2005. The note was subordinate to other senior securities of the Company and bore interest at 7.125% which was payable semiannually on March 15 and September 15. The note was paid in full on March 15, 2005.

F-19

(4) FINANCING AGREEMENTS:

In an agreement dated July 31, 2002, Quintiles’ strategic investment group, PharmaBio Development (“PharmaBio”), agreed to pay $4.5 million, to be paid in four equal quarterly installments commencing third quarter 2002, for the right to receive a 5% royalty on the net sales of the Company’s women’s healthcare products in the United States for five years beginning in the first quarter of 2003. The royalty payments are subject to minimum ($8 million) and maximum ($12 million) amounts, and because the minimum amount exceeds $4.5 million, the Company has recorded the amounts received as liabilities. The excess of the minimum ($8 million) to be paid by the Company over the $4.5 million received by the Company is being recognized as interest expense over the five-year term of the agreement, assuming an interest rate of 12.51%. $791,529, $703,522 and $625,295 were recorded as interest expense for the years 2006, 2005 and 2004, respectively. The agreement called for a true-up payment, if by February 28, 2005, the Company had not made $2,750,000 in royalty payments to PharmaBio. The amounts paid to PharmaBio were $548,464 for 2006, $2,290,662 (which included the $1,891,944 true-up) for 2005 and $423,137 for 2004.

In an agreement dated March 5, 2003 (the “STRIANT^® Agreement”), PharmaBio agreed to pay the Company $15 million in five quarterly installments commencing with the signing of the STRIANT Agreement. In return, PharmaBio will receive a 9% royalty on net sales of STRIANT in the United States up to agreed annual sales revenues, and a 4.5% royalty of net sales above those levels. The royalty term is seven years. Royalty payments commenced in the 2003 third quarter and are subject to 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 STRIANT Agreement, assuming an interest rate of 10.67%. $1,571,162, $1,834,939, and $1,610,482 were recorded as interest expense in 2006, 2005, and 2004 respectively.The STRIANT 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 $13,000,000. 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 $11,585,235 (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 will be deemed (solely for purposes of the STRIANT Agreement) to have received on account of that payment $12 million for purposes of the true-up payment. In the event that, as of the payment date for the true-up payment, the aggregate amount of royalties paid under the STRIANT Agreement, including the Early Payment, exceed $13 million, the Company will be entitled to have such excess reimbursed. Although the Company paid and recorded approximately $415,000 less in interest expense during 2006 due to this early payment, for accounting purposes, the payment resulted in a non cash loss of approximately $280,000 during the second quarter of 2006. Including the Early Payment, the Company has paid PharmaBio $13,000,000 through 2006.

Liabilities from financing agreements consist of the following:

	December31
	2006		2005
July 31, 2002 financing agreement	$	3,485,672	$	3,242,607
March 5, 2003 financing agreement		8,298,052		18,345,297
		11,783,724		21,587,904
Less: current portion		553,947		12,840,161
	$	11,229,777	$	8,747,743

Because of their terms, the fair value of the future value of the financial agreements cannot be determined.

F-20

(5) STOCKHOLDERS' EQUITY (DEFICIENCY):

Preferred Stock-

In August 1991, the Company completed a private placement of 150,000 shares of Series B Convertible Preferred Stock ("Series B Preferred Stock"). Each share of Series B Preferred Stock is convertible into 20.57 shares of Common Stock.

Upon liquidation of the Company, the holders of the Series B Preferred Stock are entitled to $100 per share. The Series B Preferred Stock will be automatically converted into Common Stock upon the occurrence of certain events. Holders of the Series B Preferred Stock are entitled to one vote for each share of Common Stock into which the preferred stock is convertible.

In June 2003, 1,000 shares of the Series B Preferred Stock were converted into 20,570 shares of the Common Stock.

In January 1999, the Company raised approximately $6.4 million, net of expenses, from the issuance and sale of Series C Convertible Preferred Stock (“Series C Preferred Stock”). The Series C Preferred Stock, sold to 24 accredited investors, has a stated value of $1,000 per share. The Series C Preferred Stock is convertible into Common Stock at the lower of: (i) $3.50 per common share or (ii) 100% of the average of the closing prices during the three trading days immediately preceding the conversion notice. The Series C Preferred Stock pays a 5% dividend, payable quarterly in arrears on the last day of the quarter. In 2003, 500 shares of Series C Preferred Stock was converted into 142,857 Common Shares, and in 2006, 50 shares of Series C Preferred Stock was converted into 14,285 Common Shares.

On March 12, 2002, the Company adopted a Stockholder Rights Plan (“Rights Plan”) designed to protect company stockholders in the event of takeover activity that would deny them the full value of their investment. The Rights Plan was not adopted in response to any specific takeover threat. In adopting the Rights Plan, the Board declared a dividend distribution of one preferred stock purchase right for each outstanding share of Common Stock of the Company, payable to stockholders of record at the close of business on March 22, 2002. The rights will become exercisable only in the event, with certain exceptions, a person or group of affiliated or associated persons acquires 15% or more of the Company’s voting stock, or a person or group of affiliated or associated persons commences a tender or exchange offer, which if successfully consummated, would result in such person or group owning 15% or more of the Company’s voting stock. The rights will expire on March 12, 2012. Each right, once exercisable, will entitle the holder (other than rights owned by an acquiring person or group) to buy one one-thousandth of a share of a series of the Company’s Series D Junior Participating Preferred Stock at a price of $30 per one-thousandth of a share, subject to adjustments. In addition, upon the occurrence of certain events, holders of the rights (other than rights owned by an acquiring person or group) would be entitled to purchase either the Company’s preferred stock or shares in an “acquiring entity” at approximately half of market value. Further, at any time after a person or group acquires 15% or more (but less than 50%) of the Company’s outstanding voting stock, subject to certain exceptions, the Board of Directors may, at its option, exchange part or all of the rights (other than rights held by an acquiring person or group) for shares of the Company's Common Stock having a fair market value on the date of such acquisition equal to the excess of (i) the fair market value of preferred stock issuable upon exercise of the rights over (ii) the exercise price of the rights. The Company generally will be entitled to redeem the rights at $0.01 per right at any time prior to the close of business on the tenth day after there has been a public announcement of the beneficial ownership by any person or group of 15% or more of the Company’s voting stock, subject to certain exceptions. These rights are deemed to have no value and accordingly have not been recorded in the accompanying financial statements.

On May 10, 2005, the Company raised $6.9 million from the issuance and sale of 69,000 shares of Series E Convertible Preferred Stock ("Series E Preferred Stock"). The Series E Preferred Stock has a stated value of $100 per share. Each share of the Series E Preferred Stock may be converted by the holder into 50 shares of Common Stock, subject to adjustment, and will automatically be converted into Common Stock at that rate upon the date that the average of the daily market prices of the Company’s Common Stock for the 20 consecutive trading days preceding such date exceeds $6.00 per share. The Series E Preferred Stock pays no dividends and contains voting rights equal to the number of shares of Common Stock into which each share of Series E Preferred Stock is convertible. Upon liquidation of the Company, the holders of the Series E Preferred Stock are entitled to $100 per share.

F-21

Common Stock-

During 2004, the Company issued 2,000,000 shares of its Common Stock to an institutional investor, which resulted in the Company receiving $6,380,000 after expenses. Also in 2004, outstanding warrants were exercised resulting in the issuance of 72,553 shares of Common Stock and the receipt of $229,688 by the Company.

In March 2006, the Company issued 7,428,220 shares of its Common Stock to a group of new and existing investors, which resulted in the Company receiving $28,766,126 after expenses.

Warrants-

As of December 31, 2006, the Company had warrants outstanding for the purchase of 4,867,755 shares of Common Stock. Information on outstanding warrants is as follows:

Exercise Price	Warrants
$4.81	200,000
5.39	1,857,041
5.50	2,285,714
5.85	100,000
7.50	75,000
8.35	350,000
	4,867,755

During 2001, a warrant to purchase 350,000 shares of Common Stock at an exercise price of $8.35 was issued pursuant to an employment agreement with the Company’s then President and Chief Executive Officer. Also in 2001, a warrant to purchase 100,000 shares of Common Stock at an exercise price of $5.85 per share were issued to an officer and director of the Company.

During 2006, warrants to purchase 1,857,041 shares of the Company’s Common Stock at an exercise price of $5.39 per share were issued to investors in the March 2006 financing which by their terms expire March 11, 2011. Also in 2006, warrants to purchase 2,285,714 shares of the Company’s Common Stock at an exercise price of $5.50 per share were issued to investors in the December 2006 financingand by their terms expire on December 22, 2011.

No warrants were exercised in 2006.

As of December 31, 2006, 2,582,041 warrants were exercisable. On June 20, 2007, 2,285,714 warrants shall become exercisable by their holders.

Stock- based Compensation

On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective transition method. SFAS 123(R) requires the measurement and recognition of compensation expense for all stock-based awards made to the Company’s employees and directors including employee stock options and other stock-based awards based on estimated fair values.

F-22

The following table summarizes the impact of the adoption of SFAS 123(R) on stock-based compensation costs for employees on the Company’s Consolidated Statements of Operations for the three and twelve months ended December 31, 2006 and 2005:

	Twelve Months Ended
	December 31,
	2006		2005
Employee stock-based compensation in:
Cost of revenue	$	82,720	$	-
Selling and distribution		87,032		-
General and administrative		733,695		-
Research and development		161,936		-
Total employee stock-based compensation
in operating expenses		982,663		-
Total employee stock-based compensation	$	1,065,383	$	-

No tax benefit has been recognized due to net losses during the periods presented. In 2006, the Company took a charge of $181,000 for extending the term of vested stock options for one of its former officers.

The table below reflects net loss and net loss per share for the twelve months ended December 31, 2006, compared with the pro forma information for the twelve months ended December 31, 2005 and December 2004 reflecting the impact of stock-based compensation as if accounted for under SFAS 123(R):

	2006			2005 (pro forma)			2004 (pro forma)
Net loss, before stock-based compensation
for employees, prior period	$	(12,611,721	)	$	(9,307,136	)	$	(25,129,624	)
Less: Stock-based employee compensation included
in the determination of net loss as reported		1,065,383
Add: Stock-based compensation expense for
employees determined under fair-value based method		(1,065,383	)		(1,609,735	)		(2,101,241	)
Net loss, after effect of stock-based compensation
for employees	$	(12,611,721	)	$	(10,916,871	)	$	(27,230,865	)
Net loss per share:
Basic and diluted - as reported in prior year	$	(0.27	)	$	(0.23	)	$	(0.62	)
Basic and diluted - after effect of stock-based
compensation for employees	$	(0.27	)	$	(0.27	)	$	(0.67	)

As of December 31, 2006, total unamortized stock-based compensation cost related to non-vested stock options was $1,753,485 which is expected to be recognized over the remaining vesting period of the outstanding options, up to the next 44 months. The Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The use of the Black-Scholes model requires the use of extensive actual employee exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, and expected dividends.

F-23

The assumptions used to value options granted are as follows:

	2006			2005			2004
Risk free interest rate		4.87	%		4.03	%		3.01	%
Expected term		4.84 years			6.67 years			4.95 years
Dividend yield		0.0			0.0			0.0
Expected volatility		72.42	%		81.90	%		86.37	%

The Company estimated the volatility of its stock based on expected volatility of the Company’s stock which includes consideration of historical volatility in accordance with guidance in SFAS 123(R) and SAB 107. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the employee stock options. The dividend yield assumption is based on our history and expectation of dividend payouts.

Generally, stock options granted under the Company’s 1996 Long-term Performance Plan (“1996 Plan”) prior to January 1, 2006 have a contractual term of ten years from the date of grant, and stock options granted under the 1996 Plan on or after January 1, 2006 are expected to have a contractual term of seven years from the date of grant. Options generally vest over a four-year period, with 25% vesting on each of the first four anniversaries of the date of grant. The Company’s general policy is to issue new shares upon the exercise of stock options. Pursuant to the 1996 Plan, an aggregate of 8,000,000 shares of Common Stock have been reserved for issuance.

The expected term of employee stock options represents the weighted-average period that employees are expected to hold the options before exercise. The Company derived the expected term assumption based on the Company’s historical settlement experience, while giving consideration to options that have life cycles less than the contractual terms and vesting schedules in accordance with guidance in SFAS 123(R) and SAB 107. Prior to the adoption of SFAS 123(R), the Company used historical settlement experience to derive the expected term for the purposes of pro forma information under SFAS 123, as disclosed in the Notes to the Company’s Consolidated Financial Statements for the related periods.

Stock Option Plans-

All employees, officers, directors and consultants of the Company or any subsidiary were eligible to participate in the Columbia Laboratories, Inc. 1988 Stock Option Plan, as amended (the "Plan"). Under the Plan, a total of 5,000,000 shares of Common Stock were authorized for issuance upon exercise of the options. As of October 1996, no further options were granted pursuant to this Plan and, in 2006, the remaining outstanding options expired.

In October 1996, the Company adopted the 1996 Long-term Performance Plan (“Performance Plan”) which provides for the grant of stock options, stock appreciation rights and restricted stock to certain designated employees of the Company, non-employee directors of the Company and certain other persons performing significant services for the Company as designated by the Compensation/Stock Option Committee of the Board of Directors. The stock options have a maximum term of ten years after the date of grant and generally vest fully after four years. Pursuant to the Performance Plan, an aggregate of 8,000,000 shares of Common Stock have been reserved for issuance.

F-24

A summary of the status of the Company’s two stock option plans as of December 31, 2006, 2005 and 2004 and changes during the years ending on those dates is presented below:

	2006					2005					2004
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		5,960,525		$	7.79		5,479,400		$	8.73		6,087,050		$	8.57
Granted		434,900			4.29		976,680			2.56		852,400			4.51
Exercised		(335,049	)		3.05		(2,850	)		2.90		-			-
Forfeited		(1,373,824	)		6.27		(492,705	)		7.89		(1,460,050	)		5.60
Outstanding at end of year		4,686,552			8.57		5,960,525			7.79		5,479,400			8.73
Options exercisable at year end		3,782,060					4,645,938					4,141,314

The weighted average grant date fair values of options granted in 2006, 2005 and 2004 was $4.29, $2.56 and $4.51 per share respectively

The following table summarizes the range of exercise prices and the weighted average prices for options outstanding, options exercisable and unvested options at December 31, 2006:

	Options Outstanding						Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
Range of	Number		Remaining		Average		Number		Average
Exercise	Outstanding at		Contractual		Exercise		Exercisable at		Exercise
Prices	12/31/06		Life (Years)		Price		12/31/06		Price
$1.91 - $3.83		1,101,002		6.27	$	2.81		729,584	$	2.96
$4.05 - $7.90		1,464,050		5.95		5.17		938,476		5.57
$8.25 - $11.87		1,031,500		1.59		11.08		1,024,000		11.09
$14.00 - $18.66		1,090,000		-		15.22		1,090,000		15.22
$1.91 - $18.66		4,686,552		3.72		8.25		3,782,060		9.34

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2006 was $3,185,561 and $1,833,795, respectively.

During 2006, cash received from the exercise of options was $1,021,759.

F-25

A summary of the status of the Company’s unnvested stock options for the year 2006 is presented below:

	2006
	Number of shares			Weighted average exercise price per share
Unvested shares at beginning of period		1,314,587		$	3.45
Options granted		434,900		$	4.29
Options vested		(445,036	)	$	3.32
Options forfeited		(397,959	)	$	4.03
Unvested shares at December 31, 2006		906,492		$	3.72

Restricted stock grants consist of the Company’s Common Stock. The Board has set a two or four year vesting period for most of the issued restricted shares. The fair value of each restricted share grant is equal to the market price of the Company’s Common Stock at the date of grant. Expense relating to restricted shares is amortized ratably over the vesting period.

A summary of the Company’s restricted stock activity and related information for 2006 is as follows:

	2006
	Shares			Weighted- Average Grant Date Fair Value
Unvested at beginning of period		-		$	-
Granted		167,875		$	4.48
Vested		(15,000	)	$	4.34
Forfeited		(6,000	)	$	4.34
Unvested at December 31, 2006		146,875		$	4.49

F-26

LOSS PER COMMON AND POTENTIAL COMMON SHARE:

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

	2006			2005			2004
Net loss	$	(12,611,721	)	$	(9,307,136	)	$	(25,129,624	)
Less: Preferred stock dividends		(161,379	)		(162,500	)		(162,500	)
Net loss applicable to common stock	$	(12,773,100	)	$	(9,469,636	)	$	(25,292,124	)
Basic and diluted Weighted-average number of common shares outstanding		48,088,516			41,752,422			40,984,083
Basic and diluted net loss per common share	$	(0.27	)	$	(0.23	)	$	(0.62	)

Adjustments for Stock-Based Compensation on Prior Year Financial Statements

As of January 1, 2006, the Company adopted FAS 123R, using the modified prospective transition method. FAS 123R requires the measurement and recognition of compensation expense for all stock-based awards made to the Company’s employees and directors including stock options and other stock-based awards based on estimated fair values. Prior to January 1, 2006, the Company accounted for share-based compensation granted under its stock option plans using the recognition and measurement provisions of APB 25. Under APB 25, a company was not required to recognize compensation expense for stock options issued to employees if the exercise price of the stock options was at least equal to the quoted market price of the Company’s common stock on the “measurement date.” APB 25 defined the measurement date as the first date on which both the number of shares that an individual employee was entitled to receive and the option price, if any, were known.

As disclosed in the Company’s September 30, 2006 10-Q filing, the Company’s Audit Committee initiated a review in the second half of 2006 of the Company’s stock option granting practices from October 1996 to the present. The review was initiated independently by the Committee in light of the recent heightened scrutiny regarding this topic. The review did not reveal any pattern or practice of inappropriately identifying grant dates with hindsight in order to provide “discounted” or “in-the-money” options. However, with respect to fiscal years 1996-2001, the review identified certain instances where the granting of options was not consistent with the Company’s practice of establishing the exercise price at the closing price on the day before the date of grant. Instead, in some cases the exercise price was established as the closing price on the date of grant. The review also identified that, during this period, certain grants of stock options were approved by the Compensation Committee by means of unanimous written consents in lieu of a meeting, in which the date the unanimous written consent was finalized (which becomes the measurement date for accounting purposes) is subject to uncertainties. In such cases, the Company has determined, where possible, the measurement date for the unanimous consent options as the date on which the Company’s records best indicate the unanimous consent to be executed. If such date cannot be determined, then the Company used the date of mailing of an executed option contract, if the option contract was dated “as of” the option grant date, or the date upon which the option contract was actually executed.

In January 2002 the Company changed its practice for determining the exercise price of options to the average of the high and low reported sales prices of the Company’s common stock on the date of grant and consistently applied that practice from that time to the present.We have concluded that, since January 2002, all option grants have been in accordance with the terms of the Company’s 1996 Long-term Performance Plan and have been appropriately accounted for in the Company’s financial statements.

Upon completion of its review, the Company concluded that an additional stock-based compensation in the aggregate of $998,000 should be recorded to reflect additional stock-based compensation expense under APB 25, the accounting method in effect at the time, relating to the company’s historical stock option practices. The majority of such amount is attributable to options granted in 1997, with related compensation expense allocable to the years ended December 31, 1997 and 1998.

In determining the appropriate method to account for the understatement of compensation expense, the Company had considered SEC Staff Accounting Bulletin (SAB) No. 99, Materiality and does not believe the understatement of compensation expense meets the quantitative or qualitative considerations of materiality under SAB No. 99 for the following reasons:

(1)   The compensation expense principally affected the financial statements for the years 1997 through 2001, which are not presented. Because the Company had significant cumulative operating losses during that period, the understatement of compensation expense did not mask a change in earnings or other trends.

(2)   The understatement of compensation expense during the period did not have a material effect on earnings per share, affecting solely 1997, by $0.02, and 1998, by $0.01.

(3)   The understatement of compensation expense did not affect whether the Company would have reported income or loss during any period.

(4)   The understatement of compensation expense did not affect a segment or other portion of the Company’s business that has been identified as playing a significant role in the Company’s operations.

(5)   The understatement of compensation expense did not affect compliance with loan covenants or other contractual requirements during the period.

(6)   The understatement of compensation expense had the affect of increasing management’s compensation under the Company’s Incentive Compensation Plan by an estimate of $19,000 in 1997, which the Company considers insignificant.

(7)   The understatement of compensation expense was inadvertent and did not involve a concealment of an unlawful transaction.

The Company has, in accordance with the transition provisions of Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, recorded a reclassification within the equity section of the consolidated balance sheet as an increase in additional paid-in capital and an increase in accumulated deficit for the year ended December 31, 2006, of $998,000, excluding any related tax effect.  Since the Company substantially reported losses during this period, the impact to income taxes was not considered material. This reclassification represents the effect of the adjustment resulting from the non-cash charges discussed above, all of which relate to prior fiscal years. 

F-27

(6) COMMITMENTS AND CONTINGENCIES:

Cash and cash equivalents-

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company believes that there is no credit risk with respect to these accounts.

Leases-

The Company leases office space, office equipment under noncancelable operating leases. Lease expense for each of the three years ended December 31, 2006, 2005, and 2004 totaled $223,122, $265,620, and $355,055, respectively. Future minimum lease payments as of December 31, 2006 are as follows:

2007	$	141,671
2008		12,500
2009		12,500
2010		10,611
	$	177,282

Royalties-

In 1989, the Company purchased the assets of Bio-Mimetics, Inc. which consisted of the patents underlying the Company's Bioadhesive Delivery System (BDS), other patent applications and related technology, for $2,600,000, in the form of 9% convertible debentures which were converted into 500,000 shares of Common Stock during 1991, and $100,000 in cash. In addition, Bio-Mimetics, Inc. receives a royalty equal to 2% of the net sales of products based on the BDS up to an aggregate amount of $7,500,000. The royalty payments are payable over the life of the patent(s) which are specific to each product or fifteen years, whichever is longer. In addition, beginning in March 1995, the Company agreed to prepay a portion of the remaining royalty obligation if certain conditions are met. The Company may not assign the patents underlying the BDS without the prior written consent of Bio-Mimetics, Inc. until the aggregate royalties have been paid. Royalty expense under this agreement amounted to $245,416, $405,798 and $339,706 in 2006, 2005 and 2004, respectively.

Geographic Area of Operations-

Included in the Company’s Consolidated Balance sheet at December 31, 2006 and 2005 are the net assets of the Company’s subsidiaries located in Bermuda, France and the United Kingdom that total approximately $5.2 million and $9.3 million, respectively.

Employment Agreements-

In March 2006, the Company entered into a two-year employment agreement with an individual to serve as President and Chief Executive Officer of the Company. Pursuant to his employment agreement, the employee is entitled to a base salary of $340,000 per year plus a target 50% bonus. Additionally, the employee was granted 40,000 shares of restricted Company Common Stock.

In March 2006, the Company entered into a two-year employment agreement with an individual to serve as Senior Vice President, General Counsel and Secretary of the Company. Pursuant to his employment agreement, the employee is entitled to a base salary of $279,500 per year plus a target 40% bonus. In addition, the employee was granted 30,000 shares of restricted Company Common Stock.

In December 2006, the Company entered into an employment agreement with an individual to serve as Senior Vice President, Chief Financial Officer and Treasurer of the Company through March 31, 2008. Pursuant to his employment agreement, the employee is entitled to a base salary of $260,000 per year plus a target 35% bonus. Additionally, the employee was granted options to purchase 100,000 shares of the Company’s Common Stock at an exercise price of $4.285 per share. The options vest ratably over a four-year period. In addition, the employee was granted 10,000 shares of restricted Company Common Stock.

F-28

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 operation. Additionally, the Company believes that it has adequate reserves or adequate 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. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.

(7) GEOGRAPHIC INFORMATION AND CUSTOMER CONCENTRATION:

Geographic Information-

The Company and its subsidiaries are engaged in one line of business, the development, licensing and sale of pharmaceutical products. The following table shows selected information by geographic area:

	Revenues		(Loss) profit from Operations			Identifiable Assets
As of and for the year ended December 31, 2006-
United States	$	7,950,735	$	(14,827,488	)	$	60,632,896
Europe		9,442,346		3,668,600			5,205,848
	$	17,393,081	$	(11,158,888	)	$	65,838,744
As of and for the year ended December 31, 2005-
United States	$	10,970,046	$	(12,528,650	)	$	5,426,684
Europe		11,070,796		5,297,969			9,304,866
	$	22,040,842	$	(7,230,681	)	$	14,731,550
As of and for the year ended December 31, 2004-
United States	$	11,236,330	$	(22,733,040	)	$	14,207,833
Europe		6,624,074		761,136			15,060,535
	$	17,860,404	$	(21,971,904	)	$	29,268,368

F-29

Customer Concentration-

The following table presents information about Columbia’s revenues by customer, including royalty and license revenue:

	2006		2005		2004
Ares-Serono	$	8,234,198	$	9,765,387	$	8,512,147
Lil' Drug Store Products, Inc.		4,637,928		6,906,358		3,565,760
Cardinal Healthcare		2,060,152		1,773,811		1,419,962
McKesson		1,892,728		1,620,188		1,218,438
All others (none over 5%)		568,075		1,975,098		3,144,097
	$	17,393,081	$	22,040,842	$	17,860,404

Revenues from sales of CRINONE^® to Merck Serono S.A.were $6.7 million in 2006, compared to $8.1 million in 2005 and $7.2 million in 2004. The 2006 figure reflects the reduction in sales of approximately $0.6 million relating to the reversal of sales previously recorded in 2006 upon repurchase of Serono’s U.S. CRINONE product inventory.

F-30

(8) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

The following table summarizes selected quarterly data for the years ended December 31, 2006 and 2005:

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Full Year
Net sales	$	3,633,732		$	4,658,872		$	4,082,541		$	1,573,812		$	13,948,957
Fee income and other income		911,645			864,241			863,846			804,392			3,444,124
Gross profit		2,667,109			3,219,374			2,772,406			914,349			9,573,238
Loss from operations		(2,147,137	)		(1,925,036	)		(2,266,429	)		(4,820,286	)		(11,158,888	)
Net loss		(2,746,322	)		(2,477,595	)		(2,557,397)	)		(4,830,407	)		(12,611,721	)
Basic and diluted loss per common share		(0.06	)		(0.05	)		(0.05	)		(0.10	)		(0.27	)
2005
Net sales	$	3,354,172		$	5,320,388		$	5,504,230		$	4,051,218		$	18,230,008
Fee income and other income		926,405			1,013,457			1,029,712			841,260			3,810,834
Gross profit		2,463,572			4,088,410			4,143,828			3,233,535			13,929,345
Loss from operations		(3,553,014	)		(958,944	)		(649,653	)		(2,069,070	)		(7,230,681	)
Net loss		(4,214,707	)		(1,590,036	)		(1,281,942	)		(2,220,451	)		(9,307,136	)
Basic and diluted loss per common share		(0.10	)		(0.04	)		(0.03	)		(0.05	)		(0.23	)

2005 second quarter net sales reflect a provision for product returns amounting to $1.6 million.

F-31

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENT SCHEDULE

	Page
Report of Independent Registered Accounting Firm	F-33
Schedule II-Valuation and Qualifying Accounts	F-34

F-32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Columbia Laboratories, Inc.:

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the financial statements of Columbia Laboratories, Inc. and Subsidiaries for each of the three years in the period ended December 31, 2006 included in this Form 10-K and have issued our report thereon dated March 15, 2007. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

GOLDSTEIN GOLUB KESSLER LLP

New York, New York

March 15, 2007

F-33

COLUMBIA LABORATORIES, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2006

Description	Balance at beginning of year		Charged to (credited to) costs and expenses		Deductions (A)		Balance at end of year
YEAR ENDED DECEMBER 31, 2006:
Allowance for doubtful accounts	$	50,000	$	105,855	$	55,855	$	100,000
YEAR ENDED DECEMBER 31, 2005:
Allowance for doubtful accounts	$	86,114	$	187,962	$	224,076	$	50,000
YEAR ENDED DECEMBER 31, 2004:
Allowance for doubtful accounts	$	120,000	$	48,917	$	82,803	$	86,114

(A) Deductions represent the write-off of uncollectible accounts

F-34

EXHIBIT INDEX

Exhibit Numbers

3.1	--	Restated Certificate of Incorporation of the Company, as amended33/
3.2	--	Amended and Restated By-laws of Company10/
4.1	--	Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company, dated as of January 7, 199910/
4.2	--	Securities Purchase Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
4.3	--	Securities Purchase Agreement, dated as of January 19, 1999, among the Company, David M. Knott and Knott Partners, L.P.10/
4.4	--	Securities Purchase Agreement, dated as of February 1, 1999, between the Company and Windsor Partners, L.P.10/
4.5	--	Registration Rights Agreement, dated as of January 7, 1999, between the Company and each of the purchasers named on the signature pages thereto10/
4.6	--	Form of Warrant to Purchase Common Stock10/
4.7	--	Warrant to Purchase Common Stock granted to James J. Apostolakis on September 23, 1999
4.8	--	Certificate of Designations of Series E Convertible Preferred Stock, filed May 10, 2005 with the Delaware Secretary of State30/
10.1	--	Employment Agreement dated as of January 1, 1996, between the Company and Norman M. Meier6/*
10.2	--	Employment Agreement dated as of January 1, 1996, between the Company and William J. Bologna6/*
10.3	--	1988 Stock Option Plan, as amended, of the Company4/
10.4	--	1996 Long-term Performance Plan, as amended, of the Company7/
10.5	--	License and Supply Agreement between Warner-Lambert Company and the Company dated December 5, 19913/
10.6	--	Asset Purchase, License and Option Agreement, dated November 22, 19891/
10.7	--	Employment Agreement dated as of April 15, 1997, between the Company and Nicholas A. Buoniconti8/*
10.8	--	License and Supply Agreement for CRINONE® between Columbia Laboratories, Inc. (Bermuda) Ltd. and American Home Products dated as of May 21, 19955/
10.9	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Norman M. Meier8/*
10.10	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and William J. Bologna8/*
10.11	--	Addendum to Employment Agreement dated as of September 1, 1997, between the Company and Nicholas A. Buoniconti8/*
10.12	--	Convertible Note Purchase Agreement, 7 1/8% Convertible Subordinated Note due March 15, 2005 and Registration Rights Agreement all dated as of March 16, 1998 between the Company and SBC Warburg Dillon Read Inc.9/
10.13	--	Termination Agreement dated as of April 1, 1998 between the Company and the Warner-Lambert Company9/
10.14	--	Addendum to Employment Agreement dated as of October 8, 1998, between the Company and Nicholas A. Buoniconti.10/*

10.15	--	Agreement dated as of December 14, 1998, by and among Columbia Laboratories, Inc., William J. Bologna, Norman M. Meier, James J. Apostolakis, David Ray, Bernard Marden, Anthony R. Campbell, David M. Knott and Knott Partners, L.P.10/
10.16A	--	License and Supply Agreement by an between the Company and Mipharm S.p.A. dated March 5, 199911/
10.16B	--	License and Supply Agreement for CRINONE® between Columbia Laboratories (Bermuda) Limited and Ares Trading S.A. dated as of May 20, 1999 12/
10.17	--	Addendum to Employment Agreement dated as of January 1, 2000 between the Company and Norman M. Meier 12/*
10.18	--	Addendum to Employment Agreement dated as of January 1, 2000 between the Company and William J. Bologna 12/*
10.19	--	Employment Agreement dated as of January 1, 2000 between the Company and James J. Apostolakis 12/*
10.20	--	Employment Agreement dated December 30, 1999 between the Company and Dominique de Ziegler 12/*
10.21	--	Settlement Agreement and Release dated as of March 16, 2000 between Columbia Laboratories (Bermuda) Ltd. and Lake Consumer Products, Inc. 12/
10.22	--	Replens® Purchase and License Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. 13/
10.23	--	License Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. 13/
10.24	--	Distribution Agreement dated April 18, 2000, between the Company and Lil’ Drug Store Products, Inc. 13/
10.25	--	Stock Purchase Agreement, dated January 31, 2001, between the Company and Ridgeway Investment Limited 14/
10.26	--	Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of February 6, 2001. 15/
10.27	--	Employment Agreement dated March 16, 2001 between the Company and G. Frederick Wilkinson16/*
10.28	--	Stock Purchase Agreement, dated May 10, 2001, between the Company and Ridgeway Investment Limited 17/
10.29	--	Stock Purchase Agreement, dated July 23, 2001, between the Company and Ridgeway Investment Limited 18/
10.30	--	Rights Agreement dated as of March 13, 2002, by and between Columbia Laboratories, Inc. and First Union National Bank, as Rights Agent19/
10.31†	--	Semi-Exclusive Supply Agreement dated May 7, 2002 between the Company and Mipharm S.p.A.20/
10.32†	--	Amended and Restated License and Supply Agreement dated June 4, 2002 between the Company and Ares Trading S.A.20/
10.33†	--	Marketing License Agreement dated June 4, 2002 between the Company and Ares Trading S.A. and Serono, Inc.20/
10.34†	--	Master Services Agreement dated July 31, 2002 between the Company and Innovex LP20/
10.35†	--	Stock Purchase Agreement dated July 31, 2002 By and Between Columbia Laboratories, Inc. and PharmaBio Development Inc.20/
10.36†	--	Investment and Royalty Agreement dated July 31, 2002 between the Company and PharmaBio Development Inc.20/

10.37†	--	License and Supply Agreement dated October 16, 2002 between the Company and Ardana Bioscience Limited21/
10.38†	--	Development and License Agreement dated December 26, 2002 between the Company and Ardana Bioscience Limited21/
10.39	--	Amendment No. 1 to the Amended and Restated Common Stock Purchase Agreement by and between the Company and Acqua Wellington North American Equities Fund, Ltd., effective as of January 31, 200321/
10.40†	--	Investment and Royalty Agreement dated March 5, 2003 between the Company and PharmaBio Development Inc.21/
10.41†	--	Sales Force Work Order #8872 pursuant to the Master Services Agreement having an Effective Date of July 31, 2002, between the Company and Innovex LP21/
10.42	--	Separation and Consulting Agreement dated April 15, 2003 between the Company and William J. Bologna22/
10.43†	--	License and Supply Agreement Dated May 27, 2003 between the Company and Mipharm S.p.A.23/
10.44	--	Standstill Agreement dated December 1, 2003 between the Company and Perry Corp.24/
10.45†	--	Amended and Restated Sales Force Work Order #8795 And Termination of Work Order #8872 pursuant to the Master Services Agreement having an effective date of January 26, 2004 between the Company and Innovex25/
10.46	--	Form of Indemnification Agreement for Officers and Directors25/
10.47	--	Form of Executive Change of Control Severance Agreement25/
10.48	--	Employment Agreement dated as of March 16, 2004 between the Company and G. Frederick Wilkinson 26/*
10.49†	--	Asset Purchase Agreement Dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.50†	--	Supply Agreement dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.51†	--	Professional Promotion Agreement dated June 29, 2004, between the Company and Lil’ Drug Store Products, Inc. 27/
10.52	--	Letter Agreement and General Release of Claims, effective as of December 31, 2004, between Columbia Laboratories, Inc. and James J. Apostolakis 28/
10.53	--	Employment Agreement dated as of February 25, 2005 between the Company and Robert S. Mills 29/*
10.54	--	Columbia Laboratories Inc. Incentive Plan, 200429/*
10.55	--	Description of the Registrant’s compensation and reimbursement practices for non-employee directors31/
10.56	--	Preferred Stock Purchase Agreement, dated as of May 10, 2005, among Columbia Laboratories, Inc., Perry Partners L.P. and Perry Partners International, Inc.30/
10.57	--	Columbia Laboratories Inc. Incentive Plan32/*
10.58	--	2005 base salaries and incentive bonus targets for the Registrant’s executive officers32/*
10.59	--	Securities Purchase Agreement,dated March 10, 2006, by and between Columbia Laboratories, Inc. and thePurchasers listed on Exhibit A thereto34/
10.60	--	Employment Agreement by and between Columbia Laboratories, Inc. and Robert S. Mills dated March 30, 200635/*
10.61	--	Employment Agreement by and between Columbia Laboratories, Inc. and Michael McGrane dated March 30, 200635/*
10.62A	--	Letter Agreement Supplement to STRIANT® Investment and Royalty Agreement dated April 14, 200636/

10.62B	--	Form of Restricted Stock Agreement37/
10.63	--	Form of Option Agreement37/
10.64	--	Description of the registrant’s compensation and reimbursement practices for non-employee directors37/
10.65	--	None
10.66	--	Employment Agreement by and between Columbia Laboratories, Inc. and James Meer dated December 6, 200638/*
10.67	--	Separation Agreement by and between Columbia Laboratories, Inc. and David L. Weinberg effective as of December 12, 200639/
10.68†	--	Agreement, dated December 21, 2006, by and among Ares Trading S.A., Serono, Inc., the Company and its wholly-owned subsidiary, Columbia Laboratories (Bermuda), Ltd40/
10.69	--	Amendment No. 1 to the Amended and Restated License and Supply Agreement, entered into December 21, 2006, by and between Ares Trading S.A and Columbia Laboratories (Bermuda), Ltd. 40/
10.70	--	Securities Purchase Agreement, dated December 21, 2006, by and between Columbia Laboratories, Inc. and the Purchasers listed on Exhibit A thereto 40/
14	--	Code of Ethics of the Company25/
21	--	Subsidiaries of the Company41/
23	--	Consent of Goldstein Golub Kessler LLP41/
31(i).1	--	Certification of Chief Executive Officer of the Company41/
31(i).2	--	Certification of Chief Financial Officer of the Company41/
32.1	--	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.41/
32.2	--	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.41/
*		Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 601 of Regulation S-K.
†		Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
1/		Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-31962) declared effective on May 14, 1990.
2/		Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.
3/		Incorporated by reference to the Registrant's Current Report on Form 8-K, filed on January 2, 1992.
4/		Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993.
5/		Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-60123) declared effective August 28, 1995.
6/		Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.

7/	Incorporated by reference to the Registrant's Proxy Statement dated May 10, 2000.
8/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997.
9/	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
10/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998.
11/	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
12/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999
13/	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.
14/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated January 31, 2001.
15/	Incorporated by reference to the Registrant’s Registration Statement on Form S-3 (File No. 333-38230) declared effective May 7, 2001.
16/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 16, 2001.
17/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 10, 2001.
18/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated July 23, 2001.
19/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 12, 2002.
20/	Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated August 14, 2002.
21/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002
22/	Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated May 14, 2003.
23/	Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q dated August 14, 2003.

24/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 1, 2003.
25/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003
26/	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated May 10, 2004.
27/	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q dated August 4, 2004.
28/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated January 3, 2005.
29/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 1, 2005.
30/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 12, 2005.
31/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 11, 2005.
32/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 20, 2005.
33/	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005.
34/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated March 16, 2006.
35/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 3, 2006.
36/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated April 17, 2006.
37/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated May 17, 2006.
38/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 7, 2006.
39/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 15, 2006.
40/	Incorporated by reference to the Registrant’s Current Report on Form 8-K, dated December 26, 2006.
41/	Filed herewith

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE COMPANY

Columbia Laboratories (Bermuda) Ltd.

Columbia Laboratories (France) SA

Columbia Laboratories (UK) Limited

EX-23

EXHIBIT 23

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

To the Board of Directors

Columbia Laboratories, Inc.:

We hereby consent to the incorporation of our report dated March 15, 2007, included in this Form 10-K, into Columbia Laboratories Inc.’s previously filed Registration Statements on Form S-3 (No. 333-125671, 333-38230, 333-132803 and 333-140107) and Form S-8 (333-116072).

GOLDSTEIN GOLUB KESSLER LLP

New York, New York

March 15, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, Robert S. Mills, Chief Executive Officer of the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Columbia Laboratories, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f)) and 15d-15(f) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2007

/s/ Robert S. Mills

Robert S. Mills

Chief Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

I, James A. Meer, Chief Financial Officer of the Company, certify that:

1. I have reviewed this annual report on Form 10-K of Columbia Laboratories, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f)) and 15d-15(f) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 16, 2007

/s/ James A. Meer

James A. Meer

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Columbia Laboratories, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert S. Mills, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert S. Mills

Robert S. Mills

Chief Executive Officer

March 16, 2007 

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Columbia Laboratories, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James A. Meer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(3) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(4) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ James A. Meer

James A. Meer

Chief Financial Officer

March 16, 2007