
	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES :

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.

Accounting Estimates -

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. of America 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 reserves, payments to distributors, warrant valuations, and share based compensation. Actual results could differ from those estimates.

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 shareholders' equity and represents the balance in accumulated other comprehensive income (loss). 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.

Fair Value of Financial Instruments-

Effective January 1, 2008, we adopted FASB ASC 820-10-25, “Fair Value Measurement and Disclosures.” This standard establishes a framework for measuring fair value and expands disclosure about fair value measurements. We did not elect fair value accounting for any assets and liabilities allowed by FASB ASC 825, :”Financial Instruments.”

FASB ASC 820-10 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820-10 describes the following three levels of inputs that may be used:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The fair value of the short term investments are determined based on quoted market prices on the balance sheet date and are classified as a level 1 investment.

The estimated fair value of our contingent obligation to purchase the Warrants issued under the Note Purchase Agreements, if we issued shares of Common Stock (or equivalents) for a price less than $2.00 per share until 45 days (January 20, 2011) after the Company's public announcement of the results of the PREGNANT study, was determined under the Black-Scholes model and recorded as a liability at the closing of the Actavis Transactions in the amount of $5,509,893 as of the close of business on July 1, 2010. It had been adjusted, as of December 31, 2010, to $13,471,832. The results of the PREGNANT study were announced in December 2010 and on January 20, 2011, when the contingent purchase rights on the Warrants expired, the value of the Warrants was determined under the Black-Scholes option pricing model to be $16,193,037, a change of $2,721,205 from the year ended December 31, 2010 and reclassified to Capital in Excess of Par Value. These warrants are no longer being marked to market.

The estimated fair value of the Common Stock warrant liability resulting from the October 2009 registered direct offering of 10,900,000 shares of the Common Stock and warrants to purchase 5,450,000 shares of Common Stock was $1,173,747, $8,168,846, and $9,286,906 as of December 31, 2012, 2011, and 2010, respectively. These values were determined by using the Black-Scholes option pricing model which is based on the Company's stock price at measurement date, exercise price of this warrant, risk-free rate and historical volatility, and are classified as a Level 2 measurement. During years ended December 31, 2012, 2011 and 2010, the Company recorded income of $6,995,099, $556,662 and losses of $5,229,089, respectively, to adjust the value of the stock warrant liability to market.



	2012		2011		2010
Stock Price	$0.64		$2.50		$2.27
Exercise Price	$1.52		$1.52		$1.52
Risk free interest rate	0.25	%	0.36	%	2.01	%
Expected term	2.25		3.25		4.25
Dividend yield	—		—		—
Expected volatility	103.1	%	83.24	%	95.89	%

The fair value of accounts receivable and accounts payable approximate their carrying amount.

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,
	2012		2011
Raw materials	$	685,578	$	1,243,523
Work in process	1,308,399		825,466
Finished goods	632,629		1,566,741
Total	$	2,626,606	$	3,635,730

During 2012, a reserve for inventories was recorded in the amount of $1.0 million primarily for inventory that did not meet specifications ($0.8 million) coupled with some obsolete raw materials ($0.2 million). In addition, the Company reserved for two PROCHIEVE batches which were made in late 2011 for Actavis for the pre-launch production for PROCHIEVE 8%; the Company invoiced Actavis for these batches during the fourth quarter of 2012; payment was received for these invoices in the first quarter of 2013.

Shipping costs are included in selling and distribution expenses and amounted to approximately $0, $28,000, and $134,000 in 2012, 2011 and 2010, respectively. Historically, shipping costs related to shipping to distributors; in 2012, there no shipments to distributors.

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	3.5-10
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 $642,358, $166,990, and $215,330 in 2012, 2011 and 2010 respectively.

Concentration of Risk-

The Company has two major customers - Actavis and Merck Serono. See Note 17 for customer and product concentrations.

The Company depends on one supplier for a key excipient (ingredient) used in its products and one supplier for one of the active pharmaceutical ingredients.

Intangible Assets -

On December 22, 2006, the Company acquired the U.S. rights to CRINONE (progesterone gel). The cost of the acquisition was $33,000,000 in cash and was amortized over a 6.75-year period. On April 1, 2007, the Company recorded a liability from the contract with Merck Serono for certain sales returns associated with sales made by Merck Serono. The Company recorded the estimated liability of $1,000,000 as an increase in the purchase price that was amortized over the remaining term of the license. The Company sold the U.S. rights to CRINONE as part of the Actavis Transactions.

Amortization expense amounted to $0, $0 and $2,522,364 in 2012, 2011, and 2010, respectively.

Income Taxes -

Deferred tax assets or liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, as measured by enacted tax rates. A valuation allowance is provided against deferred income tax assets in circumstances where management believes the recoverability of a portion of the assets is more likely than not. The Company has provided a full valuation allowance against its net deferred tax assets as of December 31, 2012 and 2011.

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:



	December 31,
	2012		2011
Sales returns	$	483,865	$	1,429,597
Salaries	328,503		927,621
Severance costs	905,872		—
Professional fees	253,987		474,464
Royalties/Other	244,297		184,914
Total	$	2,216,524	$	3,016,596

Comprehensive Income (Loss) -

Comprehensive income (loss) includes changes in equity that are excluded from the consolidated statements of operations and are recorded directly to a separate section of consolidated statements of comprehensive income (loss).

The components of accumulated other comprehensive income includes:



	December 31,
	2012		2011
Cumulative translation adjustment	$	186,001	$	182,883
Unrealized gain (loss) on short term investments	97,220		(77,981		)
Accumulated other comprehensive income (loss)	$	283,221	$	104,902

Revenue Recognition -

In 2012, net revenues include net product revenues (sales of Progesterone Products to Actavis and Merck Serono), royalty revenues (primarily royalty revenues from Actavis on sales of Progesterone Products) and other revenues . In 2011 and 2010, net revenues include net product revenues (sales of Progesterone Products to Actavis and Merck Serono and sales of Progesterone Products and STRIANT to distributors and sales of RepHresh and Replens to Lil Drug Stores ,royalty revenues (primarily royalty revenues from Actavis on sales of Progesterone Products) and other revenues (primarily the amortization of the deferred revenue and milestone payments from the Actavis Transactions).

In 2012, net product revenues are recognized when shipped to Merck Serono, but in the case of product shipments to Actavis, they are recognized when received at Actavis's warehouse. 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. Royalty revenues, based on sales by licensees, are recorded as revenues as those sales are made by the licensees.

The Actavis Transactions included allocated proceeds for licenses to the Progesterone Products and the continuation of development of the Progesterone Products through the filing and acceptance of the related NDA with the FDA. The Company could not determine the fair value of the continuation of development of the Progesterone Products and concluded the license fee and continuation of development to be a single unit of account resulting in the deferral of allocated proceeds and recognition as revenue over the estimated development period.

Sales Returns Reserves -

The Company is responsible for sales returns for products sold to domestic customers prior to both the Actavis Transactions and the sale of STRIANT to Actient. Revenues from the sale of products to domestic customers were recorded at the time goods were shipped to customers. The Company believes that it has not made any shipments in excess of its customers' ordinary course of business inventory levels. Except for sales to licensees, 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. Products sold to licensees are not returnable to us. Provisions for returns on sales to wholesalers, distributors and retail chain stores were estimated based on a percentage of sales, using such factors as historical sales information, distributor inventory levels and product prescription data, and were recorded as a reduction to sales in the same period as the related sales were recognized. The Company evaluates its remaining provision for returns on a quarterly basis based on returns processed rate and adjusts the provision if its analysis indicates that the potential for product non-salability exists. The Company is not responsible for returns for international sales. Sales adjustments for international sales are estimated to recognize changes in foreign exchange rates and government tenders that may fluctuate within a year. During 2012, the Company recorded a reversal of the sales return reserve in the amount of $0.6 million for expired products that can no longer be returned.

An analysis of the reserve for sales returns follows:



	2012			2011			2010
Balance at beginning of year	$	1,429,597		$	2,663,648		$	1,883,623
Provision:
Related to current period sales	—			52,487			934,190
Related to prior period sales	(625,452		)	305,800			847,427
	(625,452		)	358,287			1,781,617
Returns:
Related to current period sales	—			—			(62,061		)
Related to 2006 Crinone® purchase	—			—			—
Related to prior period sales	(320,280		)	(1,592,338		)	(939,531		)
	(320,280		)	(1,592,338		)	(1,001,592		)
Balance at end of period	$	483,865		$	1,429,597		$	2,663,648

Deferred Revenue -

Upon the closing of the Actavis Transactions, the Company allocated the $47 million initial proceeds plus the $15 million in forgiven Actavis Note proceeds (plus accrued interest) to the fair value of the 11.2 million shares of Common Stock in the amount of $11.8 million and the elimination of the remaining book value of the CRINONE intangible assets in the amount of $16.2 million. The excess of approximately $34 million was recorded as deferred revenue and was amortized (straight-line method) over the remaining research and development period for the PREGNANT Study including the Company's filing with, and the FDA's acceptance of, the related new drug application which occurred on June 26, 2011.

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. 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 $0.0 million in 2012, $0.0 million in 2011 and $0.6 million in 2010 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. The Company was responsible for the costs of conducting the PREGNANT Study and the preparation, filing and approval process of the related new drug application (or the supplemental new drug application) up to a maximum of $7 million incurred after January 1, 2010; as of December 31, 2010, the Company had spent $6.3 million. During 2011, the Company spent an additional $0.7 million which brought it to the $7.0 million maximum. During 2011, Actavis was invoiced a total of $3.2 million to fund additional costs to complete the PREGNANT Study and for the filing of the NDA. During 2012, the Company spent an additional $0.4 million which was reimbursed by Actavis.

In 2010, the Company applied for and received a Qualified Therapeutic Discovery Project (”QTDP”) tax grant through the IRS. We recorded $244,479 in the fourth quarter for 2010 as a reduction in R&D expenses. The grant was received in the first quarter of 2011.

Share-based compensation -

The Company recognizes compensation expense [ASC 718, “Share Based Payment”, formerly SFAS 123(R)], for all stock-based awards made to employees and directors including employee stock options based on estimated fair values.

ASC 718, “Share Based Payment”, 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. Employee stock-based compensation expenses for the years ended December 31, 2012, 2011 and 2010, were $668,392, $814,520 and $2,800,256, respectively, which consisted primarily of stock-based compensation expense related to employee stock options.

Earnings Per Share ("EPS") -

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



	Years Ended December 31,
	2012			2011			2010
INCOME (LOSS) PER SHARE -Basic
NET INCOME (LOSS)	$	9,917,273		$	20,527,192		$	(21,830,682	)
Less: Preferred stock dividends	(29,334		)	(30,000		)	(30,000		)
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK	$	9,887,939		$	20,497,192		$	(21,860,682	)

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: Basic:	87,315,808			86,325,350			73,462,937

NET INCOME (LOSS) PER COMMON SHARE: Basic	$	0.11		$	0.24		$	(0.30	)

INCOME (LOSS) PER SHARE -Diluted
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK	$	9,887,939		$	20,497,192		$	(21,860,682	)
Add: Preferred stock dividends	29,334			30,000			—
Less: Fair value of stock warrants for dilutive warrants	(6,995,099		)	(556,662		)	—
NET INCOME (LOSS) APPLICABLE TO
DILUTIVE COMMON STOCK	$	2,922,174		$	19,970,530		$	(21,860,682	)

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: Basic:	87,315,808			86,325,350			73,462,937
Effect of dilutive securities
Dilutive stock awards	48,866			1,357,712			—
Dilutive warrants	—			2,855,848			—
Dilutive preferred share conversions	1,139,600			2,010,243			—
	1,188,466			6,223,803			—
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - Diluted:	88,504,274			92,549,153			73,462,937

NET INCOME (LOSS) PER COMMON SHARE: Diluted	$	0.03		$	0.22		$	(0.30	)

Basic income (loss) per share is computed by dividing the net income (loss), (less) plus preferred dividends by the weighted-average number of shares of Common Stock outstanding during a period. The diluted earnings per share calculation gives effect to dilutive options, warrants, convertible notes, convertible preferred stock, and other potential dilutive Common Stock including selected restricted shares of Common Stock outstanding during the period. Diluted income (loss) per share is based on the treasury stock method and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options, assuming the exercise of all in-the-money stock options. Common share equivalents have been excluded where their inclusion would be anti-dilutive.

Shares to be issued upon the exercise of the outstanding options and warrants, convertible preferred stock and selected restricted shares of Common Stock excluded from the income (loss) per share calculation amounted to 14,734,853, 6,158,057 and 18,692,755 for the years ended December 31, 2012, 2011 and 2010, respectively, because the awards were anti-dilutive.

Cash Equivalents -

The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

Short Term Investments -

Investments consist of U.S. Treasury and agency securities. The Company's investments are classified as available-for-sale and are recorded at fair value, based upon quoted market prices. Unrealized temporary adjustments to fair value are included on the balance sheet in a separate component of stockholders' equity as unrealized gains and losses and reported as a component of accumulated other comprehensive income. No gains or losses on investments are realized until shares are sold or a decline in fair value is determined to be other-than-temporary. If a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

Reclassifications -

For comparability purposes, certain prior year amounts in the Consolidated Financial Statements have been reclassified, where appropriate, to conform to the financial statement presentation used in 2012.