Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Collegium Pharmaceutical, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce General Counsel, Ms. Shirley Kuhlmann. Please go ahead.

Welcome to the Collegium Pharmaceutical First Quarter 2018 Earnings Conference Call. Before we begin today's call, we wish to inform participants that the forward-looking statements made today are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. You are cautioned that such forward-looking statements involve risks and uncertainties, including, and without limitation, the risks that we will not be able to successfully commercialize Xtampza and/or the Nucynta franchise. Furthermore, we are a party to patent infringement litigation and may, in the future, be subject to additional litigation relating to our products and product candidates, which may be expensive to defend and delay commercialization. These risks and other risks of the company are detailed from time to time in the company's periodic reports filed with the Securities and Exchange Commission. Our future results may differ materially from our current expectations discussed today. I will now turn the call over to Collegium CEO, Mike Heffernan.

Good afternoon, and welcome to the Collegium Pharmaceutical's first quarter conference call. This is Mike Heffernan. I'm joined today with Paul Brannelly, our CFO; and Joe Ciaffoni, our Chief Operating Officer. I will provide insight into our recent progress and our financial results. Collegium is off to an excellent start in 2018 marked by a significant acceleration of Xtampza ER prescriptions and the closing of the transaction with Depomed to bring in 2 new pain assets, Nucynta and Nucynta ER. I will provide an overview of the first quarter accomplishments and then turn it over to Joe, who will provide more detail on the commercial achievements, and Paul will then review the financial results. As a reminder, Collegium is dedicated to providing innovative, differentiated products to the pain market and is committed to advocating for balanced, responsible pain management. This includes supporting opioid prescribing for only those patients that do not have any other available options to relieve their acute or chronic pain. I would like to start by reviewing some of the recently achieved milestones. Revenue in the first quarter was $63.7 million. To put this into perspective, revenue has grown from $2.2 million in the first quarter of 2017 to $10.8 million in the fourth quarter of 2017 to at $63.7 million for the first quarter. The revenue growth is driven by significant growth in Xtampza and the additional revenue from both Nucynta and Nucynta ER post the close of the transaction on January 9, 2018. For Xtampza, there were 65,000 prescriptions in the first quarter, up from 38,000 in the prior quarter. This is 72% growth. We are very pleased with the growing market acceptance for Xtampza. As of last week, there were roughly 60,000 weekly prescriptions for OxyContin, so we have significant opportunity as we strive…

Thanks, Mike. I want to start by thanking my colleagues at Collegium for the efforts that they put forth every day, as we strive to make a positive difference in the lives of people suffering with pain and in the communities in which they live. I also want to recognize the progress the team made in the first quarter, accelerating Xtampza ER and transitioning and stabilizing the Nucynta franchise. In the first quarter, our commitment to operational execution and stability fueled the acceleration of Xtampza ER. In Q1, our commercial team focused on leveraging our new Xtampza ER promotional campaign, which incorporates the head-to-head PK data comparing Xtampza ER to OxyContin from the sNDA that was improved in November. Pull-through of Xtampza ER's exclusive ER oxycodone positions at United HealthCare commercial, Optum Part D and all Medicare Advantage and select PDP plans, Humana Commercial and Part D, Florida Blue Commercial, Navitus Commercial and UPMC Commercial and Part D and our exclusive branded ER position at Cigna commercial. In addition, we focused on executing the Xtampza ER nonpersonal promotion plan, which represents a significant investment in the brand. I would next like to highlight the following key accomplishments for the quarter. We grew total prescriptions, 72%, Q1 versus Q4. Xtampza ER remains the fastest growing branded ER opioid. We added approximately 3,900 new prescribers in the first quarter. Launch to date, 10,786 health care providers have prescribed Xtampza ER. Xtampza ER became the #1 prescribed branded ER opioid at Cigna commercial, Florida Blue Commercial and Navitus Commercial in the first quarter. In addition, we were able to secure a preferred, exclusive, extended-release oxycodone access at Cigna-HealthSpring Part D, which took effect April 1. And we increased unaided awareness of Xtampza ER to 55% amongst our target audience, up 17% from 2017.…

Thanks, Joe. Good afternoon, everyone. In the first quarter of 2018, we recorded net product revenue of $63.7 million versus $10.8 million in the fourth quarter of 2017. For the first quarter, net product revenue was $15.8 million for Xtampza and $47.9 million for the Nucynta franchise. On top of the transition to Collegium's commercial organization, Nucynta revenue includes the effects of a partial quarter due to the January 9 closing date, a February price increase and Nucynta ER supply issues. The gross to net discount of our combined portfolio was 55.4% for the first quarter of 2018. As discussed on our year-end earnings call, we will disclose gross to net information on a combined portfolio basis going forward. For the first quarter of 2018, our net loss was $18.7 million compared to $23.1 million for the first quarter of 2017, resulting in a net loss per share of $0.57 and $0.79 for the 2018 and 2017 quarters, respectively. The 2018 net loss includes noncash expenses, including stock-based compensation of $2.7 million and the noncash interest charge of $5.5 million associated with accounting for the Nucynta deal. Given that the Nucynta deal closed on January 9, we wanted to spend a few minutes reviewing the accounting treatment of the transaction. In terms of balance sheet impact, the transaction is counted for as an asset acquisition. At deal closing, we recorded 2 main items on our balance sheet. First, we recorded an intangible asset of $515.6 million. The intangible asset is recorded at cost, which includes the upfront license fee, minimum royalty payment, transaction cost and assumed liabilities. We expect that the intangible asset will be amortized over 4 years, approximately $126.7 million in 2018 and $129.6 million for the next 3 years. The amortization will be recognized in our P&L…

Thank you, Paul. I will now open it up for questions.

[Operator Instructions] And our first question comes from the line of David Amsellem with Piper Jaffray.

Just a couple. So first on Xtampza, so going forward, can you walk us through some of the key plans that you're looking to lock down in terms of contracts? I know you've talked about more regional and state plans being a bigger priority. So if you could provide us with more details on which ones are the biggest priorities or which regions or states are the biggest priorities, that would be helpful. And then secondly, on Nucynta regarding where you think the product can go, I mean, I guess, the question here is, are you looking at the back half of the year as generally a stabilization and then growing it in 2019? Or do you think that there is potential now that the supply issues are largely in the rearview mirror, there's potential to grow it as we get further into 2018?

Okay. David, this is Joe. Thanks for the questions. With regards to Xtampza ER, the first thing I would emphasize with regards to the payer space is across all of the wins we achieved that hit in the first quarter, we've seen significant progress with each of them, with the 4 -- with the 3 I have referenced in my comments, where we were able to achieve market leadership. We also believe there's continued headroom within the others to continue to progress, both from a perspective of market share and volume, as we work throughout the course of the year. And we're very excited about the addition of Cigna-HealthSpring Part D. I'm not going to get into detail in terms of where it is that we're looking to contract other than to say you're right on and that we're comfortable with where we're at from a national perspective. We're looking to more regional plans. And I think if you were to keep it in the context of the 8 states in almost any category, which really follow population are really the highest priorities for us. The one we're in the strongest overall position is in the State of Florida. The final point I would make with regards to the payer and our approach is that we're committed to remaining disciplined to our strategy of focusing in on exclusive ER oxycodone opportunities, and we're having a lot of productive discussions in that regard. With regards to Nucynta and the question around where it is we're at and what we expect to see, right now, we're encouraged that we've seen the early signs of stabilization. Probably, the most exciting thing for us, as we look forward, is that for the first time in 2018 in mid-March as supply was replenished, new to brand prescription share leapfrogged back over, TRx share, which is an important indicator of brand health, and we achieved our highest NBRx share with Nucynta ER the week of April 27. So we think we're seeing that stabilization now, and our expectation is that we progress it from there for the remainder of 2019.

And if I may ask a follow-up on Nucynta. So I know you inherited contracts from Depomed, but maybe talk about where you think you are in terms of contract. Do you think you're in a reasonably good place? Or do you have somewhere to chop in terms of payer access?

Yes, it's a great question, David. First off, where we're at, what we feel really good about is like we have with Xtampza ER, Nucynta ER and IR are broadly available. Both of those brands have about 90% commercial availability. And Nucynta ER is about 50% of lives available in Medicare Part D. Nucynta IR is at about 20%. So we feel good about the broad availability. What we're focused on in Phase II -- transition and stabilized -- let me take a step back. Phase I was essentially transferring the contracts over to Collegium. In Phase II, what we're doing is we do our payer research, is really digging into to try to figure out what is the ideal situation for the brand to perform. So if you contrast it to Xtampza ER, we know and maintain that discipline of focusing in on extended release -- exclusive extended-release oxycodone positions because we know those contracts will perform. That will be part of the assessment we do on the derived learning phase as it pertains to the Nucynta franchise. And we're working very hard on that right now.

And our next question comes from the line of Tim Lugo with William Blair.

For the Nucynta ER franchise, how much restocking benefited the revenue numbers we saw this quarter? And when you talk about stabilization on growth, is that stabilization in growth based on this quarter's number? Is it based on maybe a trailing 4 quarters before you inherited the franchise? Can you just talk about that?

Yes. So Tim, this is Mike. I'll take the first part of the question. So from a restocking standpoint, we -- what happened over the quarter is we got individual strengths back at different times. It wasn't until the end of March that we had all strengths back and were able to restock. Our goal was to restock back to days on hand in the wholesalers that was probably less than historical, but more in line with what we have with Xtampza, which is in the 14- to 16-day range. So we did not see a significant increase in revenue associated with a bolus increase of adding Nucynta shipments.

And Tim, this is Joe. With regards to the Nucynta question, our focus on stabilization and my reference point are looking at the data beginning in March where we saw the NBRx share leapfrogged. The TRx share, that's the first time that, that had happened in 2018, and it coincided with the replenishment of supply. When the NBRx share gets above the TRx share, we saw the TRx share stabilize. And then the most recent weekly data, we've seen it make a little bit of progress up along with achieving our highest NBRx share of the year at 7.1% the week of April 27.

Okay. Great. And for Xtampza ER scripts, they were obviously really strong in January and February and looked to be settling in and around the single-digit growth week to week recently. Can you just talk about what the expectations are we should have around that over the next quarter or 2? And are we starting to see benefit from OxyContin lack of promotion? What's -- I guess, what are going to be the drivers?

Yes, great questions. Thanks, Tim. So this is Joe. I'll take that. If you look from Xtampza ER, and I'll bring you back to our reference points in the last call and as we've talked about it, when we have a bolus of payer wins in these exclusive ER oxycodone positions, there's typically a 3- to 4-month period of which you see that significant conversion take place. And then post that period, you're into the normal dynamics of the marketplace, which is predominantly IR patients converting over to the ER. Now with several of the plans, we were able to achieve market leadership in the first quarter. There's still room to continue to grow. What we're finding is the Part D plans have a little bit of a different dynamic, a bit slower or more protracted. So although we've seen some significant growth there, we think that's an area of focus for us, as we move through the second quarter and into the third quarter. We're excited about the addition of the Cigna-HealthSpring Part D opportunity that's about 1 million lives. And if you look backwards over a 52-week period, that's almost 40,000 OxyContin prescriptions. So we're excited about that and believe that Xtampza will continue to progress through the year, while, at the same time, we're continuing to engage payers with a focus to setting up 2019. But as you see with the Cigna-HealthSpring Part D, we'll also -- if the -- if we're able to achieve the right position, do out of a cycle deal still.

Okay. And maybe just a quick question on GTN. You're now talking about a blended GTN. Is Xtampza's gross to net still expected to be improving throughout the year?

Tim, this is Paul. Yes. So as we said on our year-end call, we expect Xtampza's gross to net to be -- gross to net discount to be higher at the beginning of the year, as the growth is concentrated in those exclusive plans that tend to be higher rebated. And as they're spill over into -- for non-contracted business and lower-rebated plans, gross to net will come down over the course of the year.

And Tim, this is Joe. On your OxyContin and promotion question, our prescriptive on the market is for the past couple of years, it is a market we would describe as more complex than competitive. And we didn't see a high level of activity even in 2017. What we're excited about and committed to is we believe we have a portfolio of meaningfully differentiated products that compel us to step into the marketplace, to talk to physicians, educate and drive awareness around these assets that have the potential to make a positive difference at a time where others are choosing to step out of the marketplace. So the one thing I do think we see benefit of is, perhaps, time as there's one less company with regards to the space that the physicians having to interact within that type of discussion.

And our next question comes from the line of Serge Belanger with Needham & Company.

My first question is a follow-up on the prior GTN question. I guess, for Paul, so you talked a little bit about Xtampza. In terms of Nucynta, what kind of progression do you expect throughout the year? And were GTN is affected in the first quarter by some of the supply issues?

Yes. So gross to net wasn't affected by supply issues, at all. And so for Nucynta, I don't think it's as pronounced because you don't have the situation with exclusive contracts for Nucynta. And it's much more of a mature stable product than Xtampza, so there might be some seasonality, but nowhere near to the effect of Xtampza.

Okay. And then for Joe on contracting. In the past, you've provided kind of the percentage levels of where Xtampza was on in terms of commercial lives, uncommercial plans and Medicare Part D. Can you provide an update on that and where you think we should see progression throughout the year?

Sure. Great question, Serge. So with regards to Commercial and Part D from a broad perspective, we have broad availability for 89% of the commercial lives and 48% of the Part D. What we're excited about is when you look at exclusive ER oxycodone lives, we have 14%, so that's 25 million approximately out of 184 million commericial lives. And we have 34% exclusive ER oxycodone positions in Medicare Part D. That's 14 million lives out of approximately 41 million. What we're excited about is the progress we've made and the opportunity to continue to pull them through. But what you can also see is, at this point in the life cycle, we're just getting started and have opportunity. Although we'll maintain discipline, we have a lot of opportunity to continue to progress that, whether it be out of cycle or as we focus for 2019. And the success that we're having from a pull-through perspective in both Commercial and Part D is really important when we engage in those discussions.

Okay. And then one more on contracting. You're now 6, 7 months into the Cigna risk-based contract. Are you seeing anything there differently in terms of the makeup of scripts? And do you think that's a template that you could use going forward with the other plans?

Yes. So it's a good question. Right now, what we're seeing, and as part of our mission of being a leader in responsible pain management, we really focus on a patient as their in need of an ER medication, getting the best choice for them at the appropriate dose for that patient. So we are independent or agnostic to what dose of the product is utilized. So when you go to your question on the Cigna contract, we don't see any difference in that value-based contract in terms of dose utilization relative to what it is that we see overall. Our commitment in the payer space aligned to our mission is we're willing to be creative and work with plans to secure those positions. So we do have discussions time to time with the value-based agreement, but I don't think it's a primary focal point of us and with most of the payers we're interacting with.

And our next question comes from the line of David Steinberg with Jefferies.

Just 2 questions. First on your SG&A, that's a pretty big step-up from Q4 from around $25 million a quarter to $31 million, $32 million. Is this largely due to expense of selling Nucynta? Or are there some one-timers in it? And would this be sort of the model quarter, so we just multiply times 4 to get the annual number? And then secondly, besides being unique in the Xtampza and ADF, these little waxy beads have had this niche for patients who have a hard time swallowing or using feeding tubes. I was just wondering if you could offer some color as to how it's doing sort of an institutional setting for that type of patient?

Great. Thanks, David. So I'll take the first question you had about SG&A. So there are some significant onetime items there, but there's just overall growth. And as we said, as we announced the Nucynta transaction, we expected to spend $10 million to $15 million extra in 2018, as the first year with the product. And so you see a big effect from that in the quarter as well.

And David, this is Joe. With regards to the institutional setting, we've seen a significant increase in the business in the institution. We think that's predominantly driven by the overall impact that we've had in the retail space. With regards to the different approaches to administration, I can't get to specific numbers for you. I would say that it's a benefit and part of the consideration when hospitals choose to make that addition to their formulary. But the vast majority, obviously, utilization of Xtampza ER is in the traditional route of administration.

Right. And just coming back to you, Paul. You mentioned there were some onetime costs. Can you quantify what those might be on the SG&A line?

Yes. So it's single-digit millions there. So as you read our 10-Q, you'll see some items there. And there -- there's some additional consulting and FDA fees that will not be sort of ongoing every quarter expenses.

And our next question comes from the line of Ken Trbovich with Janney.

Obviously, excellent to see the execution on Xtampza and the pull-through on Nucynta so quickly. I guess, one of the questions that was asked earlier I wanted to circle back to specifically on the stocking. And I guess, I'm trying to rationalize sort of the comments that Depomed made prior to the sale sort of the drawdown, if you will, of $8 million in inventory. And I think the comment, Mike, if I heard you correctly, that there wasn't a significant benefit during the quarter. Can you help us to sort of understand, were there some shipments that Depomed may be recognized in the quarter that otherwise would have gone to you guys to sort of offset that number?

Yes. So just a bit a little bit of color -- additional color. At the end first quarter, we had -- our typical Xtampza days outstanding or days on hand is around 15 days. And so that was the -- that was where Xtampza set. We said the IR was at 16 days and Nucynta ER was at 20 days. So we were back at numbers that, we think, are appropriate for the appropriate demand for the product. At the end of the year, when we took over the product, the IR product maybe was a little bit higher than that. And then intermittently, as we got strength that got shipped from Puerto Rico, we would get a certain strength and we would fill the supply chain with that. And then we'd get another strength. So there might be an individual strength that had higher days outstanding. But then we would have another strength that was a complete out-of-stock for a while. So all in all, when you look at it, it's hard to look and say that we got or Depomed got any significant benefit from stocking in the first quarter. I can't speak to what benefit they may have gotten last year, but I can only speak to what happened to the first quarter this year.

Yes. I guess, one other point there, Ken, is to factor in the days on hand is calculated based on current prescription levels. So obviously, prescription levels have come down some. So that the amount of inventory in the channel has to be lower to have the same amount of days on hand.

Got it. And then one of the things that we've noticed here recently, there's been tremendous amount of pressures on some of the congressional folks really being applied to payers, specifically around coverage of abuse-deterrent products and products that, perhaps, have not opioid-based approaches, those sorts of things. Is there any sense that you folks have about a changing landscape or sort of a change in the overall position from a legislative perspective as it relates to creating an even playing field for the branded abuse-deterrent products relative to the generics if there's no longer a financial incentive for these payers to put people on abusable products?

Yes, it's a good question. And as you can imagine, the legislative landscape changed. So I can tell you there's tremendous amount of activity in Washington right now. I believe there's over 60 bills that have to do with opioids that are in play and in discussion. And many of them are talked about in the national media. All that being said, we can't predict, as I don't think anybody could of which bills are going to move forward faster than others. There are individual bills that call for abuse-deterrent opioids to be the product of choice and the requirement that payers pay for abuse-deterrent opioids. I think the good news, as I said in my opening comments, is that we are seeing a lot of discussion about safer opioids. In the discussion which used to be only in subsets is really much broader. And whether that's a non-opioid or a safer opioid, there's a real understanding that there are pain patients out there that need treatment, that need reimbursement of treatment and they need options. And so, again, as Joe had said earlier, we advocate for that wholeheartedly, multi-modal treatment of pain, and we think we're bringing out a product set that's unique and innovative to that.

Got it. And then just related to that. Is there any sense that payers that perhaps would normally not do mid-year evolution might be considering that given the pressure that's being applied?

Yes, this is Joe. I wouldn't say that as a result of any pressure being applied that we're having discussions about any potential adds prior to 2019. What I -- what we experienced is there's a lot of interest and the more people learn about Xtampza ER, the abuse-deterrent technology associated with the product and as they see the acceptance in the overall marketplace, that's the driver of the interest. And then the other thing I would add is that post the agreement to take on commercialization of the Nucynta franchise, obviously, our scale has changed. And we're much more relevant to the payers, and that's, obviously, with an innovative molecule in tapentadol, there's a lot of discussion ongoing about that, too.

And our next question comes from the line of Kevin Kedra with Gabelli.

First, wanted to ask if you're seeing any impact from new guideline regulations to reduce the number of days of IR opioid use. Wondering if you can speak to that both from the impact on the ER side and then on the IR side as you guys now have the Nucynta IR franchise.

Yes. Kevin, thanks for the question, I'll take that. As you probably saw, and I think yesterday is a good example, where Walmart came out with a new policy for a 7-day limit on initial acute pain prescriptions. So if you think about Nucynta ER and Xtampza, both of which are used by chronic pain patients. It has very little effect. These dose limits -- or pill limits have very little effect on either of those 2 products. Now that being said, Nucynta IR is also approved for acute pain. And we believe the vast majority of Nucynta IR is written by pain specialists, and pain specialists typically treat patients who have more chronic pain. We don't have a great hand or right yet on exactly how many patients for acute onetime paying get Nucynta, but we think it's the minority. So based on that, we think there's going to be little effect to these dose limits on any of our 3 products. Only time will tell. As you're I'm sure, familiar there's been individual health plans as well as states who have put limits in place, and we haven't seen significant dynamic changes in those markets.

Great. And then just a follow-up. How do you guys think about where you are with the sales force right now? And given the opportunities as you get beyond stabilization of Nucynta and into your Phase II, how do you think about rightsizing that sales force for the increased opportunity?

Yes. Kevin, this is Joe. Great question. From our perspective, as we look at it for 2018, we feel really good about our overall coverage of the market. So to give you perspective, we cover about 60% of the branded ER market. If you look from a Nucynta IR prescription perspective, we cover 70% of that volume, 82% of Nucynta ER and over 90% of Xtampza ER. So we feel good about the footprint that we have in place. We think the most important attribute -- or amongst our most important attributes in the support of the portfolio is our operational stability, which enables us to gain access to prescribers through that continuity and then our laser focus on execution. As we go through our planning process, inclusive of synthesizing the learnings we derive around the Nucynta franchise and the work for Xtampza and we get into the back half of the year and we think about evolution of strategy, that's where we'll start to think about whether or not that's something we need to do. But what I can tell you, with pretty good confidence, is it would be on the margin. And we would be very reluctant to disrupt the relationships that our sales professionals have established with the health care providers that they call on.

And I'm showing no further questions at this time. So with that, I'd like to turn the conference back over to President and CEO, Mr. Mike Heffernan, for closing remarks.

I'd like to thank everybody for joining our call today, and I'd like to thank the Collegium team for their continued dedication to responsible pain management. We look forward to providing ongoing updates. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.