Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 Collegium Pharmaceutical Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]I will now like to hand the call over to Alex Dasalla. Please go ahead.

Welcome to Collegium Pharmaceutical’s third quarter 2019 earnings conference call. This is Alex Dasalla, Head of Investor Relations for Collegium. I am joined today by Joe Ciaffoni, our Chief Executive Officer; Paul Brannelly, our Chief Financial Officer; and Scott Dreyer, our Chief Commercial Officer.Before we begin today’s call, we want to remind participants that none of the information presented today is intended to be promotional and that any forward-looking statements made today are made 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 may not be able to successfully commercialize Xtampza ER and the Nucynta franchise, and that we may incur significant expense and may not prevail in current or future opioid industry litigation and investigation, patent infringement litigation or other litigations pertaining to our products.These risks and other risks of the company are detailed 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. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at collegiumpharma.com.I will now turn the call over to Collegium’s CEO, Joe Ciaffoni.

Thanks, Alex. Good afternoon, and thank you, everyone, for joining the call. We’re pleased to report that we’re on track to make 2019 a breakthrough year for Collegium Pharmaceutical. We continue to make meaningful progress against our key strategic and operational priorities and our organization is focused on finishing strong in 2019.Accomplishments for the third quarter include net revenue of $72.9 million, which represents a 4% increase over the third quarter of 2018. Xtampza ER third quarter net revenue increased to $26.5 million, which represents a 56% increase versus the third quarter of 2018. Xtampza ER total prescriptions grew 44% in comparison to the third quarter of 2018.As anticipated, Xtampza ER grew at a moderated rate on a sequential basis and we expect prescriptions to grow at a similar rate in the fourth quarter. As a reminder, Xtampza ER prescription growth in 2019 was driven by 13 new exclusive ER oxycodone payer wins, representing approximately 11 million lives that took effect on January 1, 2019.OpEx for the quarter was down in comparison to the third quarter of 2018. We remain committed to leveraging, not growing, Collegium’s cost structure in 2019 and beyond. On a non-GAAP basis, we generated income from operations for the second consecutive quarter and increased cash on hand.Finally, we strengthened the leadership team with the appointment of Bart Dunn to the role of Executive Vice President, Strategy and Corporate Development, and Member of the Executive Committee. Bart will lead the execution of our midterm growth strategy.As it pertains to the ongoing industry-wide opioid litigation, we have no material updates to provide from our last call. Our quarterly report, as always, includes details of all of our pending litigation matters. As a brief recap, as of today, there are over 2,600 lawsuits against manufacturers, distributors and others relating…

Thanks, Joe. Good afternoon, everyone. Financial highlights in the third quarter of 2019 include, through the first 9 months of 2019, Xtampza ER net product revenues were $77.6 million, which represents a 52% increase compared to the prior year period.Cash increased by $5.1 million to $153.8 million compared to the prior quarter. And although we had a net loss of $6.1 million, we were profitable on a non-GAAP basis for the second consecutive quarter.Net product revenues for Xtampza ER were $26.5 million in Q3 2019, which is a 56% increase from Q3 2018 and a 2% increase from Q2 2019. Xtampza ER revenue growth was driven by prescription growth, partially offset by a reduction in wholesaler inventory of approximately 3 days. Gross-to-net discount was 58% in Q3 2019 compared to 58.4% in Q2 2019. We expect our gross-to-net discount for Xtampza to remain in the high 50% range for the remainder of 2019. Next year, as a result of the 15 new exclusive ER oxycodone formulary wins that add 35 million exclusive lives, we expect gross-to-net discount to be in the low 60% range.Net product revenue for the Nucynta franchise decreased to $46.4 million from $53.1 million in the third quarter of 2018 and $49 million in the second quarter of 2019. The decrease in Nucynta revenue was driven by lower prescription volume as well as the reduction in wholesaler inventory of approximately 4 days. Operating expenses, excluding cost of product revenues, were $32.5 million for the third quarter of 2019. We continue to maintain financial discipline by leveraging our existing cost infrastructure, although we expect some fluctuations from quarter-to-quarter.For the third quarter of 2019, our net loss was $6.1 million, which includes approximately $4.1 million of stock-based compensation and $3.7 million of amortization expense related to the Nucynta intangible…

Thanks, Paul. In the third quarter, we continue to make progress against our goal of establishing Xtampza ER as the ER oxycodone of choice for appropriate patients. Xtampza ER achieved all time highs for total prescriptions, market share and total prescribers in the quarter. Total prescriptions grew to 120,409, representing 44% growth over the third quarter of 2018 and 3% growth over the second quarter of 2019.Xtampza ER grew branded ER market share to 13% and ER oxycodone market share to 18%. The prescriber base for Xtampza ER grew to 13,550 prescribers. We saw a strong market share performance for Xtampza ER across all exclusive ER oxycodone formulary positions. Xtampza ER has achieved branded ER market share leadership within 19 of 26 formulary positions and has a 62% share of the ER oxycodone market within exclusive positions. We expect Xtampza ER to grow in the fourth quarter at a similar rate to the third quarter.Nucynta franchise total prescriptions were down 3% to 131,000, and branded ER market share was stable at 6%. Thus far in 2019, we’ve been unable to achieve stabilization of total prescriptions for the franchise and we anticipate continued pressure in the fourth quarter. We are encouraged by results from quantitative market research that was fielded in October with our targeted healthcare providers.Highlights include, Collegium ranked second as the leader in responsible pain management and closing the gap versus Pfizer. Collegium sales force ranked number one and extending our leadership position versus other companies promoting in this space. Collegium’s pain portfolio was seen as highly differentiated and Xtampza ER is ranked number one on product favorability. 51% of prescribers intend to increase their utilization of Xtampza ER and 60% intend to decrease their prescribing of OxyContin.Specific to Xtampza ER our market access team has made significant progress…

Thanks, Scott. I will now open the call up for questions.

[Operator Instructions] Our first question comes from David Amsellem of Piper Jaffray. Your line is open.

Thanks. So I got a couple of questions. First on the contract and the actual details on the exclusive contracts, I guess, the question here is – well, couple of questions. One is are there any other big national sizable national plans that are included in the $35 million besides CVS Caremark? And also, how much wood to chop do you have on the Medicare Part D front?You mentioned that most of the wins are commercial. So can you talk about what kind of work you have left on the Medicare Part D front? And then, switching gears to Nucynta, given where the trajectory of the franchise is going and given your agreement with Assertio, and I know you’ve gone through this in the past, is it possible that you may put rights back to Assertio, when you can in a couple of years and talk through your thought process there? Thanks.

Sure. Thanks, David. This is Joe. I’m going to ask Scott to comment on the contracts and then I’ll give some perspective with regards to Nucynta.

Yeah. Thanks, David. So first, related to your question on commercial, yes, there is another national plan that is in the wins, but I can’t name what that plan is at this time. And then, second, related to Part D and kind of our run room, we’ve added a million lives in regional plans. Where that puts us is, there is 42 million lives in Medicare Part D nationally, and we’re now exclusive at 40%.So there is still run room there for additional wins going forward.

Yeah. And one additional comment with regards to contracts, David. Obviously, now, we’re at a point in commercial in Part D, where we have about 40% of lives in each and in an exclusive position. As we move forward, the runway theoretically is an additional 60%. But we’re going to be very focused and disciplined.And as we move into 2020, that’s where we’ll make determinations of how much more we feel we need to go after to continue on a track to market leadership.Look with Nucynta, I appreciate the question. I would make the following comments, one, we have a very strong partnership with Assertio, it’s a franchise and a molecule that we believe in. And in terms of the core fundamentals, of when we did the deal, in terms of it being accretive, the year we did it, accelerating our time to profitability and giving us different scale across the value chain that has all been realized.And as we move into 2020, as we haven’t yet stabilized the brand. Obviously, that’s something that we’ll be evaluating throughout the year. But right now, we’re focused on trying to stabilize a franchise that we believe in.

Thanks, Joe. If I may sneak in a follow-up on Nucynta, do you think the problem with the product, and not being able to stabilize, it has to do with the product being in the headlines for the wrong reasons, and perhaps, doctors being skittish about writing it, given the headlines? I mean, how big of a role is that playing?

Yeah. It’s a great question. I don’t believe, and I don’t think we would have any information to say that is a challenge with regards to Nucynta. I would really focus to two things in particular with the ER. The first is post the supply outage, although the market perception and the view of the asset in terms of it being differentiated viewed favorably and in particular thought of, for patients with diabetic peripheral neuropathy. Although that has been maintained, the market position was impaired.The second thing is we’re coming through 2019 as an atypical opioid that is really focused to patients where they have more of a moderate analgesic need. I do think there is some overlap with BELBUCA, that’s putting pressure to the ER. And I think with the IR being in a marketplace that’s 99.9% genericized, there is some payer dynamics that play there.

Okay. Thanks for the insight. I’ll jump back in the queue.

Okay. Thanks, David.

Our next question comes from David Steinberg of Jefferies. Your line is open.

Thanks. I have three questions. First, regarding the new managed care wins. So this year, looks like your incremental revenues on Xtampza on 11 million lives would come in around $34 million, $35 million. So is there anything about the current wins, you just mentioned that would be disproportionate next year?Or looked at another way, does the math of around $100 million incremental sales work given its 3x times, what you probably are going to do this year?The second question is, I think last quarter you exited with an oxycodone ER share of about 17%, what sort of aspirational share do you think you can get over the next couple of years, particularly with Purdue’s problems?And then, thirdly, you mentioned the shelf of $300 million largely being housekeeping as the previous shelf had expired. That said, you have almost $150 million in cash and you’re cash flow positive. So clearly, don’t need to raise money. The assumption here you’re doing this, because you’re going to make an acquisition anytime soon. And can you remind us what the buckets, what types of acquisitions you’re looking for? Thanks.

Yeah. Thank you, David. I’m going to let Paul take the question on managed care as it pertains to 2020 revenue and to talk about the shelf. And then, I’ll give some perspective on what we think we can accomplish and aspire to with Xtampza over the next couple of years.

Okay. Thanks, David. So if you think about – as we think about 2020 we’ll provide guidance early next year. And I think that will be the timeframe that’s appropriate for us to lay out what impact we think that these wins will have as compared to 2019.

And then, the shelf?

Okay, shelf, yeah. So for the shelf, we have file that is a matter of good – what we think is good corporate housekeeping. And as we’ve looked at [ED] [ph] opportunities over the last year or so, we do want to have that potential flexibility out there. So we think it’s important to have the shelf on file to allow us, if there was something that we wanted to act on that we have the flexibility to finance it at an appropriate time.

Yeah. And, David, with regards to Xtampza over the next couple of years, our aspiration and belief is that Xtampza becomes the number one prescribed branded ER opioid, and obviously, in doing that we also become the number one extended release oxycodone. As we move into 2020, we’re optimistic about the 35 million exclusive lives we added predominantly in the commercial book of business that will fuel the next phase of growth.And one comment I would make that I think Scott and his entire commercial organization have really built a strong competence and as reflected by the fact of in our 26 wins. Historically, we have 19, where we’re in a leadership position. In 2018 – or 2019, we have grown market share in a significant way. I think we’ve really developed a pull-through capability in terms of our commercial team, inclusive of how we partner with these payers to maximize the opportunities.

Our next question comes from Tim Lugo of William Blair. Your line is open.

Hey, this is Lachlan on for Tim. Thanks for taking the questions. I was just wondering if you’ve stated any sort of market disruptions since the Purdue bankruptcy. And if you have a sense of, how many of your brand patients for Xtampza might be coming from OxyContin versus elsewhere and new to ER overall? And secondly, I was wondering in terms of Nucynta, where have the differences come from compared to what you forecasted or expected when you licensed the asset. What’s changed or what hasn’t met expectations? Thanks.

Okay. So this is Joe. With regards to market disruption as a result of what it is that Purdue is dealing with, I don’t think that there has been any disruption to the market. So the product continues to be available. It has a position with regards to the payer. So I don’t see anything as a result of that impacting the marketplace. The one area in which I do think it has impact is in our conversations with payers. So in addition to payers being interested in us focusing the discussion on the differentiated label of Xtampza ER being able to talk about the success that we’ve had, where we’ve had exclusive positions, I think, clearly right now with the payers that’s something that’s part of their consideration set.In terms of sourcing of business with Xtampza, for Xtampza ER, the new to brand share or new to brand prescriptions are predominantly driven at this point in the year by patients transitioning from an immediate release oxycodone over to Xtampza ER.And I’ll let Scott comment on Nucynta.

So the question on Nucynta, if you could repeat it. I couldn’t quite understand it.

Yeah. Sure. Sorry. So I was just wondering, obviously when you acquired or licensed Nucynta, you sort of had a certain set of expectations for how it would perform in the market. And I’m wondering, what’s – what is different from what you had expected. Where these differences are coming from that are relating to the decline?

Yeah. Thank you. Yeah. So I think, I’d reiterate what Joe had mentioned earlier about the market position of the product. So when we had a supply outage right at the time we acquired it in the first quarter, we fundamentally change the market position. The length of it led to patients leaving the therapy, and now we’re in a battle of fighting back for new patients essentially. That’s the number one thing that has changed the position now versus when we did the deal. And our focus now is on stabilization, specifically focused on Nucynta ER and the differentiated label and indication for pain associated with diabetic peripheral neuropathy.

Okay. Great. Thank you.

Our next question comes from Gregg Gilbert of SunTrust. Your line is open.

Thank you. I have a few questions. First, perhaps a naive question, for the payers that have not contracted with you in an exclusive position, is it simply due to the rebates that get from Purdue? Or is it more nuance and complicated than that? It would seem to be a no-brainer in this environment in particular.

Okay. Hey, Gregg, this is Joe. Thanks for the question. Look, with regards to the payers, that we don’t yet have contracts in place. I think it’s a complex situation where you get into the ins and outs in terms of what is the discount of which they would make that type of decision in some instances, relative to what it is that we’re willing to put forward. The one thing that I would emphasize with regards to the discussions that we’ve had this year, and the ones that continue to be ongoing.The thing that we start with and I think every payer for the most part is onboard with this, the differentiation of the label and the clinical attributes of Xtampza ER. The second thing that we have taken, I think for the most part out of the consideration set with perhaps the exception of those plans that don’t have the ability to control is our ability to work with them, if they put Xtampza in an exclusive position to move the market share.And then like I said earlier, one of the dynamic that is fundamentally different this year is they all in our discussions are contemplating, what the Purdue bankruptcy means or could potentially mean to them. So we’re very excited about the 35 million lives, we’ve added for 2020. We continue to be engaged and have discussions ongoing. And if we were to achieve any additional wins we would – if they’re material we would communicate them.

Okay. Thanks. In terms of the overall market situation, it looks their decline rate [category] [ph] moderating somewhat. Can you talk about that theme? Is it something you’re noticing as well? And if you can moderate further into 2020 based on your internal research and sort of the appropriate use of the category versus in the past?

Yeah. So Gregg, look, big picture, what we’re seeing this year obviously is a double-digit decline within the market. We anticipate it being somewhere in that area, next year at least in our models and over a 5-year period beginning to moderate more to mid-single-digit decline, probably the piece of evidence at least in our view that would support that is at that point, you’re getting to about the level of opioid prescribing that there was in the early 2,000s. The reason we think that’s relevant is that was before pain became identified as the fifth vital sign, which was one of the drivers of increased opioid utilization.The final point that I would make on that is as the company committed to being the leader in responsible pain management: one, we think it’s important and we would expect the market to continue to decline. We certainly are not focused on are doing anything to drive volume within the market. We want to make sure that physicians that pain specialists are educated on our portfolio, so that when they choose to go that route, which is a serious decision that they understand the benefits of our products relative with other choices.

Great. And my last question on business development, how would you characterize the availability and pricing of the opportunities that fit in the criteria that you so clearly laid out in the past? And have you found yourselves tweaking your criteria at all to fit what’s available out there? Thanks.

All right. So great question, Gregg. So look as you know and we’re focused on 2 windows in the mid-term, we’re essentially looking for non-opioid pain solutions later stage development that have the potential to be generating revenue in 2023. That’s obviously a process of which we’re always looking refreshing the list and what I would say there is we are active, we are focus, we know what it is that we’re interested in, and to the degree that we can get it in a way that we believe will drive value, we’re prepared to take action.In the short-term window, we have a pretty high bar there. It’s important to us with anything we bring into our portfolio. But it’s meaningfully differentiated and then it also would be accretive, either in the year, we did it. If not, that year the following year. And with that criteria, obviously, that’s a much smaller group of things that we’re focused on.

Thank you.

Welcome.

Our next question comes from Serge Belanger of Needham & Company. Your line is open.

Hey, thanks guys. This is Tian on for Serge. I just have a few questions. So first on Nucynta, is there any changes that are expected as far as the formulary coverage going into 2020 and how that might impact of sales in 2020? And then on to the current plans that you have for Xtampza, the 26 plans, what is the market share on your current Part D plans? Then I guess, what are some of the limitations that are limiting the drive of these Part D plans to go to the same level of the commercial plan? And is there any renewals or evaluations that are coming up that might affect Xtampza into 2020?

Okay. So thank you for the question. I’ll have Scott comment on Nucynta and then perhaps I’ll take a shot at the Xtampza.

Yeah. So when we look at the landscape for Nucynta there is no significant changes for 2020 and when we look at ER, broad covered availability across all commercial plans as well as Part D plans, broad coverage available there as well. So we feel we have the access we need to continue to work the brand.

Okay. And then with regards to Xtampza ER. First off, big picture, where we’re exclusive, we have a 62% market share of the extended release oxycodone market. One of the things that we have learned over the past couple of years is that market share seems to move faster within the commercial books of business, within Medicare Part D, we move share in a meaningful manner. And then we get other opportunities to continue to grow. So our expectation is in Medicare Part D and the dynamic there is at the beginning of the year, that’s when the majority of medical exceptions take place. What’s different in Part D than commercial if – is at the medical exceptions approved. It’s a 12-month approval. So you don’t get another opportunity to have that patient switched over to Xtampza ER.So as we work from a commercial perspective. And with those payers, what we really want to make sure is that our messaging is on point and that the plan that they are implementing from a payer perspective in Part D is being operationalized correctly.

Great. Thanks for the details.

Sure.

Our next question comes from Esther Hong of Janney. Your line is open.

Hi, thanks for taking my question. So Joe, in your opening remarks, you mentioned the aim for Xtampza to be the branded market leader by 2023. Can you provide any additional details on the strategy to reach that goal by that specific year? And does the future of Purdue impact that vision? And then my second question is separately, do you anticipate a similar cadence to Xtampza sales in 2020 as observed in 2019? Thanks.

Yeah. So thank you, Esther, I appreciate the question. First off, when you look at the aspiration of being the market leader, no later than 2023, the reason we’re focused there, is we believe that is the earliest of which there could potentially be a generic version of OxyContin. And one of the things that we think is important is the clinical differentiation of Xtampza via its label is what ultimately protects the base of sales from a potential generic. So that’s where that has always been the aspiration of no later than 2023 becoming the market leader, in terms of why I said no later in my comments right now with the 35 million exclusive wins that we’ll be adding effective January 1, we expect that to fuel a next phase of growth for the brand.And at a certain point, we believe we’ll have enough critical mass from a payer perspective along with the commercial infrastructure. I think it’s important for us to emphasize, we have the number 1 field force in the eyes of these healthcare providers, who are out there educating on the brand, where we will hit that inflection point that puts us on that pathway to market leadership. So 2023 is the target we are focused on the messaging, we know we have a significant influx of new payer wins. We know the payers that we would potentially focus on as we go forward to get us there.

And then…

Yeah. And on cadence, I think as we move into 2020 and we give guidance, we’ll give perspective on what we believe the shape of the curve will be in 2020 in terms of how the pulsing of the growth will occur.

Okay. Great. Thanks. Congratulations.

Thank you.

Our next question comes from Brandon Folkes of Cantor Fitzgerald. Your line is open.

Hi, thanks for taking my questions. So as you say, you talked a lot about 2023. But can you give us some color on how this new scale that you will have in 2020 and beyond in terms of have exclusive live coverage? How does that give you additional sort of leverage to go in and drive more exclusive wins beyond 2021? Anything on the supply side, we need to be considered about as we move to 2023, obviously showing that you can supply the market reliably in 2021, I think will go a long way there. And then lastly, can you just provide some color in terms of the percentage of scripts that went through outside of the exclusive contracts this quarter? Thank you.

Okay. So, Brandon, I’m going to let Scott comment on your first question with regards to exclusive wins beyond 2020 and the percent of scripts that flow through the non-exclusive accounts. And then, I’ll come back and make a comment on supply.

So first starting with the percent of prescriptions that flow outside of our exclusives, about 35% of our prescriptions come through non-exclusive in totality, about 65% through our exclusives. To the additional exclusives beyond 2020, I think we’ll see what happens. So we know that by adding these 35 million lives, we’ve passed OxyContin from a standpoint of strength and breadth of position and exclusivity.And the beauty of that is it will help us see if that actually creates additional tipping points to perform even better in the non-exclusive books. So our focus is pulling through what we won, looking at how that will spill over to the non-exclusives. And then, we’ll evaluate the additional exclusives we may do going forward from that.

Okay. And then, Brandon, from a supply perspective, we feel we’re well positioned from a supply perspective, as you know, one of the things that we’ve been working on and we would expect over the next 12 to 18 months is our dedicated facility, which will give us additional manufacturing capacity, will come online. But we’ll be in a good position from a supply perspective as we move forward.

Great. Thank you very much.

Okay. Thanks, Brandon.

Our next question comes from Kevin Kedra of G. Research. Your line is open.

Thanks for taking the questions. I wanted to ask about the exclusive contracts that you’ve had now for several years. You’ve given us some good metrics about being having leadership in 19, 26 plans. But on the plans where you’ve been on them for now a couple of years, have you seen the share move much from year one to year two? Has that been stable? Does it go up? Does it go down?And then, competitively, I think you guys are actually the last on markets, long-acting scheduled to opioid that’s been approved by the FDA. But there are a few products that are pending at the FDA or could be filed in the next year or so. So, over the next couple of years, how do you see the landscape evolving with potential new entrants into the opioid market?

Okay. So, Kevin, I’ll let Scott comment on the performance of the exclusive accounts. In particular, the ones where we’ve been on the longest and then I’ll give a little perspective on our view of potential entrants into the opioid landscape.

Yeah. Thanks, Kevin. So when we look at the exclusive contracts that are a couple of years into the running, what we see is, we see exponential growth in commercial right away. And then we see continued growth year-after-year. In Part D, we see that we come out of the gates more methodically and then we have steps at the beginning of each year and consistent growth there as well. So, overall, the exclusives continue to grow share as we go forward.

And, Kevin, with regards to the evolution of the marketplace, number 1, we feel very good that the DETERx technology, which is the abuse-deterrent technology that accompanies Xtampza is a differentiated technology, sets a very high bar for anybody that were to come to the market to follow in particular with a extended release version of oxycodone.And I think the reason that’s relevant, as you know, the FDA has been spending a lot of time, thinking about and having hearings around what would be the standard or what would a new product have to achieve.And I think, in general, it feels directionally it’s going in the direction that they need to represent an improvement and a meaningful improvement over currently available therapies. So, when you look at Xtampza ER, we’re focused to the ER oxycodone portion of the market. We are very confident in the DETERx technology, and believe the standard for approval is a pretty high bar.

There are no further questions. I’d like to turn the call back over to Joe Ciaffoni for any closing remarks.

Okay. Thank you. Before we conclude today’s call. I’d like to take a moment to recognize my colleagues at Collegium. As a result of their efforts, 2019 will be a breakthrough year for Collegium. And we believe Xtampza ER is positioned for its next stage of growth in 2020. I’m confident that Collegium is on track to become the leader in responsible pain management and I look forward to updating you on our progress. Have a good evening.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.