Collegium Pharmaceutical, Inc. (COLL) Q4 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and thank you for standing by and welcome to the Fourth Quarter 2019 Collegium Pharmaceutical Earnings Conference Call.At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today's conference is being recorded. [Operator Instructions]I will now hand the conference over to your first speaker today Alex Dasalla, Head of Investor Relations.

Welcome to Collegium Pharmaceutical's fourth 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 litigation 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.

Thank you, Alex. Good afternoon and thank you everyone, for joining the call. In 2019, Collegium Pharmaceutical made significant strides toward becoming the leader in responsible pain management. Based off of quantitative market research conducted in the spring and fall of 2019 with targeted healthcare providers, Collegium was ranked second only to Pfizer as a leader in responsible pain management, a testament to the quality and professionalism of our team. We take great pride in healthcare providers views of our organization, business practices, and pain portfolio. We made and will continue to make significant investments in our people, processes, and programs to strengthen our most important brand, Collegium Pharmaceutical.Key accomplishments in 2019 include: achieving nearly 1 million portfolio prescriptions, up 7% versus 2018; increasing full-year net revenue to $296.7 million versus $280.4 million in 2018, a 6% increase; growing Xtampza ER full-year net revenue to $105 million with total prescriptions of 466,378, up 51% and 49% respectively versus 2018; enhancing Xtampza ER's already strong patent portfolio with the addition of a 15th Orange Book-listed patent; adding exclusive ER oxycodone formulary wins that cover over 35 million predominantly commercial lives effective January 1, 2020; delivering Nucynta franchise net revenue of $191.7 million and total prescriptions of 530,569, representing a decline of 9% and 14% respectively versus 2018; generating non-GAAP adjusted income for three consecutive quarters; and strengthening the executive team with the appointments of Dr. Richard Malamut and Bart Dunn to the roles of Chief Medical Officer and Executive Vice President, Strategy and Corporate Development. Both will play key roles in the execution of our mid-term growth strategy.I want to recognize my colleagues at Collegium on their many accomplishments in 2019 and thank them for their commitment to establishing Collegium as the leader in responsible pain management.Looking ahead, 2020 is off to a strong start and will be a transformative year for Collegium. The acquisition of the US rights to the Nucynta franchise is a financially transformative event for our organization. Along with strong Xtampza ER growth and continued financial discipline, Collegium Pharmaceutical will be profitable beginning in Q1 2020 and we expect full-year non-GAAP adjusted income in the range of $125 million to $140 million. Collegium has the financial flexibility to pursue future business development transactions.Xtampza ER is Collegium's growth driver and highest priority in 2020 and beyond. Xtampza ER is poised for its next phase of accelerated growth and is on a path to market leadership, no later than 2023. Tapentadol is a molecule that we believe is meaningfully differentiated and we are committed to maximizing the potential of the Nucynta franchise. The Nucynta franchise will be an important contributor to Collegium's bottom line through mid-2025.Our priorities are the following: accelerate -- our 2020 priorities are the following: accelerate Xtampza ER and secure its path to market leadership; moderate the decline of the Nucynta franchise in 2020 and take actions to position it for sequential revenue stability beginning in 2021; execute our portfolio market access strategy; generate and disseminate real-world surveillance in claims-based data for our product portfolio; leverage, not grow Collegium's cost structure; initiate our plan to reduce portfolio COGS over the next three years; execute business development transactions aligned to our mid-term growth strategy; and invest in people, processes and programs to enable Collegium to become the leader in responsible pain management.2019 was a year in which Collegium Pharmaceutical made significant progress toward becoming the leader in responsible pain management. Led by Xtampza ER growth, the acquisition of the Nucynta franchise, financial discipline, and business development transactions, 2020 will be a transformative year for the organization. I'm confident that we have the right plan, and more importantly people in place to make it happen. I look forward to updating you on our progress throughout 2020.I will now hand the call over to Paul for a discussion of the financials.

Thanks, Joe. Good afternoon, everyone. Driven by Xtampza ER revenue growth and leveraging our current infrastructure, 2019 was a strong year for Collegium. Xtampza ER net revenue was $105 million in 2019, which is an increase of 51% from 2018. This was at the high end of our guidance range of $95 million to $105 million. For the fourth quarter, Xtampza ER revenue increased to $27.4 million, which is a 49% increase from Q4 2018. The gross-to-net discount for Xtampza ER was 58.5% in 2019 compared to 62.6% in 2018. As a result of the new exclusive ER oxycodone formulary wins, we expect gross-to-net discount to be in the low 60% range in 2020.Nucynta net revenue was $191.7 million in 2019, which is a decrease of 9% from 2018. The decrease in Nucynta revenue was driven by lower prescription volume as well as a reduction in wholesaler inventory of approximately 10 days. We expect to manage wholesaler inventory at this level for the foreseeable future. Operating expenses, excluding cost of product revenues, were $126.8 million for 2019, finishing the year near the low end of our 2019 guidance range of $125 million to $135 million and a 6% improvement versus 2018.For the fourth quarter of 2019, our net loss was $2.2 million, which includes approximately $4 million of stock-based compensation expense and $3.7 million of amortization expense related to the Nucynta intangible asset. Our non-GAAP adjusted income was $5.5 million for the fourth quarter of 2019. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results.As of December 31, 2019, our cash balance was $170 million, which is a $16.2 million increase from our September 30 balance and a $23.4 million increase from December 31, 2018.On February 6, we announced the acquisition of the US rights to the Nucynta franchise. This is a financially transformative transaction for Collegium that we expect will significantly increase our profitability and operating cash flows, while leveraging our current infrastructure. Today we are confirming our prior guidance, which was initially provided on January 7. For 2020, we expect Xtampza ER revenues in the range of $150 million to $160 million, Nucynta franchise revenue in the range of $170 million to $180 million and total operating expenses in the range of $130 million to $140 million. In addition to our prior guidance, we expect 2020 non-GAAP adjusted income in the range of $125 million to $140 million. Consistent with our prior practice, non-GAAP adjusted income will exclude stock-based compensation, non-cash interest and non-cash amortization of the Nucynta intangible asset.I will now hand the call over to Scott for a commercial update.

Thanks, Paul. Xtampza ER finished 2019 with momentum and as a result of 20 new exclusive ER oxycodone formulary wins impacting over 35 million predominantly commercial lives, is positioned for its next phase of accelerated growth in the first half of 2020. Xtampza ER achieved all-time highs for total prescriptions and market share in a quarter. In the fourth quarter, total prescriptions grew to 124,067, up 36.6% versus the fourth quarter of 2018.Xtampza ER exited 2019 with a 19% share of the ER oxycodone market, up 7 percentage points from December 2018. In the fourth quarter, there were 13,406 unique prescribers of Xtampza ER, an increase of 31% versus the fourth quarter of 2018. Importantly, the productivity of the prescriber base increased every quarter in 2019. In the fourth quarter, the average total prescriptions per prescriber increased to a new high of 9.3. Xtampza ER ended 2019 as the Number 1 prescribed ER oxycodone in 22 accounts of 29 accounts in which it was exclusive. Within exclusive accounts, Xtampza ER's market share of the ER oxycodone market grew to 63% in the fourth quarter. Based off of quantitative market research conducted in the fall of 2019, 51% of our targeted healthcare providers intend to prescribe more Xtampza ER over the next 12 months compared to 60% that intend to prescribe less OxyContin.Nucynta franchise total prescriptions were 128,383 in the fourth quarter of 2019, representing a sequential decline of 2%. In the fourth quarter, Nucynta ER new-to-brand share grew to 6%, its highest level in 2019 and total prescription share was stable for the third consecutive quarter.In 2020, our commercial priorities are clear, grow Xtampza ER and moderate the decline of the Nucynta franchise. The market access position for Xtampza ER is strong and broad with Xtampza ER being covered for 95% of commercial lives and 50% of Part D lives. And with 20 new exclusive formulary position that are in place as of January 1, Xtampza ER is the exclusive ER oxycodone for approximately 40% of commercial and Part D covered lives. Xtampza ER has surpassed OxyContin in terms of both breadth and strength of market access. Our primary focus for the first half of 2020 will be on aggressively pulling through Xtampza ER's 49 exclusive ER oxycodone formulary positions, 20 of which went into effect on January 1, 2020. Concurrently, we'll be pulling through Xtampza ER's overall broad market access.Early on in 2020, we've seen strong growth in Xtampza ER new-to-brand volume and ER oxycodone market share. New-to-brand ER oxycodone market share for Xtampza ER was 37% the week ending January 31, up from 23% the last week of December 2019. In the month of January, Xtampza ER's TRx share of the ER oxycodone market grew by 2% to 21%. We are encouraged by these early indicators, but recognize that we have a lot of work to do.Tapentadol is a molecule that our targeted healthcare providers view favorably relative to all other branded ER opioids and Nucynta ER is differentiated as the only extended-release opioid indicated for pain associated with diabetic peripheral neuropathy. Although we aspire to grow the Nucynta franchise in 2020, we anticipate the total prescriptions will be pressured. Our focus will be on driving brand awareness and pulling through Nucynta's broad market access position.2020 is going to be a transformative year for Collegium. I look forward to updating you on our progress as the year progresses.With that, I'll turn the call back to Joe.

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

Thank you. [Operator Instructions] Our first question is from David Amsellem with Piper Sandler. Please go ahead.

Hi, everyone. This is Zack on for David. Thank you for taking my question. I just have a couple on Xtampza. So, you've mentioned in the past that focus for Xtampza in 2020 is to drive volumes and plans, where the product is contracted in a non-exclusive position or not contracted at all. And although that transition will largely be natural to the extent that for switching drives more broad prescribing behavior for physicians and their non-covered patients. What efforts are you making on your end to drive adoption in this population? And also, to what extent do you expect to drive additional exclusive access on the commercial front? And if you could touch on Medicare Part D too that'd be great. Thank you.

Okay. Great, Zach. This is Joe, I'm going to hand the first part of your question over to Scott. And then, I'll take the second phase.

Yeah, thanks for the question, Zach. So when you look at those other non-exclusive books of business, our efforts there are exactly what we're doing in exclusives, to disrupt OxyContin and establish Xtampza as the ER oxycodone of choice. When we look at the business in those segments, what we see is we do have share growth. We progressed a few share points over the last year and we expect to see that continue to grow as we move through the rest of this year. Joe?

And then, as it pertains to our market access position as we move forward, as we emphasize right now, we have 40% of lives covered in an exclusive position. The new wins taking effect it's typically a three-month to a four-month period of conversion and what we do, Zach, is after that period is, when we start to engage with payers as we think about the additional exclusive access we may strive for, for 2021. So, we'll see how the beginning of the year goes and then when we move into the second quarter, we'll set our sights in terms of where it is we'll be focused, whether it be in commercial or Medicare Part D in terms of achieving or striving to achieve new exclusive wins for 2021.

Thank you. Our next question comes from David Steinberg with Jefferies. Please go ahead.

Okay, thanks. I have three questions. The first one relates to the cadence and shape of the Rx curve this year. So, I guess the first thing is, in the last couple of years, there was a really strong trajectory in the first and the second quarters. How is the current trajectory fitting with your expectations and how does it relate to the last couple of years? And related to that is, you had mentioned the possibility of some off-cycle exclusive wins, I imagine that if you're going to get them, they have to be announced fairly soon. What's your confidence level in those occurring and if they occur how would that shape the cadence, particularly in the second half of the year for the script curve?And the second question is when you bought back the 100% rights to Nucynta, you mentioned that with the tech transfer, there is an opportunity to substantially improve gross margin. What sort of range of gross margin expansion could we expect and when do you think this might occur? And then finally, I think you exited the year at about 18% share of oxycodone ER, where do you think that share could go in the next couple of years. Thanks.

Okay. Thank you, David. This is Joe. I'm going to pass the first question on the Rx curve over to Scott.

Yeah. Thanks, David. So, yeah, when we look at early performance here, as Joe said, the first thing is our full assessment comes as these plants convert over a three to four month time period, right. If we look early in the year, we're encouraged. We've seen acceleration of the TRxs right out of the gate and what we're most encouraged by is new-to-brand market share and the movement from 23% to 37% in the first couple of weeks of January. So we're looking at that closely. We're encouraged by that, but we'll be continuing to monitoring the full uptake over the three to four month time period.

Okay, great. And David, with regards to the potential for off-cycle wins, what I would say is, we continue to be in negotiations and discussions with several key payers as it pertains to off-cycle wins. Those wins, if they were to occur, could potentially either be exclusive or perhaps parity positions for Xtampza ER. From a timing perspective, we never know precisely when they will occur, but depending upon when they would be implemented, it could have an impact on the curve to the back half of the year. Our commitment is if we achieve anything that is material that we would communicate those wins to the marketplace.As it pertains to post the Nucynta transaction with regards to our focus on COGS, the one thing I want to emphasize is when we talk about COGS, we're looking at it over a three-year period. We think there's an opportunity at the portfolio level to improve COGS, because there is a lot of overlap across the supply chain. And one of the drivers of our decision to do the transaction in addition to what we thought it was really great value was timing. So with the tech transfer of the Nucynta line from J&J, we'll be moving that to Thermo Fisher, which is in Cincinnati, Ohio, where we also manufacture Xtampza. We think that represents an opportunity for us to improve our cost of goods along with other parts of the supply chain where there is overlap.With regards to your final question in terms of peak market share, how do we think of that, we don't, as you know, give guidance beyond a given year, and we've never guided from a market share perspective. What we are confident in is that Xtampza ER will become the Number 1 prescribed extended-release oxycodone no later than in 2023.

Thank you. Our next question comes from Serge Belanger with Needham & Company.

Hi, good afternoon. A couple of questions for me. The first one following up on David's first question. Can you talk maybe about what is driving the initial script growth at the start of the year? Is it a forced conversion in every plan? Are these patients switching from IR to ER? And I think in the past you've talked about having an opportunity with existing Medicare Part D plans to capture additional patients at the start of the year. I just wanted an update on that.And then the other question is on Nucynta. You talked about moderating the decrease this year, and then taking actions next year. Can you just elaborate on what potential actions could be taken?

Yeah. So great question, Serge. With regards -- I'll take the driver of Part D question off to Scott and then come back and talk about Nucynta. With regards to the curve early in the year, Serge, what we see is its conversion, which is a typical. So there is very little at steady state ER to ER switching that occurs in this marketplace. The majority at steady state is IR patients transitioning to an extended-release product, when a physician deems it's necessary. When this bolus of exclusive wins hits the marketplace, what we see is for that first three months to four months period, a key contributor to the growth of Xtampza is the ER to ER switching, but IR to ER conversion also will go up and that becomes the market position that we then grow from post the conversion. Scott can talk about Medicare Part D.

Yeah, thanks for the question, Serge. So when we look at Part D coming out of the gates here early in the year, across all of our exclusive Part D plans, we're seeing continued oxycodone ER share progression, so growth across all of them. And if you remember, we announced 11 of our new wins were regional Part Ds. We're seeing growth right out of the gates on those as well. Joe?

And, Serge, with regards to Nucynta as we move beyond 2020, I would emphasize one, this is a molecule we believe deeply in. It's aligned to the mission of the Company. We now have two years of experience with it. So we think we have a really good handle on the Nucynta franchise. We anticipate as we move into this year our overall execution from a commercial perspective will improve. And then, my comment was, as we move into 2021 and beyond, we can achieve relative revenue stability. Now our focus to do that we will be implementing one of the things from a timing perspective that we liked about. This transaction is a lot of the contracts we inherited begin to expire in 2021, 2022, which gives us an opportunity to either improve the discount rates associated with those contracts, in some case potentially to move away from them and we'll also be working to secure new access positions at rates that we believe makes sense for this franchise. So that would be from a top line perspective.We think from a COGS perspective over the next few years, again, timing of the tech transfer will give us an opportunity to potentially -- or we will improve the cost of goods and gross margin. We have an opportunity that we'll be executing from a publication perspective, a lot of the claims-based utilization data to really supplement the 10 years of experience and bring attention to how it is that this molecule has performed. So we have a comprehensive approach that we'll be initiating this year that we think will put us in a position of being able to moderate prescription decline, but also to get to relative revenue stability on a sequential basis beginning in 2021.

Okay. Let me squeeze in one more. Probably for Scott. Is the IQVIA and Symphony data accurately capturing scripts for both Xtampza and Nucynta?

Yeah, thanks for the question, Serge. So, yes, we believe its accurately capturing data and just as a reminder, the weekly is more projected. So sometimes when you add up the week, fluctuates with the month, but it's correct.

Thank you. Our next question comes from the line of Tim Lugo with William Blair.

Thanks for the question and congratulations on the profitability and then the major milestones of the Company. Regarding the profitability, can you talk, can you talk a bit about the cadence of the profitabilities throughout the year? It tends to be on the top line Q4 and Q2 are strong quarters for you and also for the industry, I guess, so -- on profitability kind of linked with that top line, and then also related to NOLs, can you just talk a bit about when do you expect to pay taxes?

Yes. So, Tim, your phone was going in and out a lot there, but I believe what I heard for a question and please clarify if I get it wrong is, in terms of profitability, what's the cadence there.

Yeah.

And so, similar to prior years, we believe we have operating expenses under control, where we're leveraging, we're not building, but they can be lumpy through the year. There is not a trend up or a trend down during the year. It's just lumpy. Gross to net, similar fashion. As gross to net is a little bit lumpy through the year, we don't expect it to stay at one number throughout the year. So the main driver of profitability that is more predictable is revenue, so Xtampza revenue growth and then modeling in what you expect for Nucynta. So I think those are the key points there.

Thanks. Thank you for that. And sorry about the connection. Can you talk a bit about taxes and tax rate and when your NOL will roll over?

Yes. So certainly taxes are something that's becoming a lot more important here as we get to profitability. So we have about $290 million in net operating losses, federal NOLs available. We have completed a 382 study. So in our 10-K that was just filed, there is some additional information on what limitation 382 limitations there may be on the NOLs.

Okay, thank you very much.

Thank you. [Operator Instructions] Our next question is from Brandon Folkes with Cantor Fitzgerald.

Hi, thanks for taking my questions. Given that you have exclusive ER oxycodone for around 40% of commercial and Part D covered lives, is that the sort of range of market share we should think about you exiting 2020 with for Xtampza? Could you maybe just elaborate kind of some of the pushes and pulls in terms of getting to that, that we should think about? Thank you.

Yeah, so, Brandon. This is Joe. That's an interesting question that you asked. I don't know that we think of it as the 40% of lives would correlate to a 40% market share for Xtampza. What I would emphasize to you is we're seeing very strong market share growth to start the year from an NBRx perspective. Of course, the greatest measure of brand health is the gap of your NBRx to your TRx. And with that, we're seeing share progression of our total prescription share and the thing that we are confident from a forward-looking perspective is by 2023 at the latest Xtampza ER will become the Number 1 product in the market.

Great. Thank you.

Okay.

Thank you. And this concludes our Q&A session for today. I would like to turn the call back to Joe Ciaffoni, CEO, for his final remarks.

Thank you. In 2019, we made meaningful progress toward becoming the leader in responsible pain management. Collegium is well-positioned and focused on making 2020 a transformative year for the Company. I look forward to providing you updates as the year progresses. Have a good evening.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.